Fed: New England economic growth still slow, hiring ‘subdued’

New England businesses show signs of “cautious optimism” amid continued moderate economic growth in the region, according to the Federal Reserve Board’s Beige Book released Wednesday. More

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Fed: New England economic growth still slow, hiring ‘subdued’

BLOOMBERG FILE PHOTO/BRENT LEWIN
ACCORDING TO THE BEIGE BOOK REPORT released by the Federal Reserve Bank of Boston, New England's economic activity continues to expand at a 'modest pace,' but business owners remain cautious.
Posted 9/5/13

BOSTON – New England businesses show signs of “cautious optimism” amid continued moderate economic growth in the region, according to the Federal Reserve Board’s Beige Book released Wednesday.

The majority of the Fed’s regional contacts in retail, tourism, manufacturing, information technology and other service industries reported modest increases in sales, while business costs and prices appeared to hold steady.

“No firms report major cyclical layoffs but hiring remains subdued except among fast-growing technology firms,” said the report.

Federal budget cuts have not yet directly affected major government businesses, but the Fed’s contacts remain wary, with one contact mentioning rumors of major cuts to come in the fourth quarter.

In New England commercial real estate, the Fed reported growing uncertainty linked to higher interest rates. While some contacts in Boston and Providence experienced upward pressure on capitalization rates, other New England real estate agents reported no effects of higher rates on demand.

Higher interest rates affected the residential real estate market differently, “nudging” potential buyers to enter the market, according to some contacts. In some areas, particularly in the Greater Boston area and Massachusetts, real estate agents observed an increasing frequency of multiple offers being made on properties.

Construction activity in the region remained robust, with a significant increase in construction deals compared with a year ago. Current and planned construction projects in the Boston area are concentrated in high-end multifamily and mixed-use structures, the Fed reported, although construction activity is poised to rise in the hospitality sector and among institutions of higher education.

Software and IT services reported weaker than expected business activity through August, with slow revenue growth. The Fed indicated that its contacts are hopeful about the second half of 2013, but most do not plan to expand hiring.

The report also noted a shortage of skilled technical workers to fill high-end IT and engineering jobs currently available. Despite a large pool of available workers, many applicants lack critical skills in the field, leaving staffing services struggling to meet client demand.

Most of the Fed’s regional retail contacts reported year-over-year comparable store sales increases between 4 and 5 percent, while demand remained strong for apparel, home furnishings and mobile technology. Tourism and travel also held strong, although attendance at some tourist attractions fell below expectations.

Three of the Fed’s manufacturing contacts reported double-digit increases in sales, noting that sales in Europe have finally picked up after a slump earlier in the year. Only one manufacturer reported layoffs, due to a shift from a bricks-and-mortar business to e-commerce.

Looking forward, most contacts surveyed for the Beige Book report expect slow to modest growth in the second half of the year.

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