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

Increase in business activity tempered by lagging real estate markets as home sales fall further Increase in business activity tempered by lagging real estate markets as home sales fall further

September 7, 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, Sept. 6, 2023

Summary of Economic Activity

Business activity expanded modestly on balance, as real estate markets continued to lag other sectors of the First District's economy. Employment was about flat, wages grew at a modest pace, and price increases were generally small. Consumer spending on retail goods and hospitality services increased moderately. Manufacturers gave mixed results, but revenues increased at a moderate pace on average. Home sales fell further on rising mortgage rates. Nonetheless, home prices continued to climb at an above-average pace from a year earlier owing to sharp inventory declines for the same period. Commercial real estate activity was limited but stable. Contacts across all sectors expected relatively stable activity moving forward, with further easing of pricing pressures, and fewer of them mentioned the possibility of a recession when considering the outlook.

Labor Markets

In First District labor markets, employment was roughly flat, and wages grew at a modest pace. Labor supply increased at least slightly for a diverse range of positions and many contacts said that it had become easier to fill job vacancies. Labor demand was described as steady but relatively modest in comparison with a year earlier, and contacts reported only selective layoffs. Reduced attrition also contributed to a more stable employment environment. A restaurant industry contact said that existing workers took on more shifts and more new workers were available, developments which were attributed to the looming return of student loan repayments. Contacts in multiple industries noted that enticements such as flexible arrangements and sign-on bonuses had become less common. Wage increases were modest on average, but some employers said that the pace of wage growth remained above pre-pandemic norms, while a contact in the healthcare sector said that starting wage levels were down sharply from their pandemic peaks. A workforce development contact described sustained success placing workers with physical or developmental disabilities, and expressed confidence that placing workers from non-traditional backgrounds would remain possible moving forward, even with some uptick in unemployment. Moving forward, contacts mostly expected current labor market trends to continue, with some further softening of demand possible but no major disruptions.


Prices increased only slightly on average. Contacts largely reported that pricing pressures moderated further, and in some cases prices decreased outright. At Boston-area hotels, average daily room rates stabilized, rising only slightly from one year ago following several months of robust price growth. Retail sticker prices were flat but effectively down slightly because of increased promotions. Wholesale food prices for restaurants fell modestly, the first decline in several years, and menu prices were flat. Discounts on new automobiles returned as inventories approached normal levels, but prices on used vehicles remained elevated. Manufacturing contacts, with one exception, reported stable or decreasing prices, and transportation costs in particular were lower. However, one manufacturer continued to post high single-digit price increases in order to offset increases in labor and nonlabor expenses. Contacts were sanguine that inflationary pressures would continue to ease moving forward.

Retail and Tourism

Among First District contacts, retail and restaurant sales increased moderately in recent months. An online retailer experienced an uptick in sales volume partially attributed to offering discounts on more products. A discount retailer saw further modest improvements in sales volumes, pointing to an improved inventory. A representative for automotive dealerships reported steady sales and improved inventories of new cars but said that inventories of used cars remained depressed. A Massachusetts restaurant industry contact reported an above-average seasonal sales uptick for July, particularly on Cape Cod and in Boston's Seaport. Nonetheless, August brought somewhat softer restaurant sales, especially in suburban areas. Occupancy rates rose modestly for Boston area hotels in recent months, but average daily room rates levelled off. Retail and tourism contacts alike had a stable outlook, cautiously optimistic for sustained modest growth for their own businesses in the near-term.

Manufacturing and Related Services

Manufacturing revenues increased moderately on average, but about half of firms reported either flat or somewhat softer sales. Those with disappointing results included a testing equipment manufacturer that endured weaker-than-expected demand from China and a semiconductor manufacturer that was vulnerable to decreased PC and smartphone sales. In contrast, a veterinary products maker experienced strong revenue growth in line with expectations, and a maker of leather goods reported very strong revenue growth led by online sales. Employment was stable among our contacts. One contact reported a major upward revision in capital expenditure plans, buoyed by several years of strong sales. The outlook was roughly stable or slightly improved, with most contacts at least cautiously optimistic about their firms' near-term prospects. However, some contacts cited further weakness in demand from China as a significant downside risk.

Staffing Services

First District staffing firms reported modest revenue gains on balance in the third quarter, although some said that revenues had fallen slightly below normal levels recently. Contacts noted slight increases in labor supply and modest but steady demand for most roles. Only selective layoffs were reported. Staffing contacts enjoyed increased revenues from temporary placements, driven by elevated pay rates for such roles, which had largely evaporated during the pandemic. While most job candidates still preferred permanent, direct-hire positions, temporary roles offering higher wages were nonetheless seen as a reasonable alternative. The outlook was quite mixed and uncertain, with about flat performance expected on balance for the rest of 2023.

Commercial Real Estate

The commercial real estate market of the First District was described as mostly stagnant in recent months. In the office market, few leases were signed, rents were flat, and vacancy ticked up slightly from fresh sublease offerings. Multiple contacts reported strengthening demand for medical office space, however. In the industrial market, leasing activity slowed further on softer demand and very low vacancy rates, although some large new spaces were set to come online in Rhode Island. In the retail market, contacts said that grocery-anchored suburban shopping centers enjoyed decent leasing activity that outperformed expectations. Otherwise, the retail market was mixed, with flat or rising vacancy rates. Across markets, high borrowing costs continued to limit investment sales, impeding price discovery. Contacts anticipated that sales volume would remain low through at least the end of 2023. Multiple contacts expected a modest uptick in office leasing in the fall, mostly due to seasonal trends but also due to stricter return-to-office policies. The industrial market was expected to weaken further moving into late 2023.

Residential Real Estate

Throughout the First District, considerably fewer single-family homes and condos were sold in July 2023 than were sold at the same time last year. A Massachusetts contact said that the state's closed sales fell abruptly in July from the previous month, owing to further increases in mortgage rates, as Boston experienced its weakest July for single-family sales since 2010. Prices increased at a solid pace from July 2022, generally rising by between 5 and 10 percent. These trends were accompanied by a substantial year-over-year drop in inventory across New England, with the sole exception of Maine, which bucked the trend and saw growth in the number of single-family homes and condos on the market. Multiple contacts pointed to high mortgage rates as a cause of these inventory constraints, mentioning that many homeowners are hesitant to sell houses whose mortgages they obtained under more favorable conditions. One Massachusetts contact suggested that state legislation eliminating barriers to construction may help to alleviate inventory challenges going forward but cautioned that any effects would likely not appear before next year.


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