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

Business activity flat on average as labor demand weakens and price pressures ease further Business activity flat on average as labor demand weakens and price pressures ease further

June 2, 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, May 31, 2023

Summary of Economic Activity

Business activity in the First District was about flat on balance. Retail sales increased modestly and restaurants enjoyed a seasonal uptick in activity in early May. Manufacturers posted mixed results, averaging modest revenue growth. Residential real estate sales were held back by inventory constraints, even though buyer demand strengthened moving into the spring season. Commercial real estate activity slowed moderately further, with new weakness in the suburban office market. Employment fell slightly amid broad declines in labor demand, and wage growth slowed somewhat. Prices increased at a modest pace on average, but some sizable price increases were noted. The outlook was cautiously optimistic on average, but the commercial real estate forecast weakened further on credit concerns.

Labor Markets

Employment was down slightly amid muted hiring activity, and wage pressures eased a bit on balance. According to staffing industry contacts, labor demand slowed for a wide range of positions, including legal support and talent acquisition roles, as client firms trimmed hiring plans—though they so far have enacted no major layoffs. However, one manufacturing contact engaged in moderate layoffs related to receding demand for COVID-related products, and other manufacturers reduced labor by shedding temporary workers. Among restaurant industry contacts, hiring of waitstaff improved while back-of-house positions (e.g., chefs and managers) remained very hard to fill, resulting in further upward wage pressure for those roles. Retail headcounts were roughly steady, reflecting a combination of limited hiring and moderately lower attrition. According to staffing contacts, wage growth remained stable but workers seemed to lose bargaining power, as some employers at least partly rolled back flexible work arrangements. Contacts anticipated that selected wage pressures would persist but that average wage growth would decline considerably moving forward and that starting wages for some roles might even see slight declines through the end of 2023.

On the labor supply side, a workforce development contact continued to see many potential job candidates struggling with persistent barriers to labor force engagement. The barriers included childcare and eldercare responsibilities, housing and transportation instability, and health challenges.


Prices increased modestly on average as cost pressures eased further. Pricing activity was mixed among manufacturers, as some held prices steady and others enacted sharp price increases with little pushback from consumers. Retail prices were flat or down slightly as a result of increased promotions. Manufacturers and retailers alike said that freight and shipping costs declined further. Nonlabor cost pressures were mixed for restaurant owners, as wholesale food prices were flat in recent months but other costs such as rent, utilities, and health insurance increased further. The pricing outlook for the rest of 2023 was mixed, as most contacts expected to hold prices steady but some planned to post additional, above-average price hikes in response to ongoing cost pressures.

Retail and Tourism

Among First District contacts, retail and restaurant sales increased modestly in recent weeks. An online retailer experienced an uptick in sales volume that was attributed in part to increased sales of outdoor furniture. Two discount retailers saw further modest improvements in sales volumes, pointing to their lower price points as a source of strength. A Massachusetts restaurant industry contact reported pockets of softer sales in April that were followed by broad improvements in recent weeks from Mother's Day and graduation celebrations, as well as from seasonal increases in outdoor dining. Despite growth in restaurant sales volume, profits continued to lag due to upward wage pressures and selected increases in nonlabor costs. Retail and restaurant contacts alike were cautiously optimistic for sustained modest growth for their own businesses in the near-term, but nonetheless cited concerns about the broader economy moving forward.

Manufacturing and Related Services

Reports from First District manufacturing contacts were mixed, but revenues increased modestly on balance. One manufacturer reported an abrupt decline in sales linked to the recent downturn in the semiconductor industry. A manufacturer of testing equipment said that sales were stable but short of expectations, in part related to slumping smartphone sales. A contact serving the scientific and life sciences industries said that revenue growth had returned to robust, prepandemic levels, in part owing to strong demand from China, although some of the firm's customers became more cautious in their spending. None of our contacts reported revisions to their capital expenditure plans. However, one contact heard that smaller peer firms were pulling back on spending on concerns about financing in the wake of recent bank failures. Looking ahead, contacts ranged from cautiously optimistic to very optimistic

Staffing Services

First District staffing contacts reported modest declines in revenue on balance through the second quarter of 2023, driven by decreased labor demand across many roles. Nonetheless, one firm reported sharply higher revenues from hiring for skilled manufacturing and engineering positions. Contacts described the recent slowdown in demand for staffing services as the continuation of a trend that began in late 2022 and that is expected to continue through the end of 2023. Contacts described the overall environment as one of caution, as firms anticipated a modest contraction in the economy. One contact noted further that demand for legal support roles had decreased, suggesting (in their view) that mergers and acquisitions might be slowing. Regarding the outlook, staffing firms expected their own revenues to hold relatively steady even with the anticipated further contractions in hiring.

Commercial Real Estate

In the First District, the commercial real estate market experienced a moderate decline in activity since April. In the industrial class, rents continued to level off and leasing began to slow due to a lack of available space. The office class saw a further slowing of deal flow, now impacting both the suburban and urban markets. Office rents were mostly stable but tenant allowances and other concessions increased further. The retail class was reportedly experiencing mixed conditions, with grocery-anchored and big-box retail spaces performing the best and the worst, respectively. On average, however, retail rents and leasing activity were unchanged since April. Across property types, investment sales slowed to a trickle and there was no new construction of note, facts attributed largely to financing difficulties. Looking ahead, contacts expected further declines in leasing and investment activity in both the office and retail property markets, with the office sector having the weaker outlook of the two. The industrial class is expected to see relatively stable activity, other than experiencing limited access to credit to finance new construction.

Residential Real Estate

First District residential real estate sales ticked up slightly in March and April (the latest months for which data were available) in line with seasonal patterns, but continued to fall well short of year-earlier levels. Contacts around the District attributed the still-low sales numbers more to low inventories than to weak demand, as slightly lower mortgage rates helped bring more buyers to the market. Indeed, the Boston area enjoyed an above-average surge in single-family sales in March thanks to an uptick in inventories, and contacts reported a rise in instances of multiple offers and buyer concessions such as the waiving of inspections. Inventories were otherwise quite mixed, falling significantly from a year earlier in Massachusetts (outside of Boston) and Vermont, and down more modestly or flat elsewhere in the District. House price appreciation slowed on average but remained slightly positive, with the exception that home prices in Massachusetts (not including Boston) experienced modest declines from a year earlier. The modest price growth in the Boston area marked a reversal of trend from the preceding few months. Contacts anticipated that, despite healthy buyer demand, home sales would likely experience only a modest seasonal increase moving forward, owing to extremely low inventory levels.


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