Beige Book: N.E. businesses report modest improvement

ACCORDING TO THE BEIGE BOOK REPORT released Sept. 3 by the Federal Reserve Bank of Boston, a lack of adequate industrial real estate in Providence remains a problem in the city, while the outlook for the state as a whole is uncertainty in the light of the impending gubernatorial election. / BLOOMBERG FILE PHOTO/BRENT LEWIN
ACCORDING TO THE BEIGE BOOK REPORT released Sept. 3 by the Federal Reserve Bank of Boston, a lack of adequate industrial real estate in Providence remains a problem in the city, while the outlook for the state as a whole is uncertainty in the light of the impending gubernatorial election. / BLOOMBERG FILE PHOTO/BRENT LEWIN

BOSTON – Business activity appears to be improving in New England, with retail and manufacturing companies throughout the region reporting increases in revenue or year-over-year sales and commercial and real estate markets largely unchanged from the last report, according to the Federal Reserve Board’s Beige Book released Sept. 3.
Commercial real estate activity remained steady, but a lack of suitable industrial space remains a problem in Providence. Contacts in Providence, as well as Hartford and Portland described office leasing activity as slow and attributed it to typical seasonal patterns.
The outlook is uncertain for Rhode Island, where the gubernatorial election is seen as holding some potential for growth in the state via improved business sentiment. One contact surveyed also reported “a risk of increase in the vacancy rate for class A office space in downtown Providence.” In Boston, contacts expect moderate economic growth and a continuation of current trends, including strong investor demand.
In the residential real estate market, change in single-family home sales was mixed across New England in June compared with a year earlier, with sales declining in Massachusetts and Vermont, increasing in Connecticut and Maine, and staying the same in Rhode Island.
Median sales price changes also varied by state in June, increasing only in Massachusetts. The median price declined in Rhode Island and Vermont and held steady in Connecticut and Maine compared with June 2013. For Massachusetts, June represented the fifth consecutive month of year-over-year declines in sales of single family homes, and for the Greater Boston area June was the sixth consecutive month of year-over-year declines, attributed to a shortage of inventory.
The Fed was unable to reach its contacts in New Hampshire for the real estate survey. Respondents in the five other New England states expressed concern over student debt levels, believing they will continue to weigh on housing markets for the foreseeable future. Sentiment was generally positive, but respondents said that both buyers and sellers in New England must adjust to price increases that are well below previous high rates and look at a home as a shelter rather than as “a piggy bank.”
Retailers contacted by the Fed reported comparable store sales ranging from a decline of 1 percent to an increase of 7 percent year-over-year, with strong spending on clothing, household items and home improvement categories. Their outlook for the U.S. economy ranged from “mixed” to an expectation of moderate growth, and some selective hiring is planned, with these retailers expecting to meet their 2014 goals of low single-digit sales increases.
In the tourism sector, Boston area hotels averaged 92 percent occupancy rates in July, and revenues were up 9.5 percent from July 2013, mostly because the average price per room increased. The average hotel room price was not provided in the report. Through July, Boston restaurant revenues were up 6.9 percent compared to the period from January to July 2013. Year-to-date through July, traffic at Logan Airport was up 4.5 percent; contacts said 2014 travel is expected to beat 2012 and 2013 records.
Of the dozen manufacturing firms contacted, only one reported declining sales and two reported exceptionally strong sales growth compared to the same period the previous year. One company reporting exceptionally strong sales was a semiconductor manufacturer, with 15 percent year-over-year sales growth in the second quarter. The other company with high sales growth was a computer systems vendor which sells mainly to the U.S. Defense Department. The company reporting declining sales attributed it to an exceptionally strong period a year earlier.
One company, a manufacturer of semiconductor equipment, reported layoffs over the last year. Another reported a small reduction in its workforce; four cited no change, with the remainder expecting additional employment, although none reported large-scale hiring. One maker of electrical equipment described hiring as “cautious.” Many other firms, including those with strong sales growth, said they wanted to do more with less. Firms continued to cite problems finding skilled engineers, but outlooks are generally positive. One toy manufacturer reported a mixed outlook, saying high-priced products are not selling well because consumers are cautious.
As for software and information technology, firms generally reported strong demand through August, with year-over-year revenue increases ranging from 7 percent to 20 percent and quarter-over-quarter increases in the mid-single digits.
Labor demand is reportedly strong in the information technology, software, aerospace, nursing, electronics and legal industries. Supply is largely unchanged since May, with continued shortages of high-end technical workers such as software developers, Java programmers, computer engineers, mechanical design engineers and quality assurance managers. Maintenance and ambulatory nursing positions also are reportedly difficult to fill. Some firms contacted expressed concern about increased health insurance costs as a result of the Affordable Care Act.

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