ACCORDING TO THE BEIGE BOOK REPORT released by the Federal Reserve Bank of Boston, consultants and advertisers performed best in the third quarter, while growth in retail and manufacturing held steady. The Fed also reported stable or strengthening commercial real estate markets and "cautious optimism" in residential real estate.
BOSTON – Economic growth in New England continued at a pace that varied by sector as hiring remained low in the past six weeks, according to the Federal Reserve Board’s Beige Book released Wednesday.
Consulting and advertising contacts reported robust growth during the third quarter, while the Fed’s regional contacts in the retail and manufacturing sectors cited modest increases in revenue, and firms doing business with the government felt the effects of federal budget cuts.
“Aside from consulting, most firms are doing little to no hiring, or hiring only for replacement,” the report stated.
Businesses in all sectors noted concern about potential effects of the government shutdown on consumer demand or the broader economic effects of hitting the debt ceiling. On Wednesday evening, after the release of the Beige Book, the Senate and House voted to extend federal borrowing power, ending the 16-day shutdown and averting a potential default.
Of the Fed’s regional contacts, those in the consulting and advertising sectors reported the strongest growth, led by health care consultants who cited double-digit revenue growth in the third quarter. The Fed attributed the high demand for health care consulting services to increased merger and acquisition activity among providers, adoption of new technology and compliance with new regulations
Marketing contacts reported industry-wide growth of 6 percent to 7 percent, while one government consultant contact reported a slight drop in revenue and small backlog due to the continuing sequester.
Economic and health care consulting firms increased employment 10 percent to 15 percent on an annual basis, with strategy consultants closer to 5 percent. Marketing and government consultants reported little to no hiring.
In New England commercial real estate, the Fed reported that markets are stable or strengthening. But while leasing volume increased across the region, the Fed’s contacts noted that most leasing deals consisted of renewals-in-place or relocation of existing firms, with little to no net expansion of firms’ footprints.
“In both Rhode Island and Connecticut, contacts are cautiously optimistic that commercial leasing fundamentals will continue to improve, but note that their respective states face persistent challenges to economic growth, leaving their overall prospects weaker than the U.S. average,” the report stated.
Residential real estate contacts in New England said they are “cautiously optimistic” as markets continue to strengthen. August saw sales of single-family homes and condominiums continuing to increase across the region compared to August 2012. Market participants, however, are watching interest rates closely, the Fed said.
Most of the Fed’s regional retail contacts reported year-over-year comparable store sales ranging from a 2 percent decrease to increases in the upper single digits, while demand remained strong for apparel, home furnishings and sporting goods.
Some retailers noted uncertainty about the underlying strength of the economic recovery, specifically citing the recent decline in the stock market and the government shutdown that ended Wednesday evening.
Domestic and international tourism also held strong, with hotel occupancy rates in Boston and Cambridge at a nine-year high in August and average room rates the highest in a decade.
Of the Fed’s 11 manufacturing contacts, only one reported falling sales, while most saw year-on-year sales growth in the low single digits. Only those firms in the medical and technology sectors with best-selling products reported double-digit sales growth, more or less independently of the state of the economy.
Eight of the 11 manufacturers said they are not planning significant changes in payrolls.
Looking forward, most contacts surveyed for the Beige Book report expect continued slow-to-modest growth, except in the consulting-services sector, where several contacts expect to see faster growth in coming months.