The Beige Book – First District The Beige Book – First District

Seasonal hiring boosts employment, but home sales fall sharply, and business activity roughly flat Seasonal hiring boosts employment, but home sales fall sharply, and business activity roughly flat

January 19, 2023

The Beige Book

The Beige Book is published eight times per year. Each Federal Reserve Bank gathers anecdotal information on current economic conditions in its District through reports from Bank and Branch directors and interviews with key business contacts, economists, market experts, and other sources. The Beige Book summarizes this information by District and sector.

Boston (First District) Beige Book Report, January 18, 2023

Summary of Economic Activity

Business activity in the First District was roughly flat on balance, with continued strength in tourism and further declines in home sales. Prices increased modestly, and many contacts reported that nonlabor cost pressures had eased considerably. Employment rose moderately, spurred by seasonal hiring in retail and hospitality. Wage pressures remained substantial. Some firms sought ways to boost productivity and profitability. Home sales fell sharply, and commercial leasing and investment activity were flat. Software and IT services firms enjoyed mostly strong and stable demand. Outside of real estate markets, where the outlook weakened slightly, most contacts remained optimistic for their own prospects, even though some deemed a recession as likely for 2023. No firms planned to make significant layoffs and most expected price increases to moderate moving forward.

Labor Markets

Employment increased moderately on balance, spurred by a seasonal uptick in demand and easier hiring conditions. Wage growth proceeded at an above-average pace. A clothing retailer found it easier than expected to hire seasonal workers, especially positions involving remote work, but had to offer hiring bonuses to attract warehouse workers. Robust convention activity and holiday parties gave a moderate boost to food and beverage staffing at Boston-area hotels. In contrast, airline industry contacts found it very hard to fill positions and some restaurants cut hours in response to persistent staffing shortages. Firms in diverse sectors commented that wage growth was above average (if mostly stable) and that employment costs continued to eat into profit margins. Many contacts planned to focus increasingly on raising labor productivity and cutting costs. No firms planned to undertake significant staffing reductions, not even those that had experienced weak results recently.


Prices increased modestly on balance. Most contacts said that their output prices were flat since the previous report and that nonlabor cost pressures had retreated substantially. However, hotel room rates in the Greater Boston area increased sharply since the summer, in part for seasonal reasons, and landed well above their year-earlier levels. Cape Cod lodging prices posted a modest seasonal decline, but easily exceeded their comparable 2019 levels. A clothing retailer posted high single-digit markups earlier this fall but offered promotional discounts during the holiday shopping season. Retailers and manufacturers alike commented that nonlabor cost pressures had eased considerably in recent months, as the price of container shipments in particular fell sharply and supply chains improved. Prices at software and IT firms were up modestly on average, although one contact enacted "more aggressive" price increases in the second half of 2022. Moving forward, some contacts expected to hold prices firm or even to offer promotions to retain business, and others expected to face ongoing cost pressures—linked largely to employment—that could necessitate further price hikes. On balance, price increases were expected to moderate, however.

Retail and Tourism

First District retail contacts reported mixed sales, while tourism contacts saw strong increases in activity. A clothing retailer experienced softer demand throughout most of the fall, but sales rebounded during the holiday season, surpassing expectations for that period. Cape Cod retailers experienced strong fourth quarter sales, which a contact attributed to the fact that remote work arrangements have boosted the number of visitors to the Cape during the post-summer months. Accordingly, hospitality contacts on the Cape enjoyed a record-setting fourth quarter for occupancy and room rates. Airline passenger traffic through Boston increased steadily in recent months, reaching 93 percent of pre-pandemic levels, and cruise ship activity through Boston and into Maine accelerated during the same period. The Greater Boston hotel occupancy rate increased further, returning to pre-pandemic levels. Convention activity also increased sharply, and bookings into 2023 are in line to exceed 2019 levels. Three tourism contacts expressed concerns that inflation could crimp leisure spending in 2023, but none had seen any actual signs of a slowdown yet.

Manufacturing and Related Services

Recent results were mixed across First District manufacturing contacts. A toy manufacturer reported a sharp decline in revenues in the third quarter, citing inflation’s impact on lower-income consumers as one cause. A chemical manufac-turer faced weaker demand from clients in the construction and automobile industries, and as competitor firms sought to shed excess inventories. Two consumer goods manufacturers had flat and moderately stronger sales in December, respectively, after each had seen slumping sales earlier in the fall; recent sales beat seasonal expectations in both cases. A frozen food producer experienced steady demand despite the fact that it had posted three large price increases in the last 18 months. One contact made a significant down-ward revision to its capital spending plans, and others held plans steady. Most contacts were more optimistic for 2023 than they had been earlier in the year. The toy manufacturer, however, expected a recession in 2023 and accordingly weaker sales.

IT and Software Services

Demand was strong and stable in the fourth quarter among most contacts. However, one firm experienced a moderate decline in bookings that was not unexpected, and that was attributed to a weakening macroeconomic environment. Contacts reported year-over-year revenue increases that ranged from moderate to very large. Where recent demand was strong, contacts attributed their results to the post-pandemic rebound of client firms and to the essential nature of certain IT services. Two firms said that higher employee-related expenditures had pinched their profit margins somewhat. Capital and technology spending was flat or, in one case, experienced a modest decline that was attributed to the rise of cloud-based computing. Contacts expected to see steady or slightly softer demand in the near term, but cited a variety of downside risks to activity, such as a seasonal spike in respiratory illnesses, ongoing inflation, and stock market volatility. Nonetheless, contacts expressed a high degree of confidence in their firms' prospects for longer-term success.

Commercial Real Estate

The First District's commercial real estate market was relatively unchanged in recent weeks. The industrial market softened slightly, as rent growth slowed a bit, but vacancy rates remained very low. The office sector continued to experience high vacancy rates and flat rents. Conditions were stable in the retail property market, with food and beverage establishments experiencing the strongest demand. No significant acquisitions were reported for any property class, and new deals were said to be on hold until late in the first quarter of 2023. High interest rates continued to curtail borrowing activity, and refinancing occurred only out of absolute necessity. Concerning the outlook, contacts expected activity to be flat or to slow slightly on balance, but expectations differed by property type. While the industrial market was expected to continue to perform relatively well, the prospects for the office market weakened further, as some contacts feared that pending lease maturations would result in added vacancies. The outlook for the retail market was uncertain, as it was seen to depend heavily on the extent of any economic slowdown in 2023.

Residential Real Estate

Home sales posted substantial further declines in November, and closed sales were down by 20 to 30 percent on a year-over-year basis. For single-family homes, re-cent results represented a sharp slowdown in sales from the previous report, whereas for condos the recent sales declines were slight-to-moderate. A Boston contact attributed weak demand for homes as a response to persistent inflation and higher mortgage rates. The same contact added that some would-be buyers have left the market entirely and that the buyers who remain are searching for homes at a more careful pace, as the bidding wars and waived inspections that characterized the market in re-cent years have become quite rare. Inventories remained down on an over-the-year basis in Rhode Island, Massachusetts, and Vermont, but by a much smaller margin than in the previous report. In other markets, inventory growth accelerated substantially from the previous report. Prices increased slightly over-the-year, at about the same pace as reported last time. Contacts expected home prices to continue to level off in the near term, and stressed that, despite cooling demand, further inventory growth was still needed in order to achieve a more balanced market.


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