The Federal Reserve Board eagle logo links to home page

Beige Book logo links to Beige Book home page for year currently displayed June 9, 2010

Federal Reserve Districts

First District--Boston

Skip to content

New York
St. Louis
Kansas City
San Francisco

Full report

Business contacts in the First District report stable to increasing activity in recent months compared with a year earlier, with most citing increases. Retail contacts note some potholes in the recovery path, but generally positive sales results; most responding manufacturers, staffing firms, and software and information technology services providers are also seeing recent or continued revenue growth. Home sales and prices are advancing, although contacts attribute most of the increases to homebuyers' tax credits; commercial real estate markets are also improving. Some firms are hiring beyond replacement and/or re-instituting merit-based pay increases. Firms' selling prices are generally stable. Notwithstanding positive trends, the outlook remains cautious.

Contacted retailers in the First District report flat to positive sales results for the months of March, April and early May; year-over-year same'store sales increases range from zero to about 10 percent. A few contacts characterize sales as "volatile" and even those retailers reporting increases note some periods of slowing sales. All respondents mention weak sales for big-ticket items, but say that sales of core consumables, household items, or clothing are strong. Most contacts are cautiously optimistic regarding the next few months, but express concern about sales later in the year.

Inventory levels are primarily on target, although a few contacts indicate they are a little higher than expected because of soft sales. Capital spending is mixed, with some retailers spending on new store openings, remodels, and IT systems, and others remaining cautious on spending. Headcounts are stable. Vendor and selling prices are said to be constant, although one contact notes an increase in food'related commodity prices.

Manufacturing and Related Services
Most contacted manufacturing firms suggest that a relatively strong first-quarter rebound in demand is continuing into the current quarter. Results are particularly good at relatively non-cyclical biopharmaceutical firms as well as highly cyclical firms such as semi-conductor manufacturers. Growth in demand at these firms was primarily in the double digits, with a few semi-conductor equipment suppliers reporting Q1 quarterly growth in the high double digits. These manufacturers had particularly bad years in 2009, but see continued strong demand through the current quarter and year. By contrast, revenues remain weak at business services firms as well as for a recreational equipment maker. These companies describe their sales environment as soft, with one noting that demand stagnated in the first quarter rather than picking up as anticipated. Nonetheless, each of these firms has seen at least small pockets of improving activity.

Input costs remain relatively stable at most of the firms contacted, although costs have edged up a bit at firms whose production processes are highly energy intensive. In addition, a plastics manufacturer notes that some of its inputs are in short supply because suppliers ratcheted back capacity during the downturn and are reluctant to bring it back online. Selling prices are generally unchanged, as the marketplace remains highly competitive. However, one firm recently removed discounts it instituted in 2009, and a couple of others reported being able to implement modest planned price increases.

Employment is mostly stable among contacted manufacturers, although headcounts remain well below their 2008 levels at a number of firms. A few firms have hired a small number of workers so far this year and they plan to increase headcount slightly as the year progresses. The strongest potential employment gains are in the biopharmaceutical industry where one firm plans to increase its headcount during 2010 by about 10 percent. Responding firms that froze salaries last year have generally reinstated merit'based increases or plan to do so by the middle of the year. Most manufacturers continue to report that their planned capital expenditures for 2010 are in line or slightly greater than their expenditures in 2009. Much of the planned capital spending for this year is for infrastructure'related improvements.

Overall, manufacturers again indicate that they are cautiously optimistic about the outlook for their business and the economy for the remainder of 2010. Some express concern about the potential impact of the current situation in Europe on consumer demand, although most say their exposure to European markets is relatively limited. Some biopharmaceutical companies expect health care reform to hurt their bottom lines; one company says the result will be less money for research and development.

Software and Information Technology Services
Software and information technology contacts in the First District report improved business conditions, with demand up significantly relative to a year ago. Increased activity is leading firms that previously reduced headcount to hire selectively, and merit increases have been reinstated. Respondents note that many large corporate customers are raising their technology spending budgets, but some small and mid-size businesses may still not possess the credit capacity to do so. While some discounting pressure still exists, contacts report they have been able to maintain prices. For those software and IT firms with substantial shares of their business located internationally, the European debt crisis is a major concern and the strengthening dollar continues to negatively affect revenues. Despite these concerns, respondents expect continued growth through the remainder of the year.

Staffing Services
New England staffing respondents report that the upward trends of the second half of 2009 and the beginning months of 2010 have continued; however, a few contacts lament that overall activity still remains below expectations. Revenues have risen year-over-year, ranging from "slightly better" to up nearly 50 percent. The number of conversions from temporary to permanent staff is rising and direct'hire placements are beginning to pick up. Labor demand from the pharmaceutical, biomedical, aerospace, and semi-conductor industries is steady. There is renewed activity in the legal sector, with increased labor demand for paralegals, business support personnel, and attorneys. On the other hand, the construction, architecture, civil engineering, marketing, and accounting sectors remain slow.

In terms of labor supply, the skills of job seekers often do not align with the needs of employers; one contact notes that hundreds of college graduates are looking for work but available positions often require more experience. Other contacts indicate that highly skilled candidates are receiving multiple offers; clients, in turn, are showing more willingness to pay higher rates. In addition, turnover has recently increased, as those with jobs seem somewhat less reticent to give them up. Looking forward, First District staffing contacts largely express increased optimism and predict gradual improvement through 2010.

Commercial Real Estate
According to contacts around New England, commercial leasing activity is at least flat, and in some cases noticeably improved, compared to the last report. A Rhode Island contact notes a significant increase in leasing activity in recent weeks, driven by a backlog of postponed renewals. He characterizes tenants as wanting to make deals while they still have significant bargaining power; furthermore, he hears word that some firms are beginning to consider new hiring and expansion of operations. A Hartford contact describes leasing activity as flat in his metropolitan area and says this is consistent with local fundamentals, such as limited hiring activity and persistent retail vacancies downtown; nonetheless, he notes modest improvements in sentiment among both business professionals and consumers. Boston contacts report an uptick in lease deal volume; one was pleased to see a recent lease deal that will absorb a large portion of space in the Hancock tower, but otherwise had little good news to report. Across the region, rental rates and vacancy were largely unchanged in recent weeks. With the exception of industrial properties in Rhode Island, commercial property sales activity was slow across markets in the region.

Contacts in Providence and Boston note that debt default rates for commercial properties remain significant, and defaults are perceived to be on the rise in Boston's suburban corridors. The good news, however, is that properties and/or debt are changing hands as new equity is increasingly willing to invest in commercial real estate. A commercial real estate lender in Boston confirmed the influx of equity cash as a welcome development after at least 18 months of investor skittishness. The same lender is seeing many worthy lending opportunities in greater Boston and reports facing increasingly stiff competition from other regional lenders to lower rates and relax loan terms.

The outlook is mixed among respondents around the region. The Providence contact is more optimistic about both hiring and leasing over the next six to 12 months than a Boston contact, who maintains his prediction that rents have further to fall. In Hartford, the outlook is largely unchanged, and a Boston banking contact remains "guardedly optimistic." However, nearly all contacts point to the recent troubles in Europe as a new source of uncertainty on the horizon.

Residential Real Estate
Residential real estate markets in New England experienced large gains in April compared to a year earlier; contacts attribute much of the improvement to the impending expiration of the homebuyer tax credits. Home sales increased sharply year-over-year across the region, ranging from a 26 percent increase in Rhode Island to a 63 percent increase in Maine. Condo sales increased between 39 percent and 64 percent in April compared to a year ago. The median price of homes also showed modest improvement in all markets. The median price of condos in the region also increased modestly year-over-year in April, except in Rhode Island, where it fell 15 percent.

April 30 was the deadline to sign a contract on a home in order to be eligible for the homebuyer tax credits; because June 30 is the associated deadline to close on the home and contract'signings continued through April, contacts expect sales numbers to remain strong in May and June. There is no consensus among respondents about how markets will perform after June, although some cite anecdotal evidence of continued activity after April 30 and most think that low interest rates and fairly low prices will continue to make the market attractive for prospective buyers.

Return to topReturn to top

Previous Summary New York Next

Home | Monetary Policy | 2010 calendar
Accessibility | Contact Us
Last update: June 9, 2010