Beige Book: Spring holds hopes for New England businesses

ACCORDING TO THE BEIGE BOOK REPORT released by the Federal Reserve Bank of Boston, most New England business contacts are optimistic about the economic outlook going forward and expect sales to bounce back in spring after declining in the first quarter due to winter weather. / BLOOMBERG FILE PHOTO/BRENT LEWIN
ACCORDING TO THE BEIGE BOOK REPORT released by the Federal Reserve Bank of Boston, most New England business contacts are optimistic about the economic outlook going forward and expect sales to bounce back in spring after declining in the first quarter due to winter weather. / BLOOMBERG FILE PHOTO/BRENT LEWIN

BOSTON – With the onset of spring, New England businesses are relying on improved consumer confidence and higher sales to drive economic recovery after a difficult first quarter affected by severe winter weather, according to the Federal Reserve Board’s Beige Book released Wednesday.

Commercial real estate leasing activity slowed in the greater Providence area during the first quarter, lowering the confidence of some developers, the Fed reported. However, contacts cited “positive developments in the Rhode Island economy that should contribute to job creation in coming months.” The Beige Book did not specify which positive developments it referred to.

“Rents in Providence are described as flat on average, with some modest upward pressure in the class A office sector and diminishing concessions in suburban locations,” the report stated.

A few of the Fed’s contacts, located in Boston and elsewhere in the region, expressed concern that current construction levels of high-end apartments are excessive in relation to potential demand for such units, but said such units appear to be fetching rents in line with developers’ projections. Meanwhile, although speculative office construction remains limited, respondents said the pipeline of planned office construction in Greater Boston is growing.

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In the residential market, Rhode Island contacts cited declines in sales of both single-family homes and condominiums, while condominium sales in Massachusetts increased year over year. Consensus among Beige Book respondents indicated that the decline in sales will be short-lived, and was driven partially by lingering winter weather and uncertainty about new federal flood insurance regulations.

Residential real estate contacts said they expect sales to pick up seasonally this spring, but in Massachusetts, contacts said inventory shortages remain a challenge.

Manufacturers showed continued improvement in the Beige Book report, with seven of the Fed’s nine industry contacts citing increased sales volume during the last six weeks compared with the same period a year earlier. Two reported flat sales, and several said harsh winter weather continued to impact sales through the second half of the first quarter.

A manufacturer of auto parts cited an inventory overstock due to slow sales in the auto industry, and said that if sales don’t “bounce back” in the spring, factory shutdowns in the summer will be longer than usual. Most contacts said commodity and other input prices are generally stable, and inventory levels are largely unchanged.

In terms of employment, five of the nine manufacturers contacted this round reported no change in hiring, while two reported small payroll increases. One contact, a biotechnology company, plans to hire 1,000 workers this year.

Manufacturers expect higher capital expenditures in 2014 compared with 2013. Although none of the Fed’s manufacturing contacts indicated a negative outlook going into the second quarter, four of the nine said they expect sales to remain flat or grow very slowly in 2014.

Retailers in New England reported year-over-year change in sales ranging from a decline of 4 percent to an increase of just over 10 percent for the first quarter. All retail contacts said sales were affected, to some degree, by the severe winter weather – some benefited from higher demand for winter-related items, while others saw sales suffer because snowstorms kept consumers from shopping. For retailers with both brick-and-mortar and online sales venues, Internet sales have continued to account for an increasing share of total sales, the Beige Book report stated.

Prices remain steady overall, but some retailers expect a modest increase in apparel prices, reflecting a rise in raw material costs and overseas labor costs. The majority of retail respondents indicated that consumer sentiment will continue to improve.

The Federal Reserve’s consulting contacts reported a strong first quarter, led by health care consultants, who indicated continued demand for their services as providers adjust to the changes imposed by the Affordable Care Act. Advertising and marketing contacts, citing increased confidence in the economy, also posted strong first quarter results, with year-over-year revenue growth ranging from 5 percent to 20 percent.

Most consulting and advertising firms have held employment steady or increased payrolls slightly, and all industry contacts said they are optimistic about the coming year and expect economic growth either to continue at its current pace or to accelerate.

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