The Federal Reserve Board eagle logo links to home page

Beige Book logo links to Beige Book home page for year currently displayed January 17, 2007

Federal Reserve Districts


First District--Boston

Skip to content
Summary

Districts
Boston
New York
Philadelphia
Cleveland
Richmond
Atlanta
Chicago
St. Louis
Minneapolis
Kansas City
Dallas
San Francisco

Full report

New England business contacts cite mixed results in the closing months of 2006. Manufacturers and advertising and consulting firms mostly report satisfactory revenue increases from a year earlier. A number of retail contacts say they are disappointed by their holiday sales results or have been hurt by the housing slowdown. Residential real estate markets are very soft. Price pressures have reportedly moderated, except for selected items, including some metals. While it remains difficult to hire highly skilled workers, firms are typically adding to headcount only selectively if at all.

Retail and Tourism
Retail respondents in the First District report mixed results for the months of November and December. Same-store sales range from low double-digit decreases to high single-digit increases year-over-year. Several respondents report sales increases, but indicate that they do not meet expectations.

A lumber company reports sales down 11 percent year-over-year primarily because of the housing slowdown. A retailer of clothing and outdoor gear says sales were strong until Thanksgiving, but inexplicably soft "across the board" during the period from Thanksgiving to Christmas. An office supply retailer notes a "lukewarm" holiday, with core business products (ink, paper) and novelty items doing very well, but sales of electronics softer than expected. A discount clothing retailer successfully adopted a new strategy for the holiday season by offering more gift items such as accessories, toys, and jewelry, while a pharmacy chain announced a year-over-year increase of more than 8 percent in same-store sales.

Inventory levels are mixed, with several contacts reporting higher-than-expected levels due to slow sales. Some retail contacts cite cost increases for energy-related products, and several report passing along small price increases to their consumers. Employment has been mostly steady, with some hiring occurring for new store openings. One respondent, however, has cut staff by 18 percent on account of a decline in sales. Capital spending plans are mixed.

A tourism contact reports that tourism and travel have exceeded expectations in the Boston metropolitan area. Business travel was strong in the fall. Revenue per available room in Boston is at an all-time high and is expected to continue to grow; occupancy is also projected to continue to be strong. This contact says advanced bookings are still low, and international travel is weaker than expected.

Overall, most retail contacts are hopeful but cautious in their outlook. Tourism is expected to remain strong, but 2007 tourism and travel may fall short of record-breaking 2006 results.

Manufacturing and Related Services
First District manufacturers and related services providers generally report that fourth quarter 2006 revenues remained "on track" and were above year-ago levels. Sales trends for aircraft and energy sector equipment and biopharmaceuticals are said to be particularly robust. However, contacts note that business segments connected to consumer spending or housing construction deteriorated in late 2006, and for the most part they expect continued softening through the first part of 2007. For example, a semiconductor company said that its consumer electronics customers over-ordered for the holiday season, and a product-labeling firm reported that business "fell off considerably" in November and December.

Some manufacturers report increases in metals costs in late 2006, including unexpected hikes for steel and zinc, and they are raising their selling prices in response. One firm indicates that costs of silicon wafers are rising as a result of strong demand from the solar energy industry, while another notes that costs of polymers have fallen. Otherwise, respondents mostly report that input costs and selling prices are flat or following their normal trends.

Most manufacturing respondents expect their U.S. capital spending and employment levels to hold steady or decrease in 2007. Average merit pay increases mostly are expected to remain in the range of 3 percent to 4 percent, with much higher increases in benefits costs. Contacts say that engineering and machinist positions are especially hard to fill, and that finance and accounting professionals are in great demand as a result of the Sarbanes-Oxley legislation.

On the whole, manufacturers describe their prospects for 2007 in terms such as "good," "solid," and "decent," while acknowledging the risks of an economic slowdown that could affect their business. However, companies directly dependent on residential construction expect that these markets will continue to soften, and some makers of consumer products express concern about their sales outlook in the new year.

Selected Business Services
All responding First District advertising and management consulting firms enjoyed improving business conditions and revenue growth in the final quarter of 2006, with most firms reporting double-digit gains over a year ago. Most respondents are seeing larger projects or orders from their clients, which they view as a sign of their clients' confidence in their own businesses. Demand for efficiency- and productivity-enhancing consulting services remains strong, and one consulting contact notes an increased demand for outsource consulting.

Most responding companies have earned modest price increases over year-ago levels, and several anticipate making moderate upward price adjustments in the coming months. Input costs are relatively stable, although a few contacts continue to note increased travel costs.

Headcounts are growing in response to demand, but at a slightly slower rate than revenues. Contacts note that the labor market for highly skilled individuals remains tight and is feeding through into wages. Respondents plan to increase wages between 3 percent and 8 percent in 2007.

The majority of contacted New England advertising and management consulting firms expect revenue growth in the first half of 2007 to continue at, or slightly above, the pace in the second half of 2006.

Residential Real Estate
Across New England, the pace of residential sales continues to be slow compared to recent years. Sales volume has declined across New England, with Massachusetts, Connecticut, and New Hampshire all seeing year-over-year reductions in total sales in excess of 10 percent. In Massachusetts, the average number of days on the market has increased by more than 35 days since November 2005, and was around 130 days for single family homes and 120 days for condominiums.

The slower sales pace has translated into significant year-on-year inventory growth across the region. One Rhode Island contact reports having nearly six times as many listings as last year. In Massachusetts, single family inventory increased 25 percent year-on-year in November while condominium inventory was up nearly 37 percent. There is currently more than 11 months of supply in the Massachusetts market; contacts indicate that conditions favor buyers if supply exceeds 7.5 - 8.5 months.

Buyers continue to exercise patience across New England. Contacts now attribute slow sales to this patience and not to unrealistic pricing. Median selling prices continue to decline across the region. The median single family price declined 4 percent from November 2005 to November 2006 in Massachusetts, marking the 10th straight month of price declines. Condominium prices increased nearly 2 percent for this same period, but this was the first year-over-year price increase in five months. Published repeat-sales home price indexes are also weak, with four of the six New England states registering at least one quarter-to-quarter decline in Q2 and Q3 of 2006.

Contacts note that the declines in sales and prices have slowed in recent months and suggest that New England markets may be approaching a bottom. This indication is by no means clear and contacts report that spring sales will give a more direct image of any possible recovery.

Return to topReturn to top

Previous Summary New York Next


Home | Monetary Policy | 2007 calendar
Accessibility | Contact Us
Last update: January 17, 2007