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 17, 2024

Summary of Economic Activity

Business activity expanded at a modest pace in recent weeks, prices rose slightly, and employment was flat overall. Convention and tourism activity grew at a robust pace, but retail sales increased only modestly. Manufacturers reported slight revenue growth, while software and IT services firms had flat revenues recently despite strong year-over-year growth in sales. Residential home sales increased by moderate margins from a year earlier, the first such increase in over two years. Activity in the commercial real estate sector—including construction—picked up slightly, on balance. The sector's outlook also improved a bit, although the risk of financial distress for large office buildings remained elevated. In other sectors, contacts ranged from cautiously optimistic to bullish concerning the outlook, largely in line with the strength of their own recent results.

Labor Markets

Employment was unchanged overall, but labor market conditions were mixed. One large retailer enacted substantial layoffs in a bid to boost profitability, but no other contacts (in any sector) reported layoffs. Restaurant employment increased modestly on the strength of sustained demand and increased supply. Tourism-related employment in greater Boston was flat as firms struggled to reach desired staffing levels. Employers on Cape Cod also faced challenges filling jobs, as rising housing costs priced more workers out of the Cape. Software and IT employment increased slightly, and manufacturing employment was flat or down slightly where there was attrition. Wages increased at a moderate pace on average. Contacts did not expect major changes in labor market conditions moving forward, although tourism contacts hoped that an upcoming career fair would help attract more workers for the busy summer season.

Prices

Prices increased only slightly overall. Retailers reported modest input price increases, and one remarked that recent shipping disruptions overseas had not yet affected its suppliers. Hotel room rates in greater Boston were stable recently, net of seasonal factors, and were up moderately from a year earlier, marking a notably slower pace of growth compared with 2023. Nightly room rates on Cape Cod were flat compared with last year. Software and IT services prices were stable. Manufacturers mostly held prices steady, but some reduced their output prices (either slightly or moderately) in response to declining input prices; those experiencing cost increases, by contrast, reported that they had raised prices moderately. For the most part, the outlook called for slow further price growth moving forward. However, one manufacturing contact, having held prices steady over an extended period, was considering a significant price increase to compensate for accumulated cost pressures.

Retail and Tourism

First District retail and tourism contacts reported a moderate upswing in sales in the first quarter of 2024 from late 2023, net of seasonal factors. An online retailer boosted its market share and experienced modest revenue growth despite sluggish industrywide performance. Airline passenger traffic through Boston increased at an above-average pace in recent months, with total passengers now exceeding pre-pandemic levels. Domestic travel remained below pre-pandemic levels because of the incomplete recovery of business travel, but growth in international travel more than compensated. Hotel occupancy in greater Boston increased at a strong pace, exceeding seasonal norms, fueled in part by robust convention activity and sporting events. On Cape Cod, retailers and hoteliers said revenues were on par with one year earlier, a modest improvement from the previous report. The outlook for tourism and convention activity in 2024 remained very bullish, and Cape Cod hotel bookings for the remainder of the year looked on track to match those from 2023. In contrast, retailers were only cautiously optimistic

Manufacturing and Related Services

Manufacturing revenues were about flat on balance, with half of contacts reporting moderate gains in sales over the cycle and the other half experiencing moderate losses. Capital expenditures were mostly unchanged but on balance exceeded typical levels, as two firms were in the process of expanding or upgrading their plants. Contacts were uniformly optimistic for the remainder of 2024, projecting steady to moderately higher sales moving forward; in one case, however, that still meant that total sales in 2024 would fall short of their 2023 levels. The positive forecasts were based largely on firms' own recent demand trends, although one contact cited the prospects of productivity gains from AI and expected cuts in the federal funds rate as additional sources of optimism.

IT and Software Services

Contacts in IT and software services said that demand and revenues were mostly stable in recent months. On a year-over-year basis, revenues increased by moderate to large margins for all firms. Those latter growth rates were about on par with those of the previous quarter and exceeded expectations in one case. Furthermore, the growth was attributed to factors that had boosted real demand, such as the transition to subscription-based business models. Capital and technology spending was unchanged, and no future changes were anticipated. Contacts expected demand to hold fairly steady at strong levels in the next quarter. One contact noted that the time required to close deals had increased of late, although the implications for their revenues were not yet clear.

Commercial Real Estate

Commercial real estate activity in the First District increased slightly on balance since February. Industrial leasing activity slowed abit due to a lack of inventory, and industrial rents faced slight upward pressure. In the office market, leasing activity held mostly steady at a slow pace, but one Boston contact detected a modest increase in tenant demand; office rents were mostly stable but fell slightly for lower-quality spaces. Leasing activity strengthened modestly for retail properties, with deals concentrated in restaurant- and grocery-anchored centers. Construction activity picked up a bit, primarily in the industrial market but also for retail and hospitality projects. Contacts noted an uptick in refinancing activity for office properties with maturing loans, although borrowers often had to add equity. The investment sales market was nonetheless still "frozen," as investors waited for interest rates to come down, and large banks remained on the side lines. The outlook improved modestly, as contacts expected leasing activity to either hold steady or increase by late 2024, including for small-to-medium sized office buildings. Contacts remained concerned that certain office properties faced elevated foreclosure risks.

Residential Real Estate

For the first time in over two years, residential home sales increased on a year-over-year basis in all First District states that were contacted (Connecticut furnished no data). Closed single-family sales increased at a moderate pace on average (from February 2023 through February 2024), led by robust gains in Vermont, Maine, and Rhode Island. Condominium sales fared even better than single-family sales over the same period, with strong overall growth and very large increases in those same three states. Massachusetts posted only modest increases in home sales, although greater Boston had above-average results within the state. Contacts attributed the stronger sales to a combination of recent declines in mortgage rates and increases in property listings but emphasized that inventories remain well below desired levels. Home prices increased at a strong pace from one year earlier, similar to what was reported last time. Contacts were optimistic for a strong spring buying season, provided the tight inventory situation showed further improvement.

For more information about District economic conditions visit: www.bostonfed.org/regional-economy.

All Beige Book content going back to 1996 can be found at the Board of Governors website.

The Minneapolis Fed hosts the Beige Book archives by district, going back to 1970.