The Federal Reserve Board eagle logo links to home page

Beige Book logo links to Beige Book home page for year currently displayed September 6, 2006

Federal Reserve Districts

First District--Boston

Skip to content

New York
St. Louis
Kansas City
San Francisco

Full report

Reports on business conditions in the First District through the middle of third quarter are more mixed than six weeks ago, but still largely positive. Most retailers, manufacturers, and staffing firms report gains in revenues or sales from a year earlier, although selected respondents--most in housing-related areas--indicate that business is flat or down. Software companies are realizing strong growth and commercial real estate markets continue to firm. Rising input costs are an ongoing concern, although many contacts indicate they are able to raise their selling prices. With the exception of selected highly skilled occupations, increases in base pay remain moderate.

Retail respondents in the First District generally report sales slightly ahead of year-earlier levels for the summer months, with same-store sales increases ranging from 1 percent to 8 percent. The one exception is a contact in the lumber and home improvement industry who reports same-store sales down almost 20 percent from last year, a change he largely attributes to a downturn in the housing market.

Inventory levels are generally satisfactory. The majority of retail contacts report cost increases for energy-related products; increases are also reported for liquid sugar, paper, poultry, and beef, while dairy and lumber costs are down. When possible, contacts have passed along small price increases to their consumers. For the most part, employment has been steady, with some hiring occurring in relation to new store openings. Capital spending is mixed, with several companies scaling back capital spending plans in response to slower sales growth.

While responding retailers say they expect current conditions to persist, most also express more caution regarding the outlook than previously.

Manufacturing and Related Services
First District manufacturers and related services providers report mixed business trends in the second quarter and early third quarter. Sales of home furnishings, home construction products, and consumer-oriented paper products are reported to be either down from a year ago or starting to show weaker growth. Sales of residential plumbing and temperature control equipment continue to do well, but are expected to decrease two to three quarters out. Demand continues to grow strongly for aircraft, health and fitness, energy-saving, and security-related products and equipment. One respondent reports benefiting from rising defense expenditures, but a couple of other companies indicate that the current defense spending mix is hurting their company's sales. Most manufacturing contacts project that their inventory levels will hold steady or decrease slightly through the end of the year.

Most respondents indicate that they are continuing to experience increases in input costs. Contacts point to energy and transportation, metals, paper, and chemicals as sources of cost pressure. A couple of firms mention that steel prices have risen less than they had anticipated, while another describes steel prices as being "on a rollercoaster." Virtually all companies with higher materials and energy costs are raising their selling prices to some extent. On the whole, they report being able to pass along a greater share of cost increases to industrial and commercial than to retail customers.

Most manufacturers report that their U.S. headcounts are stable or increasing slightly. Base pay increases typically remain in the range of 3 to 4 percent. However, tight markets for finance, information technology, engineering, and scientific personnel are leading to an acceleration in salary increases, large signing bonuses, or higher turnover. Domestic capital spending plans for 2006 are mixed, but more manufacturers expect to increase than decrease their expenditures compared to a year earlier.

Contacts are tending to adopt a "more of the same" stance with respect to business projections for late 2006 and early 2007. Even though some respondents cite risks associated with deteriorating demand for their products, the prevailing attitude seems to be that any surprises are likely to be manageable.

Software and Information Technology Services
Business appears to be growing steadily at software and IT services companies in the First District, with the majority of firms reporting double digit year-over-year revenue increases in the most recent quarter. Contacts state that the market is competitive, so most have kept prices unchanged.

Contacted companies are adding technology workers and sales staff, with companies serving the healthcare sector indicating they are hiring aggressively in order to keep pace with demand. All responding firms with plans to hire report tightening in the labor market, especially for specialized technical positions; several firms note that they feel some upward wage pressures for those positions. Respondents report annual wage increases for most employees between 3 percent and 7 percent, while wages for highly-skilled technical positions are up by as much as 15 percent. Several software and IT services contacts indicate they are increasing capital and technology spending to expand facilities and upgrade equipment.

First District software and information technology firms expect steady growth for their companies in the second half of the year, with the exception of firms serving the manufacturing sector, who say they expect demand to decline.

Staffing Services
Reports on business conditions in the New England staffing industry are mixed this quarter, with the only unifying theme among contacts being that things are not going as expected. Firms that are usually very busy in the summer months have had a weak quarter through mid-August, while firms that typically have a slow third quarter have been experiencing high growth rates.

For one Connecticut firm, "this has certainly not been a banner year;" the firm lost money during the first half of the year and only recently started to see a slight turnaround. Another contact reports, "Nobody's booming …everybody's hustling. Things are off a bit." By contrast, an information technology staffing firm is experiencing year-over-year revenue growth between 25 percent and 30 percent, while a professional and technical staffing firm reports that its billing and cash receipts are up almost 100 percent from a year ago. Currently, demand for labor is strongest in the information technology, financial, and healthcare sectors. Some respondents still report that tight labor supply in these areas is forcing them to increase their expenditures on recruiting and is putting pressure on wages. When asked about their expectations for the remainder of the year, contacts are ambiguous. Overall, however, respondents reporting growth expect more of the same, while those reporting poor results express uncertainty.

Commercial Real Estate
Centrally located office space across New England continues to perform well. Boston's core business district office availability (vacancies plus sublease) has improved slightly but remains between 12 percent and 13 percent. Rents are stable or up across the region, with premium office space in Boston priced at around $50 per square foot. Contacts still say that job creation is critical to the health of specific markets. Enhanced job creation in smaller downtowns, such as Providence, is driving growth. Conversely, contacts view Boston's current slow rate of job creation as potentially hampering future vacancy reductions.

Commercial real estate investment continues to rise in New England. One contact suggests that in Boston, increasingly aggressive underlying assumptions for commercial real estate transactions--high future occupancy, low capital expenditure and significant future rent increases--are justifying higher commercial real estate prices. Correspondingly, commercial real estate yields based on current market conditions have been further compressed. Contacts believe that the amount of commercial real estate investment in New England will continue to grow. Belying the investment assumptions, however, respondents suggest that office vacancies and rents may remain primarily stable over the next quarter.

Return to topReturn to top

Previous Summary New York Next

Home | Monetary Policy | 2006 calendar
Accessibility | Contact Us
Last update: September 6, 2006