Federal Reserve Bank of Boston
Summary of Economic Activity
Economic activity was down a bit on balance in this reporting period, driven in part by unusual weather patterns that delayed seasonal goods purchases. Prices increased at a slight pace. Employment held steady despite a slowdown in hiring demand, and wage increases were modest. Consumers held back on restaurant spending, leading to softer sales, and uncharacteristically warm and dry fall weather crimped purchases of apparel and snowmobiles. Manufacturing sales increased modestly, with one firm benefiting from strong AI-related demand. Revenues at staffing firms declined modestly amid slower hiring activity. Commercial real estate activity was flat, but contacts perceived that demand was stabilizing in the office sector. Home sales increased moderately on average, with recent data showing increased momentum in Massachusetts. The outlook was neutral on average, but sentiments were quite mixed, and many contacts expressed elevated uncertainty concerning the direction of the economy.
Labor Markets
Employment was flat in recent weeks. Staffing contacts noted that hiring demand weakened a bit due to a combination of election-related uncertainty and ongoing rightsizing, but no major layoffs were reported. Broadly speaking, labor demand was weaker for white-collar workers than for workers in blue-collar and personal services roles, and labor supply was seen as stable overall. Restaurants reported a welcome increase in the number of job applicants but struggled to attract those with adequate management experience, and restaurant headcounts were unchanged. Manufacturing employment was stable on average, with small increases or decreases at some firms. Wage increases were modest on average and generally lower than they had been in the preceding three years. The hiring outlook was cautious given uncertainty over the direction of the economy, and only one firm reported plans to increase hiring.
Workforce development contacts experienced weaker demand for their services, which they attributed to low unemployment rates and the recent policy of free community college in Massachusetts. A contact in the New Hampshire automotive industry was optimistic about concerted state policy efforts to increase labor participation in the skilled trades.
Prices
Prices rose at a slight pace on average, with the largest increases coming from insurance. A clothing retailer lowered prices on selected products in September to boost flagging sales. Menu and food input prices were unchanged in recent months. New and used car prices declined a bit in recent months, reflecting increased inventories and an associated rebound in consumer bargaining power. Manufacturers' output prices were largely flat, and their input prices were up slightly. Staffing services firms held their billing rates steady despite reporting modest average cost increases, but one firm experienced significant increases in health insurance costs and expected soon to raise its bill rates in response. Insurance costs increased moderately for multifamily properties. Only a few contacts said they planned to raise their prices moving forward, and increases were expected to be modest.
Retail and Tourism
Retail and restaurant sales were moderately weaker in recent months. A clothing retailer experienced a sharp decline in sales—attributed in part to the especially warm and dry autumn in New England—as sales of cold-weather apparel came in well below expectations. Automobile sales in New Hampshire were down in October but rebounded in recent weeks, landing slightly below levels from the previous quarter. Snowmobile sales were down sharply from the same period last year, with recent weather patterns again cited as a contributing factor. A discount retailer recorded modestly weaker sales from one year ago. A Massachusetts restaurant industry contact said that sales softened modestly across the state in recent weeks, extending a trend that started this past summer, and cited strained consumer budgets as the cause. Retailers were concerned about recent weakness in sales but were optimistic that more seasonable weather would contribute to firmer sales for the holiday season. Restaurants expected sales in late 2024 and early 2025 to continue to lag results from the previous year.
Manufacturing and Related Services
Manufacturing sales increased modestly from the previous quarter on average, in line with firms' expectations. One firm reported only flat sales over the quarter but posted a moderate increase from one year earlier, and another said that AI needs were their main demand driver. Capital expenditures were mixed, with half of firms revising their spending levels down slightly for the second half of the year and the other half revising them up slightly. Firms expected modest to moderate growth for the fourth quarter and into 2025. However, since last quarter, one firm revised its annual growth estimate for 2024 downward to a less bullish but still moderate pace, and another became somewhat more optimistic for fourth quarter sales.
Staffing Services
First District staffing firms experienced mixed changes in demand, and revenues decreased moderately on balance despite rising sharply for one firm. Hiring demand weakened overall but contacts reported increased demand for some roles, including light industrial, administrative, skilled manufacturing, and convention services, and weaker demand for finance, accounting, and engineering roles. Employers remained selective in their hiring decisions, to roughly the same extent as they had been in the previous quarter. Contacts expected flat to slight growth in staffing demand moving forward, and their views concerning the overall economic outlook ranged from moderately optimistic to uncertain and somewhat pessimistic.
Commercial Real Estate
Commercial real estate activity in the First District was about flat on average. Industrial leasing activity slowed somewhat, and industrial rents fell modestly. Retail leasing activity and rents held steady. Investment demand for multifamily housing remained strong, and apartment rents increased moderately. Planned multifamily construction was on the rise but contacts emphasized that many cities and towns were resistant to new buildings. Office leasing activity was mostly flat at very low levels, but one contact reported an uptick in leasing interest among high-tech firms in Boston. Some contacts perceived that the office market was hitting bottom in terms of leasing activity, although rents for lower-quality properties continued to decline. No foreclosures were reported, but contacts still expected certain underperforming office buildings to eventually default. Lending activity was stable or up slightly, but recent increases in long-term rates deterred some borrowers. One contact expressed concerns of a possible resurgence in inflation in construction costs. Some contacts adopted a more cautious outlook because of perceived uncertainty, and others saw upside potential for commercial leasing and construction activity for 2025.
Residential Real Estate
In year-over-year results through either September 2024 or October 2024, First District residential sales increased moderately on average, although sales fell in both Vermont and Rhode Island (Connecticut furnished no data). Those results were a bit stronger than those reported in August, suggesting rising demand. Indeed, home sales increased sharply in Massachusetts in October from the previous month, exceeding seasonal expectations, but no information on monthly changes was available for other parts of the District. Inventories of homes for sale rose substantially on a year-over-year basis in every reporting state except Massachusetts, where inventories were down slightly over the year. Home prices increased moderately on a year-over-year basis, although prices softened somewhat in the greater Boston area in September for the third straight month. The outlook for the remainder of 2024 was mixed, with contacts in Rhode Island expecting further weakness in sales and contacts elsewhere forecasting stable activity.
For more information about District economic conditions visit: https://www.bostonfed.org/in-the-region.aspx.