Beige Book: Economic conditions improving as businesses expect ‘more of the same’

ECONOMIC CONDITIONS are “generally improving” across New England’s First District, according to the Federal Reserve’s Beige Book report. / BLOOMBERG FILE PHOTO/BRENT LEWIN
ECONOMIC CONDITIONS are “generally improving” across New England’s First District, according to the Federal Reserve’s Beige Book report. / BLOOMBERG FILE PHOTO/BRENT LEWIN

BOSTON – Economic conditions are “generally improving” across New England’s First District as businesses expect “more of the same,” according to the Federal Reserve’s Beige Book report released this week.
From retailers and manufacturers to staffing services firms, and commercial and residential Realtors, outlooks are upbeat, the report stated.
Retail contacts said the U.S. economy is in a moderate growth cycle, “bolstered by increasing employment and growth in housing starts,” the report stated. As a result, they anticipate that these conditions will support same-store sales growth in the low-to-mid single digits.
Eleven manufacturing firms also were polled for the report, and only one, a maker of brakes and motors, reported declining sales. That firm blamed the decline on the effect of lower commodity prices for mining, oil and gas, and agriculture. Other manufacturing contacts reported a “very strong” first quarter, saying sales were higher than expected. Those contacts included manufacturers of pressure sensitive film, veterinary products, tools and scientific equipment, as well as a diversified maker of jet engines and home HVAC systems.
“For most respondents, the U.S. was a bright spot; Europe was not as strong, although not declining as in some earlier reports. Contacts note that Chinese growth has slowed but is still positive; the only problem area appears to be Latin America, in general, and Brazil, in particular,” the report stated.
Exchange rates remain a problem for contacts, with five of the 11 saying the strong dollar has lowered revenue; a few respondents, however, said negative impacts are weakening. Another firm said it was expanding production in Nebraska instead of Massachusetts due to the lower labor cost.

Three contacts also reported having difficulty finding skilled technical and scientific workers.

A manufacturer of semiconductor equipment said some of its growth was linked to the introduction of new smartphones, and questioned whether this market has reached saturation and will not generate such strong growth in the future.

In addition, commercial real estate leasing activity is steady or improving across the First District, contacts reported. Office leasing picked up in Providence following a slow first quarter, and rental rates in that city are seen as stable, the report said.
Boston’s office leasing environment remains strong, resulting in further declines in vacancy rates, although tenants appear reluctant to commit to new leases on the most expensive spaces.
“Investment sales are steady in Boston, Portland and Hartford, although the bidding environment remains less exuberant in Boston than it was a year ago,” the report stated.
Office construction continues to increase in Boston, but remains below normal. Construction is modest in Rhode Island, but is expected to increase later in the year based on planned infrastructure projects.

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“Contacts across the district are mostly optimistic that commercial real estate activity will hold steady or improve in coming months, although one Boston contact notes the risk of a modest slowdown in office leasing,” the report stated.
As for residential real estate, markets in the First District continued to exhibit strong trends at the end of the first quarter. March closed sales of single-family homes increased year over year in all six New England states. Massachusetts saw the most closed sales in any March since 2004. Pending sales for single-family homes increased year over year in every state, with gains as large as 36 percent in the Boston area.
A Rhode Island contact said, “We had far and away more sales than we’ve seen at this time of the year for quite some time.” Median sales price also increased year over year in March in every state except Vermont.
The market for condominiums also improved relative to last year, with closed and pending condo sales higher in every First District state in March. Median condo prices showed moderate year-over-year increases in five states; the only exception was Connecticut, where condo prices decreased.
Inventory continues to be an issue throughout the First District, however.
One Rhode Island contact said that low inventories are putting sellers “in the driver’s seat” in the bidding process, the report stated.

“Overall, contacts have a strong outlook for residential real estate markets. Several cite other economic indicators such as the stable unemployment rate, rising wages and low interest rates as drivers of growth. Two contacts specifically note that although demand is strong, buyers are approaching the market more cautiously and avoiding risk,” the report stated.

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