Beige Book: Outlook for 2015 positive

ACCORDING TO THE BEIGE BOOK REPORT released by the Federal Reserve Bank of Boston, the outlook for 2015 is positive among almost all firms that were surveyed in New England. / BLOOMBERG FILE PHOTO/BRENT LEWIN
ACCORDING TO THE BEIGE BOOK REPORT released by the Federal Reserve Bank of Boston, the outlook for 2015 is positive among almost all firms that were surveyed in New England. / BLOOMBERG FILE PHOTO/BRENT LEWIN

BOSTON – The outlook for 2015 is positive among almost all firms in the First District that were surveyed for the Federal Reserve’s latest Beige Book report released this week.
In the First District, which covers New England, manufacturers and retailers said that with a few exceptions, they will not increase employment, while advertising and consulting firms plan to add modestly to headcounts.

Sales or revenue are ahead of year-earlier levels according to most First District business contacts in manufacturing, retail, and advertising and consulting sectors. Commercial real estate markets are steady to improving, and most residential real estate markets in the region continue to see price increases and sales declines.

While overall business is good, retailers reported some “softening” in the apparel categories. Demand for home furnishings and home improvement products remains strong, however.
As in the previous round, some respondents said prices remain steady, while others cited price changes for some items of plus or minus 1 percent. Based on manufacturing costs and vendor prices, one contact said that prices for fall 2015 merchandise will be about 3 percent higher overall than in fall 2014.
“Most retail respondents are optimistic about the outlook for 2015, given that business is currently good and consumer sentiment seems more positive, partly because the cost of oil is low,” the report said.
The Boston area continues to enjoy a strong boost from travel-related spending, with high hotel occupancy rates in 2014. Preliminary estimates show that 2014 hotel revenue will increase almost 10 percent over 2013, which was a record-setting year.
Through October, museum attendance rose 14 percent year-over-year, with contacts noting many restaurant and museum space bookings for year-end functions. The initial projection for 2015 is a 7 percent increase in hotel revenue, with a slight drop in occupancy rates from record highs compensated for by higher average room rates.

Of the 11 manufacturing firms contacted, all but one reported stronger sales. The exception was a frozen food producer that attributed weakness to a highly competitive market.
Many contacts expressed surprise at how strong demand had been in 2014. A manufacturer of testing equipment said sales were strong overall, but flat in China, a “big change” from historical annual increases of 20 percent.
Only one of 11 contacts reported serious materials cost pressure. That contact cited sharp increases in chemical prices and said the firm will try to raise sales prices to offset the increased costs. No firms reported any significant changes in inventories.
Only one contacted manufacturer reported lower employment, noting that the company closed its direct sales channel which led to a 400-person reduction.
“The outlook is positive for all respondent manufacturers, even though three contacts specifically mention Europe as a cause for concern. One semiconductor manufacturer predicts a fall in sales in 2015 but as payback for above-trend growth in 2014,” the report said.

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Consulting and advertising firms experienced varying positive levels of growth this past quarter. All contacts increased personnel modestly in 2014, and plan on further increases in 2015.
“All contacts are bullish on the U.S economy, and are optimistic about business conditions for the next year. … Health care consultants have seven-figure deals in the pipeline, and anticipate high growth in 2015, despite general concern over federal budget and regulatory agencies efforts to continue rolling out the Affordable Care Act,” the report stated.

In the First District, commercial real estate markets are steady or improving, and the outlook for Providence’s commercial real estate market is “cautiously optimistic.”
“In Providence, leasing deals under negotiation promise to boost absorption of office space in the near term, and office leasing fundamentals improved on net in 2014,” the report stated.
Boston contacts reported that they “continue to be impressed by the strength of demand for commercial property among foreign investors, who continue to pay prices that reflect highly optimistic expectations concerning growth in operating income.”
One regional commercial real estate lender reported posting its best year yet in terms of loan volume, despite a very slow fourth quarter.
Boston contacts also expect investment sales activity to remain robust, even if short-term or long-term interest rates increase this year. One Boston contact questioned if growth among the city’s technology startup firms will continue in 2015, however.
As for residential real estate, single-family home sales declined in November in at least four of the six states in the First District compared with November 2013. Condominium sales dropped in all responding states. New Hampshire did not provide feedback.
Median sales prices rose in November in both single-family and condo markets in the region, with the exceptions of Maine, where prices decreased for single-family homes, and Connecticut, where condominium prices declined.
In Massachusetts, prices have risen year-over-year in 25 of the last 26 months for single-family homes and 17 of the last 18 months in the condominium market. Contacts in Massachusetts say driving forces are a shortage of inventory and steady consumer demand. The inventory level heading into December in Massachusetts is the lowest in a decade, with a 4.6-month supply for single-family homes and a two-month supply in the condominium market.
Months of supply increased in Rhode Island.
“Realtors say they are cautiously optimistic because they remain busy; they hope interest rates will remain low and say markets will show further significant improvements only when high-paying jobs become more available and new listings provide more options for buyers,” the report stated.

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