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Beige Book Report: Boston
June 2, 2021
Summary of Economic Activity
Business activity in the First District expanded at a moderate pace on average, with notable variation across sectors. Restaurant sales were up sharply in recent months, surpassing their comparable 2019 levels. Automobile and home furnishings sales were flat but at very high levels, and a discount retailer saw moderate sales increases. Most manufacturers reported moderate to strong revenue increases, while two had flat but robust sales. Commercial real estate markets were mostly stable but retail leasing increased notably. Residential real estate sales rose moderately as recent data point to increased listings. Labor demand strengthened, but hiring was held back by widespread labor shortages. Amidst intensified recruiting efforts, wage increases varied across sectors. Prices held mostly steady despite growing cost pressures at some businesses, although restaurant prices rose sharply. Contacts generally maintained a cautiously optimistic outlook.
Employment and Wages
Labor demand strengthened but many firms reported difficulties in hiring and retention. Staffing firms reported high demand for labor across a range of sectors. Retail headcounts were level despite accelerating labor demand, as firms—especially restaurants—faced pronounced labor shortages. Manufacturers described ambitious hiring goals: one planned to hire 10,000 workers and another had open positions equal to more than 10 percent of total staff. While the former firm did not anticipate market constraints on labor supply, other manufacturers reported unusual difficulties finding workers. In this context of higher labor demand, wage increases were slight to moderate among manufacturers, wages for restaurant workers also went up, and selected hourly workers enjoyed wage increases of up to 30 percent. Signing bonuses and enhanced recruiting efforts were mentioned with increased frequency. Among the barriers to labor supply, firms cited generous unemployment benefits, childcare responsibilities, and safety concerns.
High demand and low inventory in the auto industry led to modest price increases. A few manufacturers complained of further upward pressure on input prices—such as freight—but held back from raising prices in favor of cost-cutting measures. Other manufacturers reported no substantive pricing pressures. In Massachusetts, restaurant prices increased sharply to cover increased labor and food costs, and a furniture retailer faced increased wholesale pricing pressure but did not report any price increases. Staffing bill rates were either flat or up slightly.
Retail and Tourism
According to contacts, since March retail sales were stable or moderately higher and restaurant sales surged, while through March hotel occupancy rates showed little improvement from winter. New and used automobile sales were roughly steady at a very strong pace, straining inventories. The scarcity of processing chips continued to restrain production at some carmakers, threatening an otherwise strong market for 2021. A salvaged goods chain reported moderately increased sales in recent months, with revenues up 6 percent from the same period in 2019. Online sales of home furnishings remained robust and sales of outdoor furniture increased earlier in the season than expected. A contact perceives that the market for outdoor furniture expanded in the pandemic and will stay strong.
Restaurants across Massachusetts experienced a dramatic uptick in sales in April and May, with recent revenues exceeding those in the same period of 2019. April also brought the reopening of the majority of the roughly 500-700 restaurants in the state that temporarily closed over the winter. The return of widespread outdoor dining fueled the initial surge in sales, but more recently dining room sales increased as well. Conventions in Boston remain canceled through the fall, but major outdoor events slated for October—including the Boston Marathon—are anticipated to bring large numbers of visitors to the area. As of March, hotel occupancy rates in greater Boston stood at around 25 percent, similar to the previous report, but contacts remain optimistic for summer tourism.
Manufacturing and Related Services
Of the eight firms contacted this cycle, six reported moderate to strong revenue gains in 2021Q1 from the previous quarter and two said that sales were roughly flat. All reported higher sales versus the same period a year ago. Year-over-year growth was exceptionally strong for suppliers to the semiconductor and health care industries, respectively, and a provider of diagnostic services to veterinarians also reported strong sales increases from one year ago. These results were not distorted by pandemic-related declines in 2020. Two firms that reported being inundated with orders pointed out that customers were placing the same order with multiple suppliers, and so felt that results were perhaps inflated relative to true demand.
Contacts cited two main limits to growth: labor scarcity and supply chain issues. The dearth of semiconductors remains a major problem, but contacts also cited long lead times for a variety of other inputs. Supply constraints held back production for some contacts, but most were able to meet their output goals and none made major revisions to their capital expenditures plans. All contacts were optimistic for the rest of 2021 and some revised their forecasts up. All anticipated relaxing any remaining COVID restrictions over the summer.
First District staffing firms reported mixed results ranging from modest revenue declines to robust gains in the first quarter of 2021 from the previous quarter. Two out of four firms said that 2021Q1 had been their strongest quarter since before the pandemic, with sales increases as high as 28 percent. Firms described labor demand as robust across most fields, and especially strong for direct hires in skilled positions. Conversions from temporary to permanent employment increased. Contacts expressed growing concerns about weak labor supply, but one said there was an ongoing surplus of low-skilled workers. One firm reported sharply higher pay rates for selected positions and said that the higher rates reflected a combination of labor scarcity and growing business confidence. Other firms launched new recruiting campaigns to combat labor scarcity. Some contacts perceived that generous unemployment benefits were the deciding factor holding back labor supply, but others expected at least a modest boost in labor supply as vaccination rates climbed and infection rates declined.
Commercial Real Estate
Commercial real estate markets in the First District were stable or improving. Robust demand for warehouse space amid low inventories translated into very rapid sales of listed properties. Industrial construction was seen as still profitable despite high construction costs, but some contacts warned that further cost increases could become prohibitive. Life sciences construction plans expanded moderately to include Rhode Island, despite remaining concentrated in the Boston area. Contacts were encouraged by fresh gains in retail leasing activity, due to a spate of openings and relaunches of restaurants and smaller stores, but noted that large-format retail leasing remained weak. Office leasing showed no signs of improvement and the outlook for eventual office occupancy rates and rents remains uncertain. Contacts expect to have a clearer picture of the office market after Labor Day, which is when many firms are expected to bring greater numbers of workers back to the office.
Residential Real Estate
Residential real estate markets posted robust sales and further price increases to March and April 2021, with growing strength in condominium sales. Vermont reported changes from March 2020 to March 2021 while all other reporting areas provided changes from April 2020 to April 2021; Connecticut data were unavailable.
Closed sales, pending sales, and median sales prices increased by moderate-to-large margins over-the-year in all reporting areas, indicating a moderate acceleration in activity since the previous report. Condominium sales showed particular strength, with pending condo sales up more than 100 percent in all reporting markets. However, the outsized over-the-year sales gains in part reflect the low sales levels in March and April of 2020, when the market was on pause due to COVID-19. As in the last report, homes for sale are down by double digit percentages for all reporting markets, although the Boston condo market saw a moderate increase in supply. Although contacts continued to worry about low inventories, the Massachusetts contact pointed out a substantial increase in listings in April, and some expected a seasonal increase in listings in the coming months.