Beige Book: Economic activity is increasing

ACCORDING TO THE BEIGE BOOK REPORT released by the Federal Reserve Bank of Boston, economic activity is increasing in New England, with retailers expecting the momentum to continue during the holiday season. / BLOOMBERG FILE PHOTO/BRENT LEWIN
ACCORDING TO THE BEIGE BOOK REPORT released by the Federal Reserve Bank of Boston, economic activity is increasing in New England, with retailers expecting the momentum to continue during the holiday season. / BLOOMBERG FILE PHOTO/BRENT LEWIN

BOSTON – Economic activity is increasing in New England, with retailers and manufacturers reporting year-over-year hikes in sales or revenue. Retailers expect the momentum to continue during the holiday season, according to the Federal Reserve’s Beige Book released on Wednesday.
“All respondents said that they have seen continuing improvement in sales over the course of the year, and that consumers appear to be more confident, and that the U.S. economy seems to be experiencing a real, albeit modest, rise,” the report stated.
Staffing, software and information technology services are citing solid or strong demand, and commercial real estate markets continue to expand modestly. Most of the New England states have experienced increases in the number of homes sold, even though there have been declines in median sales prices from a year earlier.
Of the 10 manufacturers polled, eight firms reported stronger sales compared with last year, while the two that cited weaker sales were both from semiconductor-related industries.
“Manufacturing contacts generally say North America is an area of strength and Europe and Latin American are relatively weaker. A manufacturer of construction tools says the strengthening dollar is a ‘headwind’ and has revised sales growth down slightly as a result. Firms report no significant movement in inventories. Capital spending is up, but more or less in line with plans at all contacted firms,” the report stated.
One chemical firm cited falling oil prices as an issue because chemicals are produced in the United States using natural gas whereas in the rest of the world, they are produced using oil. That contact said the fall in oil prices over the last few months has made foreign rivals more competitive, “partly reversing U.S. chemical firms’ prior advantage resulting from declines in the price of natural gas relative to oil in recent years.”
Software and information technology services reported strong demand in recent months, with most citing revenue increases of 7 to 20 percent year-over-year – a result of strength in the manufacturing sector, and high consumer demand for software products currently on the market. Wages have largely remained constant in recent months. One contact noted “upward wage pressure” for higher-level research and design and sales positions for which demand exceeds supply.

New England staffing contacts generally reported increased business activity through November, with all but one contact citing a year-over-year increase in revenue. The increase in demand reflects growth in the healthcare sector and improved business confidence. Contacts said it is difficult to find workers for IT, legal and nursing, but said their strategies to attract top candidates include networking, social media outreach, online recruiting and offering modest wage premiums.
According to contacts, Boston’s office market continues to see declining vacancy rates and modest rent increases. Investor demand for office and multifamily properties in greater Boston remains “very robust,” according to the report.
A Rhode Island contact said business sentiment is improving because it is believed that Governor-elect Gina M. Raimondo will focus on job creation. Office leasing activity in Providence saw a modest rebound following a dip late in the third quarter. There is concern, however, about plans among Class A office tenants to reduce space needs next year. Construction activity remains limited in the state, but includes a growing amount of build-to-suit activity in the industrial sector.
“For Rhode Island, a modestly optimistic outlook for commercial real estate demand was qualified by contacts citing risks to the state’s overall economic fortunes, including a looming state budget deficit,” the report stated.

In September, closed sales of single-family homes increased from a year earlier in four of the six New England states. Massachusetts experienced declining year-over-year sales for an eighth consecutive month. Prices in Massachusetts remained flat, ending 23 consecutive months of year-over-year price rises. Massachusetts contacts say buyers are not willing to overextend themselves financially as home prices move higher, but some expect prices to remain flat, some say they will decline and others expect an increase in the coming months.
Contacts in Massachusetts say new listings are insufficient to meet demand; they emphasize a need for new construction and for more sellers to list properties. By contrast, inventories are plentiful in Vermont, where there is more than 20 months of supply; realtors typically say a market is balanced when there is six months of supply – the current level in Rhode Island. Contacts believe recent market trends will continue in coming months.

In the condominium market, September sales were mixed across the region, decreasing in Rhode Island, Massachusetts and Maine, while increasing in Connecticut and Vermont compared with a year earlier. New Hampshire data was not available. The change in median sales prices of condominiums also varied across the region, with year-over-year increases in Rhode Island, Maine and Vermont, but decreases in Connecticut and Massachusetts; this represents the first price decrease for condominiums in Massachusetts after 15 months of increases. As with single-family homes, condominium inventory remains a concern in Massachusetts, where year-over-year inventory decreases have continued for almost four years.

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