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

Business activity edges up along with employment and prices, outlook cautiously optimistic Business activity edges up along with employment and prices, outlook cautiously optimistic

October 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, Oct. 18, 2023

Summary of Economic Activity

Business activity expanded slightly on balance, as employment edged up by a small margin and price increases were modest. Retailers reported modest growth in sales, led by strong seasonal sales growth at retailers on Cape Cod. The summer tourism season yielded a solid increase in air travel and hotel occupancy in the Boston area and relatively mild growth in lodging on the Cape. Manufacturers reported modest revenue growth on balance. Home sales stayed at very low levels as mortgage rates reached fresh highs and inventories remained scarce. Commercial real estate activity was mostly unchanged, with only a slight seasonal uptick in office leasing. The outlook was cautiously optimistic, but risks were perceived as skewed to the downside.

Labor Markets

Employment levels were up slightly on balance, even though one manufacturer was in the process of enacting substantial layoffs. Wages were up only marginally, and few contacts perceived significant further upward pressure on wages. Contacts across sectors reported slight-to-modest improvements in hiring and retention in recent months, but hiring difficulties and elevated attrition persisted for some roles and the labor market was still described as tighter than average. One online retailer said that attrition stayed at historically low levels throughout the summer. Airline contacts in Massachusetts said that despite having sufficient staff locally, lingering labor shortages in other parts of the US continued to have negative impacts throughout the air-travel system. Regarding the employment outlook, one firm planned a modest increase in hiring and otherwise no large employment expansions were expected.


Output prices were up modestly, and cost pressures were mixed but appeared to ease further on average. A few manufacturers raised their prices by slight-to-moderate amounts to keep up with earlier cost increases. Software and IT firms held prices steady following moderate price increases enacted earlier in 2023. Hotel room rates in the greater Boston area were up moderately on a year-over-year basis but the pace of increase slowed relative to the spring. Cape Cod average rental and hotel room rates were down moderately from the two preceding summers but remained well above 2019 levels. Regarding input prices, a semiconductor firm said that memory prices fell slightly, and a frozen fish producer observed somewhat lower pollock prices in response to looser catch restrictions. Input cost pressures stabilized for an online retailer, who held list prices steady. Most contacts expected pricing pressures to abate further moving forward, and only one mentioned the possibility of enacting significant price hikes in the near future.

Retail and Tourism

First District retail contacts reported a modest increase in sales through the end of the third quarter relative to earlier in the year, while tourism contacts saw mixed results. An online retailer experienced modest but better-than-expected growth in sales despite sluggish industrywide performance. Cape Cod contacts reported mixed results for the summer season, as typical vacation patterns were disrupted by rainier-than-normal weather: hotel occupancy rates were moderately lower compared with the record-setting summers of 2021 and 2022, but retail sales enjoyed a strong seasonal surge as day trips to the Cape were up and the rain drove visitors into the shops. Airline passenger traffic through Boston increased further in recent months, reaching roughly 95 percent of pre-pandemic levels, and international passengers slightly exceeded summer 2019 levels. The Greater Boston hotel occupancy rate surpassed its 2019 levels for the first time since the pandemic started. The outlook for 2024 was very optimistic among greater Boston hospitality contacts, who expected record-breaking convention and cruise activity and air travel well above pre-pandemic levels. The retail outlook was cautiously optimistic but somewhat uncertain, and maintaining profitability was seen as an ongoing challenge.

Manufacturing and Related Services

Manufacturing firms in the First District reported modest revenue growth on average, but results were quite mixed. A precision parts maker said that revenues reached a 15-year high, while a frozen fish producer suffered weaker sales after having raised prices earlier in 2023. One manufacturer adjusted to a permanent negative (idiosyncratic) demand shock by making significant staffing reductions. No contacts reported major revisions to capital expenditure plans, although one firm increased its capital spending earlier than planned to take advantage of favorable tax treatment. Most contacts were at least cautiously optimistic for near-term growth, but some faced regulatory risks that could hurt profitability moving forward and others were watching carefully for signs of a recession. A semiconductor manufacturer noted that, while the outlook for their company was good, the downturn in the industry had been much more severe than anticipated, and recovery of memory chip demand was not expected until late 2024 or 2025.

IT and Software Services

Demand was healthy and largely unchanged for software and IT contacts. For one contact, stable demand was attributed to the fact that they make essential products, and at another firm sales were supported by a recent acquisition. Contacts reported moderate-to-robust revenue increases on a year-over-year basis, results that were at least slightly higher than those recorded in Q2. Capital spending was flat. Contacts generally expected demand to hold steady for the rest of 2023 and throughout 2024, based on confidence in their firms' products and business models despite what was perceived as a weakening macroeconomic environment. Regarding risks to the forecast, one contact was concerned that customers would rein in their budgets in 2024, and another said that another major COVID outbreak would be very disruptive.

Commercial Real Estate

Commercial real estate activity in the First District remained limited in recent weeks. Office leasing picked up slightly for seasonal reasons but was still minimal. Office vacancy rates remained high but were essentially flat, while office rents were down slightly, and tenant concessions remained generous. Vacancy rates and rents were stable on average in the retail sector, but leasing demand was weak for malls outside the luxury sector. The industrial market continued to show very low vacancy rates and elevated rents, but contacts said that demand was a bit softer recently and leasing activity was light. High borrowing costs continued to deter investment across property types. Banks' appetite to lend to commercial real estate was limited. On balance, contacts expected the weak status quo to persist, but forecasts were characterized by significant uncertainty. Risks were skewed to the downside and included an increase in commercial property distress in 2024.

Residential Real Estate

Throughout the First District, extremely low inventories kept residential home sales at very low levels relative to seasonal norms. As of August 2023, inventories and closed sales were down sharply from a year earlier in all markets. The rate of decline in sales was about on par with that recorded in July, and August's weak sales were described as disappointing but not surprising. Multiple contacts pointed to mortgage rates, which reached a two-decade high in August, as the key barrier to inventory growth and sales. Contacts in greater Boston remarked further that growing uncertainty about the economy contributed to increased buyer hesitancy, which showed up as a decline in offers per listing. The inventory drop was most pronounced in Massachusetts—where the supply of both single-family homes and condos declined by more than a third from a year earlier. In Rhode Island the pace of inventory decline moderated from earlier in the summer, suggesting that supply and demand might be moving into balance. Price growth remained robust, rising to double-digit rates in some markets. Contacts expected no significant improvement in residential sales activity until interest rates reversed course.


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