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

Business activity even and outlook positive, though some worry smaller banks to tighten lending Business activity even and outlook positive, though some worry smaller banks to tighten lending

April 20, 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, April 19, 2023

Summary of Economic Activity

Business activity in the First District was flat on average. Tourism maintained its strong momentum, with moderate further increases in air travel and convention activity, while retail sales were steady on balance amid mixed results. Demand softened moderately for manufacturers, although some continued to experience solid revenue growth. Software and IT services firms reported stable demand and somewhat higher profits. Residential real estate sales declined modestly, as low inventories and high prices continued to deter transactions. Commercial real estate activity was flat, but credit was expected to tighten moving forward. Employment increased modestly and wage growth was moderate. Prices increased at a modest pace and slower price growth was expected for the rest of 2023. The outlook was mostly positive, but some contacts worried that smaller banks might restrict lending over liquidity concerns, putting a damper on economic activity.

Labor Markets

Headcounts increased modestly on balance, led by strong labor demand in the First District's hospitality and tourism sectors, and wage growth was steady at a moderate pace. Contacts in manufacturing said that the labor market softened significantly, making for much easier hiring and helping to alleviate wage pressures some. employment was roughly flat, and its wage growth was moderate, as contacts said that turnover was stable at a manageable pace, marking an improvement from one year earlier. A clothing retailer was engaged in hiring additional warehouse workers, but the pace of filling the 200 openings was slower than anticipated. Robust convention activity and an anticipated increase in business travel from Asia gave a moderate boost to food and beverage staffing at Boston-area hotels. Cape Cod hospitality contacts ramped up efforts to recruit international workers to address labor shortages in advance of the busy summer season, and Massachusetts has funded an effort to place visa holders in temporary housing to facilitate such hiring. Looking ahead, labor demand is expected to soften modestly on balance, but only one firm—a manufacturer—was planning to make significant reductions in staff in the near future. Wage growth was predicted to slow to a modest average pace.


Price increases were modest on average as cost pressures eased further. Prices were mostly flat among software and IT services firms, although one enacted modest price hikes for selected products in addition to annual cost-of-living adjustments built into contracts. Price changes were mixed among manufacturers, including moderate increases by some and more aggressive promotions and discounts by others. Retail prices were largely stable. Hotel room rates in the Greater Boston area declined in line with seasonal expectations but have increased 10 percent relative to the same time last year. Cost pressures abated noticeably, as contacts noted modest-to-sharp declines in the prices of raw materials and significantly lower freight costs. On balance, the outlook called for further easing of price growth for the remainder of 2023, and some contacts planned to hold prices strictly fixed moving forward on worries that additional markups would be counterproductive.

Retail and Tourism

First District retail contacts reported flat sales on average, while tourism contacts saw moderate further increases in activity relative to seasonal trends. A clothing retailer experienced softer demand throughout the early months of 2023, but revenues held steady due to earlier price increases. Cape Cod retailers experienced strong first quarter sales, but a large-scale infrastructure project crimped activity in recent weeks. Based on advance bookings, hospitality contacts on the Cape expect summer 2023 occupancy and room rates to match last summer's record-setting results. Airline passenger traffic through Boston increased steadily in recent months, on both domestic and international routes, reaching roughly 95 percent of pre-pandemic levels as of the first quarter of 2023. The Greater Boston hotel occupancy rate increased relative to seasonal trends, and spring and summer bookings continued to climb. Scheduled convention activity and cruise bookings for the spring and summer are expected to exceed 2019 levels.

Manufacturing and Related Services

Manufacturing contacts reported mixed revenue results, but demand was moderately softer on balance. Some contacts reported modestly higher sales but also said that the pace of revenue growth had slowed recently. For one firm, overall results were hit by a steep slowdown in demand from customers in the semiconductor industry. Others experienced weaker sales as their customers continued to draw on inventories accumulated in 2022 in response to supply chain concerns. A contact in the semiconductor industry said that industry sales were down but that their own sales were up due to investment demand from electric car manufacturers. None of our contacts reported major revisions to capital expenditure plans, and a few pointed to increased spending on automation. Contacts were generally optimistic for their own results for the rest of 2023, although several described the outlook for the economy more broadly as highly uncertain.

Software and IT Services

Demand for software and IT services was stable on balance. Revenue growth at one firm exceeded expectations, and another experienced an ongoing pullback by clients facing internal liquidity concerns. Profits and margins were modestly higher on average. Capital and technology spending was unchanged and was expected to hold steady for most firms, although one mentioned the possibility that capital expenditures could soften moving forward. Contacts were largely optimistic and expected demand for their own products and services to hold steady moving forward. Although one contact perceived that the risk of a widespread banking crisis had abated recently, another contact felt that nervousness about the banking sector could dampen aggregate economic activity.

Commercial Real Estate

Commercial real estate activity in the First District was mostly unchanged since February. In the industrial property market, rents continued to level off even though leasing demand was still deemed strong relative to supply. Office leasing activity was mostly flat, although contacts noted a modest slowing of deal flow in both Boston and Providence. Office asking rents were roughly stable, but one contact noted that tenants demanded (and on balance received) increasingly generous concessions. Conditions in the retail market worsened slightly in response to patches of weakness in consumer spending, and as a result firms became more cautious with capital spending. Concerning the outlook, contacts expected to see slight to moderate further declines in office and retail leasing activity moving forward, and perceived growing constraints on investment activity. In particular, several contacts predicted that lending to the commercial real estate sector would become more conservative in response to heightened concerns about banking risks, and one expressed that the credit contraction could be large enough to spill over to other sectors of the economy.

Residential Real Estate

First District home sales softened in February (the latest month for which data were available) following a temporary uptick in sales in January that was attributed to a slight—yet partly transient—decline in mortgage rates. Closed single-family sales were down sharply on a year-over-year basis, and in Boston dipped to their lowest level in over a decade. Condo sales were roughly flat since the previous report. Inventories grew over-the-year on balance, albeit at a somewhat slower pace than was reported last time, and several contacts noted that the supply of homes for sale remained extremely limited. Home prices showed signs of softening amid growing buyer frustration over the lack of home affordability. Median single-family home prices nonetheless posted modest year-over-year increases on balance, a fact that one contact attributed to a decline in the proportion of starter homes on the market, although the median home price in Boston was down moderately from a year earlier. Looking ahead, contacts expressed concerns that low inventories and high mortgage rates could dampen activity during the typically busy spring sales season.


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