The New England technology sector is being buffeted by the recession, but business is going strong for some tech companies in the region, the Federal Reserve Bank of Boston (FRBB) writes in the Federal Reserve System’s latest “Summary of Commentary on Current Economic Conditions,” better known as the Beige Book.
“Providers of information technology services in the Boston District saw a drop in activity on average, although some firms have sustained strong revenue growth,” the report said.
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The FRBB is one of 12 regional banks that carry out the daily business of the nation’s central banking system. The Boston Fed is responsible for all of New England except for Fairfield County, Conn.
Although nearly all the New England software and IT firms contacted for the survey reported a slowdown in activity, their year-over-year revenue changes ranged “from modest declines to increases of over 25 percent.”
“Respondents say clients continue to be interested in their product lines but are financially unable or unwilling to commit to transactions,” the report said. But “[d]espite softer demand, New England software and IT services firms have been able to maintain selling prices, although a couple of contacts note that clients are asking for new payment plans or are taking longer to pay.”
The picture for local tech workers is mixed. “While some firms have reduced headcount and frozen wages, others are making selective hires and intend to give raises in the range of 3 percent to 4 percent,” the report said.
In addition, nearly all the software and IT firms contacted said they are being more cautious about capital and tech spending, with some cutting back. The report said some are “delaying the purchase of new computers, while others have substituted video conferences for travel.”
On the other hand, the report said, IT services firms in the Kansas City and Minneapolis districts “have seen solid demand from companies that are intent on using the technology to reduce costs.”
Manufacturers in New England have been hit hard, with sales dropping at a double-digit rate, the report said. Semiconductor firms and their suppliers have been hard hit, with total revenue drops of 50 percent or more, it said.
Biotech product and pharmaceutical manufacturing companies continued to be a bright spot in the grim report. (READ MORE)
In the Boston-based First District, biopharmaceutical firms reported double-digit sales gains, and other districts showed similar vigor. That strong performance is allowing biopharmaceutical companies to implement single-digit price increases, the report said.
“In addition, selected respondents outside of the biopharmaceutical industry note that their exports of innovative products or to some foreign markets have held up relatively well over the past year,” the report said, adding: “Some of these exporters are seeing signs of slowdown, however.”
Generally, however, the economic picture painted by the Beige Book was bleak, if unsurprising. Reports suggested a continued deterioration in the business climate during January and February. The Fed said “a significant pickup [is] not expected before late 2009 or early 2010.”
In the Boston district, the report said, “Respondents across sectors say they are restraining compensation in multiple ways, and many firms have cut employment.” Half the businesses contacted for the conditions survey have cut employees or reduced hours in the past three months.
“Although pressures are downward, only a few contacts indicate they are reducing their selling prices; manufacturers say they are avoiding general price cuts either to protect margins or because they foresee little demand responsiveness,” the report said.
Information about the Federal Reserve System – including past monetary policy statements issued by the Federal Open Market Committee – is available at www.FederalReserve.gov.
The FOMC’s latest “Summary of Commentary on Current Economic Conditions,” including the full report for the Fed’s Boston-based First District, is available at www.FederalReserve.gov/FOMC/BeigeBook. Additional Federal Reserve economic research data is available at www.FederalReserve.gov/econresdata..
