Beige Book: Economic activity increasing, but signs point to slower growth ahead

ECONOMIC ACTIVITY is increasing, but there are some signs of slowing growth, according to the Federal Reserve’s Beige Book report released Wednesday. / BLOOMBERG FILE PHOTO/BRENT LEWIN
ECONOMIC ACTIVITY is increasing, but there are some signs of slowing growth, according to the Federal Reserve’s Beige Book report released Wednesday. / BLOOMBERG FILE PHOTO/BRENT LEWIN

BOSTON – Economic activity is increasing, but there are some signs of slowing growth, according to the Federal Reserve’s Beige Book report released Wednesday.
The report for the First District, which includes all of New England, except Fairfield County in Connecticut, showed that most retailers, manufacturers and staffing firms polled reported an increase in sales and revenue in July and August compared with a year ago.
Commercial real estate activity was flat or up slightly in regional markets, while residential real estate markets were constrained by limited supply, with year-over-year declines in closed sales in five of the six New England states that was mostly attributed to shrinking inventories.
“Looking forward, contacts generally expect ‘more of the same,’” the report said.

Here are some highlights from the report:
Retail and tourism: Retail contacts said that since early July, same-store sales ranged from down slightly to up between 2 and 4 percent year over year. Adult apparel and footwear are reportedly selling well, but demand is lower for furniture and household wares. One retailer suggested that sales may have been negatively affected by Massachusetts not holding its usual tax-free weekend in mid-August.
Boston area hotels revised expectations for 2016 slightly downward, to an 80 percent occupancy rate from 80.4 percent occupancy rate. Room revenue is expected to increase 4 percent instead of 6.5 percent, according to a travel industry contact.

Manufacturing: Only one of the seven manufacturing firms – an aerospace company – contacted reported “significant negative results.” Another contact in the medical device business said sales growth slowed significantly due to an inability to find and retain salespeople. A furniture maker reported sales growth and an optimistic outlook for the first time in years.
“The remaining manufacturing respondents say that growth is at a pace typical of recent years,” the report said.

Commercial real estate: Depending on the location, commercial real estate activity in the First District is flat or improving modestly. Greater Boston has experienced steady office leasing activity – rents have climbed approximately 5 percent since last year.
In the Providence area, office leasing activity increased modestly in August after a seasonally slow July; office absorption is positive so far in 2016, the report said.
Demand for commercial properties in Boston remains “robust” in the sales market, especially among foreign investors. Office construction activity is mixed, with little to no activity in the Providence area and moderate activity in the Boston area.
The outlook for commercial real estate is modestly optimistic for Providence and Boston. Contacts cited concerns about an economic slowdown and political uncertainty before the November elections, however.
Residential real estate: After a busy spring and early summer, residential real estate markets began to show moderation in July.
For single-family homes, closed sales decreased year-over-year in July in every state except Rhode Island. In Massachusetts, July marked the first year-over-year decrease in 14 months after a year that included several record highs.
“Pending sales were generally at higher levels than in July last year although the increases were more moderate than in the preceding months; a contact in Rhode Island notes that these figures ‘indicate a more tempered market heading into the fall,’” the report said.
The market for condominiums showed similar trends, with closed sales decreasing in every state except Vermont and median sales prices increasing or decreasing only slightly.
Low inventory continued to be an issue, as both single-family homes and condos had inventory decreases in every reporting region. All reporting states also saw a decreased number of months of available supply.
“Although sales activity has decreased from preceding months, contacts remain optimistic. A more temperate market is generally expected in the fall, as many point out that the levels of activity are still above average. Increasing prices and low inventories are the main areas of concern,” the report said.

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