The Federal Reserve Board eagle logo links to home page

Beige Book logo links to Beige Book home page for year currently displayed January 13, 2010

Federal Reserve Districts

First District--Boston

Skip to content

New York
St. Louis
Kansas City
San Francisco

Full report

First District business contacts report that activity has picked up in recent months. For retailers and some advertising and consulting firms, the pickup has led to flat to positive year-over-year sales, while manufacturers' revenues mostly remain below year-earlier levels. A couple of commercial real estate contacts see very modest improvement while others remain downbeat; residential real estate sales (but not prices) are up substantially in response to the 2009 new homebuyers' tax credit. Prices are generally said to be stable, except for selected metals prices, which are reported to be rising. With some exceptions, First District business respondents say employment is level or up slightly; some firms intend to raise pay levels modestly in 2010. The outlook remains cautious.

Contacted retailers in the First District report mostly positive sales results for the months of November and December. Same-store sales vary from flat to positive mid-single-digits year-over-year. Respondents say sales and holiday spending are better than expected overall and that consumers seem to be more willing to make discretionary purchases. Most also believe, however, that consumers are much more cautious today than in previous years; as one contact said, "people are not going to be so quick to go into debt in order to buy a $1,000 handbag." All respondents are cautiously optimistic in their outlook; none expects robust sales in 2010, although some are more upbeat than others.

Contacts continue to manage inventory levels cautiously, with several retailers reporting that levels have been intentionally decreased from prior year. Capital spending also remains carefully controlled, with some contacts cautiously increasing spending in ways they believe will enhance the company's long-term growth potential. Respondents are increasing headcount in line with new store openings and say hiring restrictions have been removed in order to take advantage of available talent. A few contacts indicate that merit increases have been restored. Selling prices are reportedly stable.

Manufacturing and Related Services
Many manufacturing and related services contacts headquartered in the First District report quarter-over-quarter improvements in demand during the final months of 2009. For the most part, gains in sales or orders are characterized as slight, selective, or from a depressed base. Some capital goods and consumer durables manufacturers either have seen no improvements to date or have experienced setbacks in demand after a short period of improvement. The most robust sales gains are due to rising Asian and defense-related demand; European, energy-related and commercial-construction-related demand are described as depressed or weakening. Most manufacturing contacts characterize their inventory levels as tight or under tight management.

Manufacturers report that metals prices are rising, but that most other materials costs continue to hold steady. Some respondents are planning to raise prices for services or nondurable products. After a period marked by price erosion, a maker of building equipment is considering raising selling prices in response to higher metals costs; on the other hand, a furnishings manufacturer reports continued downward pressure on prices and no ability to pass along higher input costs. Most other contacts indicate that selling prices are holding steady.

Having reduced employment levels over the past year, most contacts are now holding domestic headcounts relatively steady or increasing them modestly. Some anticipate making further reductions in 2010, however. Manufacturers' budgets call for merit pay increases of under 3 percent in the coming year. Many firms expect to adjust the timing and/or magnitudes of pay and benefit adjustments in response to business developments.

Manufacturing respondents are planning for level or slightly higher capital spending in the New Year, mostly financed internally. Contacts indicate that they have adequate plant capacity to meet somewhat higher demand. Some firms are planning new investments in IT, factory reorganization, or product development. Several respondents mention the possibility of making acquisitions.

Manufacturers and related services providers are guardedly optimistic about business conditions over the coming 6 to 12 months. Contacts expect growth in revenues and profits, but they cite a variety of factors that are likely to constrain the extent of recovery or possibly even derail it.

Selected Business Services
The majority of First District advertising and consulting contacts report positive results in the fourth quarter, with demand rising up to 30 percent quarter-over-quarter. On a year-over-year basis, business ranged from down 25 percent to up 23 percent. Demand from private equity firms is starting to pick up, but continues to be very slow. Fewer uncertainties about health care reform are driving up demand from healthcare and biotechnology companies. Demand from educational institutions, from the government, and from the tourism sector is strong as well.

Contacted companies continue to experience price pressures but are managing to hold prices steady or to negotiate supplier's prices in the fourth quarter. Contacted firms plan to raise prices by 3 percent to 10 percent in 2010. Hiring will increase in most firms to hold workforce stable or to increase headcounts to keep up with sharp demand increases. Base compensation will go up modestly--by 2 percent to 5 percent--in 2010. Bonuses in some firms are expected to be much higher next year than this.

Contacted advertising and consulting firms say they are either cautiously or very optimistic about next year's outlook. Projections of demand growth range from zero percent to 50 percent. Cost controls, increases in demand, and new sales strategies are expected to drive profitability up in 2010.

Commercial Real Estate
While some contacts remain downbeat about the region's commercial real estate market, others note modest improvements in market conditions. Reports of leasing and sales activity are somewhat mixed. Activity is "very limited" in Hartford and, according to one contact, "very slow" in Boston. However, another Boston contact reports a modest increase in office leasing volume in recent weeks--at rock-bottom rents--and a Providence contact perceives an increase in deals under negotiation. While one contact describes Boston's investment sales market as "dreadful," another reports that volume is higher recently than it was earlier in the year. In Hartford, deals consist of short-term renewals of expiring leases, in which tenants have been willing to pay asking rents in exchange for flexibility on the lease term. In Providence, tenants continue to drive very hard bargains on both rents and improvements. A contact at a Boston-based mutual bank noted an increase in commercial real estate loan delinquencies and in the number of borrowers asking to restructure loans based on anticipated repayment problems.

Two contacts currently express greater optimism concerning the outlook for 2010 than in the previous report, while others remain pessimistic or uncertain. The sources of optimism include anticipated demand for commercial space by the public sector, positive GDP growth forecasts, and stock-market-related improvements in investor sentiment. Sources of pessimism include weakness in retail sales, slow employment growth, and looming bank failures related to commercial real estate loans.

Residential Real Estate
Home and condo sales in New England increased significantly in November 2009 compared to the previous November. Much of this increase can be attributed to the original November 30th deadline for the first-time homebuyer tax credit. Although the tax credit has since been extended and expanded, many consumers earlier set up deals for November closings to take advantage of the credit they thought would not be available after the month ended. Thus, November home sales increased from 50 percent to 75 percent year-over-year across the region. In addition to the expiring tax credit, contacts attribute the steep year-over-year increases to the fact that November 2008 was a particularly poor month for home sales because of the stock market collapse in the fall of 2008. Nevertheless, pending sales numbers in November looked strong in Boston and the rest of Massachusetts, suggesting that sales may continue to increase in the coming months, at least until the new tax credit expires. Contacts are concerned, however, that ongoing declines in inventory in Massachusetts and Rhode Island will constrain sales unless the expansion of the tax credit to "move-up buyers" brings more sellers into the market.

Home prices did not show as much improvement as sales in November. Median prices declined modestly year-over-year in New Hampshire and Maine, while increasing by about 1 percent in Massachusetts and Rhode Island. However, as in recent months, median prices were probably affected by the concentration of sales among first-time homebuyers. Condo markets also saw large sales increases and moderate price declines in November.

Return to topReturn to top

Previous Summary New York Next

Home | Monetary Policy | 2010 calendar
Accessibility | Contact Us
Last update: January 13, 2010