May 31, 2017
Summary of Economic Activity
Reports from business contacts in the First District were slightly less positive in mid-May than in early April or February. The overall pace of growth was modest. Retail contacts were evenly divided between small declines and small increases in sales from a year earlier. One-half of responding manufacturers reported year-over-year revenue gains, but most of the others cited decreased sales. With one exception, staffing-firm contacts reported revenue declines, mostly reflecting a dearth of applicants to fill their clients' positions. Commercial real estate markets were mostly unchanged, with stable leasing activity. Residential real estate markets were reportedly strong, despite low inventories. Labor markets remained tight, and employers said wage increases were modest to moderate. Firms continued to report that price pressures were modest. The outlook generally continued to be positive, although a bit less so than in the last round.
Employment and Wages
Respondents in several sectors mentioned tight labor markets. None of our manufacturing contacts reported any significant hiring moves either up or down. A maker of envelopes said that they expected to hire significantly in the near future but not right now. Several manufacturing contacts said it was hard to find qualified workers. A manufacturer of semiconductors and related goods said that they had to raise starting wages to fill vacant positions in New England. A manufacturer of furniture said that retaining new hires was a major challenge as some workers quit within days of being hired. Staffing firms continued to report strong labor demand and tight labor supply. They singled out the following positions as particularly hard to fill: systems administrator, network engineer, and medical assistant. All contacted staffing firms indicated that bill and pay rates had increased.
Prices
Price changes remained modest. Retail contacts continued to report that input and selling prices were steady or increased slightly. Manufacturing contacts reported modest pricing pressure. An industrial distributor said that they had seen vendors successfully increase prices for the first time in several years. Otherwise, manufacturing firms reported mixed changes of modest size in input and selling prices and no price surprises from vendors. Home prices increased, driven by strong buyer demand confronting low inventories: Median sales prices of single family homes and condominiums increased year-over-year across the board, with the exception of condos in Vermont. With supplies dwindled and demand robust, upward pressure on housing prices is expected to persist across the First District.
Retail and Tourism
Retail contacts consulted in mid-May reported that year-over-year comparable-store sales ranged from low-single-digit declines to low-single-digit gains. Furniture sales were said to have been unexpectedly soft. Other retailers attributed some of the weakness in sales to decreased customer traffic in brick-and-mortar stores. While some contacts said the outlook for the rest of 2017 is a bit uncertain, most continued to expect that sales will end up growing by low single-digit percentages over the year.
Manufacturing and Related Services
Of the eight firms contacted in mid-May, three reported lower sales, one reported flat sales, and the balance reported higher sales. Reasons for weakness were varied. A firm that makes envelopes attributed flat sales to uncertainty among its financial customers about future government policy. A chemical firm said greater exports from China were putting downward pressure on the price of one important chemical and cutting into its international business. A firm that provides veterinary services indicated that patient visits were down due to the weather. By contrast, an industrial distributor said that sales were up year-on-year in April for the first time in two years. A manufacturer of lab equipment reported higher sales but said that uncertainty about government policy was slowing demand.
No contacts reported revisions to capital spending plans. An aerospace and industrial distribution firm said that they had placed a convertible bond last week and there was strong demand.
The outlook was generally positive but cautious. One contact said they initially attributed down sales earlier in the year to the fact that the relevant comparison period, the first quarter of 2016, was exceptionally strong, but continued weakness has made them wonder. Several contacts expressed concern about policy uncertainty and said that was holding back spending.
Staffing Services
All of the contacted staffing firms in New England saw revenues decline year-over-year for their temporary placements, while one respondent saw an overall increase in revenue because of strong activity on the permanent placements side of the business. Although one firm recently lost a big client and seeks to broaden its listings, the revenue declines mostly reflect difficulty recruiting applicants. Firms are brainstorming and trying new ways to recruit people to fill their clients' jobs. Two firms are spending more money on recruitment. Two firms are working with non-profits to find and attract more qualified employees. One firm hired an additional internal staff member who will focus on social media as a recruitment tool. Two firms raised their referral and signing bonuses and one firm will pay college tuition for qualified employees to receive a degree related to their job. Looking forward, staffing firms are not as optimistic as they were last quarter.
Commercial Real Estate
Commercial real estate markets were mostly flat in the First District in recent weeks. In greater Hartford, office leasing remained subdued as foot traffic slowed further. In Boston, office leasing activity and vacancy rates were said to be stable, but contacts reported that few firms outside of the life sciences industry were expanding their footprints. Some life sciences firms seeking to add space in greater Boston have turned to converting vacant suburban office space into laboratory space. Also in the Boston area, office construction remained limited while apartment construction has shifted increasingly to the suburbs. Commercial real estate activity was also stable in Portland, with continued light leasing activity in the office market and strong demand from developers for vacant industrial space and for the construction of hotels and high-end urban condominiums. Contacts across the District reported that investment sales demand held steady while the supply of commercial properties for sale stayed flat or declined and was quite low in absolute terms. Most contacts forecasted that market conditions would stay the same or improve modestly going forward, but the outlook remained less optimistic in Connecticut, which has seen flat employment in the past year and faces a severe state budget deficit.
Residential Real Estate
Residential real estate markets in the First District saw a strong start to spring. For single family homes, closed sales were up year-over-year from March 2016 to March 2017 in three of the six First District states, while pending sales increased year-over-year in every state but Rhode Island. For condos, closed sales increased year-over-year in every state. A contact in Boston reported that "March is historically a telling month for how the spring market is going; with positive sales numbers we experienced last month and buyer demand we're seeing, it's clear that we're set for a very busy market." Low inventory continued to present challenges for buyers, however, especially those purchasing a home for the first time. Inventories fell on a year-over-year basis in every state. A Massachusetts contact noted that inventories have been at all-time lows for months and said "without more inventory, prices will continue to rise and price buyers out of the market."
Most contacts seemed optimistic about market activity and continued strong buyer demand, despite the strains on inventory. Many noted that low unemployment has helped spur consumer confidence, which contributes to the demand for residential real estate.