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. 21, 2020

Summary of Economic Activity

Business contacts in the First District reported activity continued to improve from mid-August through September, amid ongoing pandemic disruptions. Although overall activity levels were still below average, most responding manufacturers and retailers reported increased revenues compared with a year ago. Revenues at contacted software firms were also up modestly from 2019. Commercial real estate markets continued to diverge, with industrial and lab space doing well, and retail and office in the doldrums. Residential real estate contacts cited strong demand and limited inventory, causing home and condo sales prices to rise. Outlooks were mixed, although mostly somewhat positive, with uncertainty the watchword.

Employment and Wages

Reports on hiring varied. One retail contact still has workers on furlough but also reported difficulty hiring warehouse workers; they have permanently increased warehouse worker pay as well as adding additional temporary pay increases from September through December to support added holiday demands. Two-thirds of manufacturing contacts said they were hiring. Several indicated labor market pressure had eased in recent weeks and they were getting more job applicants. One software firm reported its headcount up 5 percent year-over-year reflecting a recently finalized acquisition; they will finalize another acquisition in the coming weeks. That firm also continued hiring for all business functions. By contrast, another software contact noted that while scheduled retirements continued, they were not hiring replacements for any roles, so headcounts were down slightly. Software respondents said annual wage increases continued on schedule and they implemented no wage cuts or layoffs due to COVID-19.

Prices

Contacts again said little about prices. Manufacturers reported that pricing pressure was limited. Two contacts in the paper business said the cost of inputs and their selling prices had both gone up. A drug manufacturer said they were postponing an annual price increase because of COVID. Software firms do not anticipate any changes in prices in the coming months.

Retail and Tourism

Retail respondents continued to report major disruptions related to COVID-19, though several retailers cited strong recoveries through the summer and into fall. One clothing seller said store foot traffic was down 30 percent compared to the same period last year, but a higher conversion rate and strong online sales led to an increase in total September sales of almost 15 percent from year-earlier. An online retailer noted sustained year-over-year growth, albeit decelerating compared to the spring. This contact expects strong e-commerce holiday sales but is concerned about delivery delays, as many couriers are already strained by the increased volume of online shopping. Automobile sales remained strong; a northern New England contact reported the strongest summer on record for sales of automobiles, RVs, and power sports equipment.

Travel industry contacts reported that in one coastal area, hotels reported their best August on record, and for the season they were down a better-than-anticipated 12 percent; short-term rentals were up 5 percent compared to 2019. Restaurants there reported that September was close to normal, although many restaurants that usually close for the winter closed earlier than usual this year due to added restrictions and slimmer profit margins. Restaurants staying open reported difficulty sourcing winterized tents and propane heating units to continue serving outside. Airline passenger counts into Boston remained down more than 80 percent into the start of fall, an improvement from earlier this spring. International passenger counts were down 90 percent; only half the international routes are currently operating.

Manufacturing and Related Services

Five of six firms responding this cycle reported sales growth from a year ago. The one exception was a paper producer reporting that gains in grocery and mail order offset a slowdown in orders from retailers. A drug firm reported increased sales but said they were held back by people's continued reluctance to get medical care during the pandemic. A producer of frozen fish said sales remained extremely strong and that it was contracting some production to frozen fish producers who sold mostly to restaurants and now have excess capacity. A toy producer said that limits on production of new movies hurt demand for their products.

No contacts reported significant revisions to capital spending plans. The toy maker said they were reassessing their need for office space because of the success of remote work arrangements. Outlooks were generally positive among manufacturing respondents. A diversified manufacturer with substantial military business said their COVID slowdown was more or less over.

Software and IT Services

Software firms responding this round saw slight positive growth in the last quarter; most contacts anticipated ending the year with revenues up 3 percent to 5 percent over last year. For one medical software contact, new bookings remained at 30 percent of the previous year's level; they have relied on their backlog to sustain them during this time. All contacts reported that operating expenses were down, mostly due to moving to a virtual setting for customer visits and marketing events; they anticipate that these virtual interactions may continue even once public health concerns have abated.

Contacts expressed confidence that they have adapted well to what they believe will be the state of the industry through mid-2021. While some felt that the national economy remained uncertain, they were more optimistic regarding their own firm's performance.

Commercial Real Estate

Industrial and lab space markets in the First District continued to do well, while retail and office continued to struggle. The industrial market, particularly anything having to do with logistics, was operating at near capacity, and prices and rents increased as a result. Lab space continued to be in high demand, so investment in these types of buildings hasn't slowed. Retail spaces continued to struggle, notwithstanding states' advancing reopening plans. Contacts reported that shopping centers with essential businesses such as grocery and home improvement stores, were doing well in terms of rent collection, but malls and lifestyle stores were doing much worse, with rent collection as low as 20 percent in some cases. The retail vacancy rate has increased.

Office market activity was still only as-needed, mainly renewing expiring leases. Tenants requested short-term extensions; while they received some concessions, face-value rents remained mostly unchanged. Most contacts estimated that about 20 percent of workers are working from offices now; while this is an increase from August's 10 percent estimate, the post-Labor Day rise was not as large as anticipated.

Contacts were mostly pessimistic regarding the outlook for the rest of 2020 and the beginning of 2021, largely citing political uncertainty and confusion around future stimulus measures. Many contacts said that without further stimulus measures, landlords may not be able to continue covering for their more-affected tenants, so evictions and vacancy rates may increase. Some contacts also noted that in order for older office spaces to recover post-COVID, many infrastructure improvements will be needed.

Residential Real Estate

High prices and substantial inventory shortages characterized residential real estate markets in the First District. (Connecticut data were unavailable. Vermont reported changes from July 2019 to July 2020; all other areas reported year-over-year changes to August 2020.) The inventory of homes for sale dropped by double-digit percentages from a year ago in all reporting markets except Boston condos. In Massachusetts and New Hampshire, the inventory of single family homes decreased by over 55 percent. The median sale price rose in all markets, with double-digit increases for single family homes. Changes in closed sales varied by market, largely reflecting available inventory. Contacts said they did not expect the usual fall and winter slowdown this year. Pent-up demand from the delayed spring market as well as the desire to take advantage of historically low interest rates have fueled the current buying frenzy. While there has been some increase in seller activity, it is failing to match demand. Both the Boston and Massachusetts contacts continued to observe movement from urban areas to suburban and rural locations, with work-from-home arrangements becoming longer term.

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.