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, Nov. 29, 2023

Summary of Economic Activity

Economic activity was flat or down slightly on balance, as prices held mostly steady and labor demand slowed. Retail results were mixed but neutral on average, and restaurant sales fell slightly. Manufacturers reported modest recent revenue declines, and a few experienced sharp reductions in demand from a year earlier. Staffing services contacts enjoyed modest gains in revenues but noted a slowdown in hiring plans among their clients. Residential home sales were flat at very low levels, and sales were not expected to rebound until interest rates fell. Commercial real estate activity slowed modestly, and the outlook for office properties was increasingly dim. Outside of real estate, contacts on balance were cautiously optimistic for at least stable activity moving forward.

Labor Markets

Employment appeared stable on balance, but hiring activity and hiring plans were dialed back noticeably in some sectors. Wage growth was moderate on average and eased further overall. Staffing services contacts reported slight increases in labor supply and sustained but modest demand for most roles. The same contacts said that clients were "rightsizing" their businesses through occasional layoffs and reduced hiring plans. Starting wages actually declined for some positions because of an increased candidate pool, and signing and retention bonuses became less common. Demand apparently picked up for legal staffing roles and remained robust for convention staffing positions. Restaurant industry contacts said that labor supply increased modestly further, with the exception that managers remained scarce. Retail headcounts were roughly steady, and contacts saw moderately lower attrition and a slight increase in applications. Labor demand weakened among manufacturers, as two firms reduced headcounts sharply from one year ago amid restructuring and others planned to let headcounts fall gradually through attrition and conservative hiring. Manufacturers said that wage growth was stable but stayed at an above-average pace. A workforce development contact said that select employers were willing to provide training to new hires with weak qualifications, enabling more first-time jobseekers to join the labor force, but that the practice was still not widespread. The outlook was mixed but most contacts predicted stable or slower labor demand moving forward.

Prices

Prices were stable on average across First District contacts. Retail sticker prices were flat and planned price increases remained muted relative to recent years. For restaurants, menu prices held roughly steady and wholesale food prices were also mostly flat in recent months, excepting modest increases in the prices of pork and eggs. Restaurants' profit margins were down somewhat from a year earlier because menu price increases have fallen short of overall cost increases. Output prices were stable across manufacturing contacts, while input costs were down on balance and several contacts enjoyed sharply lower freight costs in particular. Contacts expected only modest pricing pressures moving forward.

Retail and Tourism

Retail contacts had flat revenues on average and restaurants had slightly weaker sales. A clothing retailer experienced a moderate decline in year-over-year sales following months of modest growth. The contact said that unseasonably warm temperatures this fall had delayed winter purchases, but they saw a rebound more recently as the weather turned colder and they remained optimistic for the holiday season. A discount retailer saw further modest improvements in sales volumes, pointing to strong inventories and the ongoing shift of consumers toward discount goods. A Massachusetts restaurant industry contact reported marginally lower sales throughout the state in recent months, with meal tax receipts dipping slightly from a year earlier despite a modest increase in meal prices over that same period. There are now more restaurant establishments in the state than there had been prior to the pandemic. Restaurant owners remained optimistic for the holiday season, but maintaining profitability was expected to be an ongoing challenge.

Manufacturing and Related Services

Reports were mixed for our manufacturing contacts, with revenues down modestly on balance and only one firm reporting robust sales growth. Several contacts reported significant revenue declines from one year earlier, in one case because of a comparison to an unusually strong 2022 benchmark and in other cases because of lackluster demand in 2023. A maker of testing equipment attributed weaker demand to reductions in COVID-related medical spending. A microelectronics industry contact said that the down cycle that started in the third quarter of 2022 is the longest in the history of the industry. A chemical manufacturer said higher interest rates were at least partly to blame for sharply weaker sales in 2023. Contacts with slowing sales said they were reducing capital expenditures, but only slightly, as the returns to automation remained high. Outlooks were guardedly positive on balance.

Staffing Services

First District staffing firms reported modest revenue increases on balance in the third quarter of 2023. Revenue gains were driven by elevated pay rates for temporary placements and temp-to-hire roles, positions which have rebounded since the pandemic. Nonetheless, the overall hiring plans of staffing firms' clients seemed to slow on balance. Given the slowdown, one staffing contact decided not to fill an internal talent acquisition position that had been created by a resignation. The outlook was cautiously optimistic, as firms expected stable demand on balance. One contact hoped to expand into a new geographic region, provided revenues held at least steady in the coming months.

Commercial Real Estate

Commercial real estate activity slowed further on balance, albeit modestly. Demand for industrial space weakened a bit, particularly among e-commerce and warehousing tenants. Industrial rent growth slowed but remained positive, and vacancy rates increased slightly from near-zero levels. Office leasing was flat on balance; a Hartford contact described activity as anemic, and a Providence contact saw an uptick that was limited to renewals and downsizing moves. Office rents were stable and vacancy rates edged up to near 20 percent. Retail market fundamentals were stable but prospective tenants delayed lease signings amid uncertain consumer demand. One contact noted strong performance of hotel properties, particularly in Boston. High borrowing costs continued to deter commercial property sales and construction. The outlook for office properties was seen as dire, with loan defaults on the rise and valuations likely to fall further. Also, contacts predicted a glut of life sciences space in Boston for 2024. Broadly speaking, contacts expected somewhat slower leasing and sales activity in 2024, but noted that results would depend heavily on the direction of interest rates and consumer demand.

Residential Real Estate

Across the First District, residential real estate sales were about flat in recent months net of seasonal adjustments. Considering year-over-year changes to September or October, home sales were down sharply from a year earlier, although in some markets the pace of decline moderated a bit. The greater Boston area experienced its weakest September for single-family home sales since 1995. Condominium sales were down by more moderate margins but were also historically weak. Prices continued to climb at a moderate-to-strong pace owing to very low inventories. Although inventories fell again on a year-over-year basis, the pace of decline moderated, and modest seasonal supply increases were seen in September from August. Contacts again pointed to high interest rates as the most important factor holding back activity in the residential property market, and therefore pinned the outlook for sales on the course of interest rates in 2024.

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.