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

Retail and restaurant sales drive up business activity, but manufacturers say their activity slowing Retail and restaurant sales drive up business activity, but manufacturers say their activity slowing

March 10, 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, March 8, 2023

Summary of Economic Activity

Business activity in the First District increased slightly on average amid modest growth in retail and restaurant activity. Manufacturers reported a slightly slower pace of activity, especially for semiconductor sales, but remained upbeat. Residential real estate sales fell modestly, while commercial real estate markets were stable but the outlook weakened. Employment was flat as wage growth remained above average and labor shortages persisted for many positions. No contacts planned to enact significant layoffs in the near term, even if recent sales had slowed. Some firms expected to offer above-average wage increases in 2023 to stave off still-high attrition rates, while others were planning for average wage growth. Prices increased slightly overall, as a variety of nonlabor costs continued to ease. Contacts expected to enact at least modest further price increases in 2023.

Labor Markets

Wage growth was steady at an above-average pace, and headcounts were roughly flat on balance. Retailers reported a modest decline in headcounts on average, with significant layoffs at one firm and elevated attrition at others, while restaurant employment rose slightly since the last report but remained somewhat below its pre-pandemic benchmark. One manufacturer noted strong hiring, while other manufacturing contacts reported flat or slightly lower headcounts. Retailers said that wage pressures remained strong (if stable) in the face of elevated attrition, and manufacturers said that hiring remained a challenge or got slightly easier. A workforce development contact faced difficulties keeping candidates engaged in their degree and placement programs (for technical roles) despite abundant job openings; the contact noted that high childcare costs deterred some candidates but that other cases of disinterest were harder to explain. According to staffing services contacts, welders, carpenters, and mechanics were highly sought after by construction employers and remained very hard to find. Wage growth for construction workers remained well above average. Light industrial roles were also hard to fill despite employers' having enacted large hourly wage increases for such positions in recent years. Some firms hesitated to make direct hires given fears of a recession, but hiring from temporary roles became more common. Labor market power was seen as shifting slightly more in favor of employers, as employees lost some leverage in demanding hybrid work and flexible schedules. Contacts in the semiconductor industry said that they had no plans to lay off workers despite slowing sales, although one paused plans to expand headcounts. Otherwise, hiring plans among manufacturers were unchanged, and retail headcounts were expected to hold steady moving forward. The outlook for wage growth was mixed, as staffing contacts expected the pace of wage growth to soften, while retailers expected to have to raise wages (and other compensation) at an above-average pace in 2023 to stave off attrition, and manufacturers planned for average merit increases despite some larger gains in starting pay for hard-to-fill positions.


Prices were up slightly on average, as nonlabor pricing pressures continued to abate but with some noteworthy exceptions. Retail and restaurant contacts reported further declines in freight and shipping costs. Nonetheless, restaurants faced new pressure on profit margins from rising rents and rising health insurance costs, in addition to still-elevated (if relatively stable) food prices and credit card processing fees. One retailer posted moderate price increases to pass on increased propane and labor costs, as other retailers held prices steady. Manufacturing contacts said that nonlabor cost pressures had moderated recently. Lumber costs stabilized, but overall construction costs remained elevated due to lingering supply chain issues and scarce labor. Although none had significantly changed their output prices since the last report, manufacturers perceived that further price increases were likely for 2023.

Retail and Tourism

Among First District contacts, retail and restaurant sales increased modestly in recent weeks. An online retailer experienced a slight uptick in sales volume relative to seasonal expectations following the holidays. A salvage store similarly enjoyed a small increase in sales, which the contact attributed to a strong inventory of high-quality goods and the recovery of cross-border commerce with Canada to above pre-pandemic levels. A Massachusetts restaurant industry contact said that sales increased modestly throughout the state, contrary to typical seasonal dips after the holidays, although business at downtown Boston establishments continued to substantially trail pre-pandemic levels. Despite growth in sales volume, profits were hurt by increases in ancillary costs. A discount furniture retailer experienced minor improvements in sales volume so far this year, noting that new product lines at lower price points were a particular source of strength. Contacts were optimistic on balance, but several pointed to an increased focus on cost containment strategies to maintain profits and minimize the need for further price increases.

Manufacturing and Related Services

News from our manufacturing contacts was largely positive. Contacts reported generally high levels of economic activity, but sales growth slowed to a modest pace on average. Reports from the cost side showed a similar pattern: prices and wages remained high, but price and wage inflation moderated significantly compared with 2022, and supply chain issues improved. Contacts in the semiconductor industry said that the boom of the last few years has cooled. Although booms and busts are typical in that industry, our contacts expected this bust cycle to be mild and possibly short-lived (less than one year). A furniture maker, who had recently been somewhat pessimistic about the direction of consumer spending, became more optimistic after their sales responded very positively to recent promotions. Otherwise, contacts were generally optimistic about 2023, expecting growth to revert to sustainable levels after a period of exceptional performance.

Commercial Real Estate

The commercial real estate market in the First District has been relatively stable since the beginning of 2023. The industrial market continued to see low vacancy rates and high leasing demand, but nonetheless rents have levelled off recently. Though the office market remained weak—a Hartford contact described the market as "abysmal"—another contact noted a slight increase in leasing interest for larger spaces in downtown Boston, and leasing was stable in Providence. In the retail market, food and beverage establishments experienced relatively strong leasing demand, while vacancies continued to pile up for department stores and big-box retail. Credit conditions tightened further, for example, as construction loans faced increased capital requirements. The only significant construction activity pertained to industrial properties. Most contacts expected commercial real estate activity to weaken moving forward, with the industrial market outperforming other sectors. The office class was predicted to weaken further, mainly as the result of pending lease maturations and the likelihood of high-profile loan defaults, and downward pressure on rents was expected.

Residential Real Estate

In First District residential real estate markets, weak sales activity persisted even as inventory continued to improve in recent months. Boston and Vermont reported year-over-year changes for December 2022 while all other areas reported year-over-year changes for January 2023. Connecticut data were unavailable. Closed sales fell modestly in most markets since the last report and were down 30 percent from a year earlier, although sales of Maine condos improved slightly and were off by just 4 percent year-over-year. Inventories increased substantially in Rhode Island from the previous report and were stable elsewhere. Price growth slowed slightly from the previous report on balance, as median sales prices increased modestly over the year in most markets and were flat in Massachusetts (for single-family homes) and down slightly in Boston (for both single-family and condos). The Boston, Rhode Island, and Maine contacts attributed the slow sales activity to higher mortgage rates. That same set of contacts continued to express concerns about low inventories, stressing that even with recent increases in supply, the market remains unbalanced.


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