Beige Book: Firms upbeat, despite harsh winter weather

ACCORDING TO THE BEIGE BOOK REPORT released by the Federal Reserve Bank of Boston, New England firms are upbeat, despite a winter marked by severe weather. / BLOOMBERG FILE PHOTO/BRENT LEWIN
ACCORDING TO THE BEIGE BOOK REPORT released by the Federal Reserve Bank of Boston, New England firms are upbeat, despite a winter marked by severe weather. / BLOOMBERG FILE PHOTO/BRENT LEWIN

BOSTON – Firms are upbeat, despite negative effects from unseasonably severe weather this winter, according to the latest Beige Book report from the Federal Reserve.

Most of the New England retailers and all of the manufacturers contacted reported sales growth compared with last year, and software and information technology services firms cited revenue increases. Real estate contacts also said December was a strong month for sales, but said markets softened because of the inclement weather.

Staffing firms also reported experienced business declines because of weather closures.

Retail respondents reported same-store sales ranged from flat to 18 percent growth – with most increases between 3.5 and 5.5 percent – year over year. The firm that reported the 18 percent increase said three-quarters of it was due to strong demand for winter-related items such as rock salt and snow shovels, as the Boston area and other parts of New England experienced record snowfalls between mid-January and mid-February.

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Other contacts said that early 2015 sales started off positive until business dropped off in late January, when the first of four (to date) significant winter storms hit. One retailer reported that about 200 of their New England stores had been closed for a few days because of the weather.

All nine manufacturing firms contacted reported higher sales compared with the same period a year earlier.
“The main headwind they cite is the strong dollar,” the report stated.
All firms reported stable or rising employment, but only one firm, a manufacturer of health-care devices, said it is increasing employment substantially, adding about 3 percent to staff each quarter.

Firms with very strong sales growth seemed hesitant to hire. A fitness equipment maker that reported 16 percent higher sales in the fourth quarter of 2014 compared with a year earlier plans to wait until the second half of the year to see if sales growth continues before hiring more employees.

Commercial real estate markets are seen as “steady or improving,” according to the report. One contact said that some office landlords in downtown Hartford are posting higher asking rents for the first time in years.
Reports from Boston contacts remain “very positive,” with commercial properties and multifamily units continuing to be in high demand among foreign investors, according to the report. Boston is considered among the top five commercial real estate markets worldwide, the report said.
In Providence, leasing conditions are unchanged as investor demand for commercial properties remains cautious, even for properties in prime locations.
“The outlook is mostly optimistic across the district, although Hartford and Providence contacts expect slower improvement in commercial real estate fundamentals than do contacts in Boston and Portland,” the report stated.
As for residential real estate, December capped a strong year with sales of single-family homes increasing in all six New England states compared with December 2013. Condominium sales also increased in every state except Massachusetts. Condominium prices rose in Massachusetts and Vermont, but declined in Rhode Island, New Hampshire and Connecticut.
“Contacts in Connecticut and Rhode Island emphasized that while Realtors are feeling very positive, the housing market will not be fully ‘normal’ until shadow inventory and distressed sales are reduced further,” the report stated.
Shadow inventory refers to the number of homes whose mortgages are 90 days or more late and are expected to move into foreclosure.

In other states, lack of inventory remains a concern. The level of inventory heading into January in Massachusetts was the lowest in a decade.

“First District contacts express concern about the possible lasting impact of the unusually harsh recent weather,” the report stated. “Contacts across New England report that demand, despite the weather, remains strong but that new listings and hence inventory will decline as homeowners continue to dig themselves out … Longer term, Realtors remain optimistic about the coming year and are hopeful that interest rates will remain low to help potential buyers.”

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