Federal Reserve Bank of Boston
Summary of Economic Activity
Economic activity was mixed, increasing modestly overall. Employment and wages were flat, and prices increased only slightly. Consumer spending was mixed, as retailers and restaurants owners posted slightly softer sales, but tourism spending grew modestly. Consumers were described as increasingly inclined towards discounted goods and services. Manufacturers reported modestly higher revenues, on average, while staffing firms experienced somewhat softer demand for labor. Contacts reported substantial increases in single-family home sales and small-to-moderate increases in condominium sales. In contrast, commercial real estate activity was mostly flat. The outlook was a mix of optimism—mostly about home sales—and increased caution about the direction of consumer spending and labor demand.
Labor Markets
Employment levels were unchanged on balance and no major layoffs were reported. Wages were flat from the previous quarter but continued to rise moderately on a year-over-year basis. Staffing contacts said that job creation had slowed owing to increased caution in the face of economic uncertainty. Employers reportedly became more selective about workers' qualifications and did not face substantial hiring difficulties. Restaurant and retail contacts even said that labor supply had improved somewhat, facilitating replacement hires. Nonetheless, certain positions, especially temporary roles, remained difficult to fill. Manufacturers reported moderate annual wage growth rates on average, although one said that merit increases put in place earlier in the year had been above average. With rare exceptions, firms did not plan to expand their workforces moving forward, but no major layoffs were planned either. Hotel industry representatives faced the possibility of a large-scale worker strike pending the outcome of upcoming contract negotiations. A workforce development contact expressed increased pessimism concerning job prospects for their trainees, as recent graduates had faced unexpected difficulties finding suitable jobs.
Prices
Prices increased slightly on average, but the reported changes included decreases as well as increases. Retailers aimed at gently lowering their average prices to consumers, whether by direct price reductions on selected goods or by shifting product mix towards lower-priced items. For example, a clothing retailer will enact planned price reductions in September on popular items in a bid to win back customers deterred by a series of price increases since the pandemic at the chain. Hotel room rates in greater Boston increased just 1.3 percent from a year earlier, the lowest growth rate in that market in recent years. Manufacturers held output prices steady in the most recent quarter but reported year-over-year price increases ranging from average to above-average. Across industries, non-labor input prices increased modestly on average, reflecting a general easing of non-labor cost pressures, including wholesale food prices, over the past year. Most contacts expected pricing pressures to stabilize or slow further moving forward, but one manufacturer included upside cost risks in their outlook.
Retail and Tourism
Retail and restaurant sales were slightly weaker overall in recent months, but tourism spending expanded modestly. A clothing retailer experienced improved results that nonetheless still reflected slight declines in sales on a year-over-year basis. A discount retailer also recorded modestly weaker sales from one year earlier, citing flagging sales of higher-priced items such as furniture and flooring, but added perspective by noting that year-ago sales had been especially robust. A Massachusetts restaurant industry contact reported a slight softening of demand throughout the state but added that certain neighborhoods, such as Boston's Seaport, continued to thrive. Hotel occupancy rates in greater Boston were stable in recent months and were up two percent on a year-over-year basis, consistent with annual growth rates observed earlier in the year. Restaurants expected sales to continue to trail last year's results slightly. Retailers were cautiously optimistic that planned improvements in products and pricing would boost sales volumes over the remainder of the year. Tourism contacts remained optimistic for strong hotel and convention activity in the Boston area into 2025.
Manufacturing and Related Services
Among First District manufacturing contacts, average revenues increased modestly from the previous quarter. Results generally met or exceeded expectations. However, a maker of veterinary products noted that sales had declined slightly on a year-over-year basis, extending a trend that has been in place for several quarters and that was attributed to increasingly strained consumer budgets. Capital expenditure plans were unchanged, although one contact noted that their capital projects had proceeded more slowly than anticipated in the first half of 2024. On average, contacts expected flat or modestly higher sales moving forward. However, the veterinary contact revised its forecast downward to predict further declines in sales, consistent with its recent year-over-year results. Other contacts maintained a stable or slightly more optimistic outlook.
Staffing Services
Staffing firms' revenues declined modestly on average from the previous quarter, but results ranged from substantial reductions to slight increases. Contacts' views on the state of the labor market also diverged, as some saw flat or weakening labor demand, while others reported robust staffing needs for selected roles. Even though demand for temporary hires was down at some firms, supply of temporary labor reportedly still fell short of demand. Firms expected mostly flat or even declining demand for their services moving forward, despite some upside demand potential coming from the healthcare industry.
Commercial Real Estate
First District contacts described commercial real estate activity as mostly flat, but with improvements along some dimensions. Leasing activity was generally steady across sectors, an outcome that exceeded seasonal expectations, and rents and vacancy rates were also mostly unchanged. Leasing activity stayed much weaker for office properties than for industrial and retail spaces. Contacts agreed that remote work arrangements had dented office demand in a permanent way and that the market was still adjusting. They cited a growing number of financially distressed office buildings that might eventually be torn down. Nonetheless, contacts saw signs that the office market may have bottomed out, as investors showed renewed interest in the sector. Lending activity was also up slightly—particularly for multifamily and senior housing—but large loan originations remained scarce. One contact noted a modest increase in multifamily construction in Boston's nearby suburbs. The outlook improved slightly on balance, but contacts remained very nervous about distressed office properties and cautioned that softer consumer spending could hurt retail properties.
Residential Real Estate
Single-family home sales in the First District increased by large margins compared with one year earlier, based on data representing the New England states except Connecticut. The average growth rate of sales was well into the double digits—the strongest showing for single-family sales in over two years. Condominium sales were also up from the summer of 2023, by at least small percentages in all states and by large margins in Vermont and Rhode Island. Industry contacts attributed the stronger sales to recent declines in mortgage rates along with increased inventories. Home prices continued to climb at a moderate pace on average on a year-over-year basis, but prices were said to be levelling off in Massachusetts. Contacts were mostly optimistic that strong sales would persist into the fall season, especially if mortgage rates fell further as some contacts expected; others, however, maintained a more cautious posture based on the uncertain timing and size of interest rate cuts by the Federal Reserve.
For more information about District economic conditions visit: https://www.bostonfed.org/in-the-region.aspx.