New England economy continues slow expansion, says Fed

ACCORDING TO THE BEIGE BOOK REPORT released by the Federal Reserve Bank of Boston, New England's economy continued to grow
ACCORDING TO THE BEIGE BOOK REPORT released by the Federal Reserve Bank of Boston, New England's economy continued to grow "albeit modestly" from December 2012 to February 2013. / BLOOMBERG FILE PHOTO/BRENT LEWIN

BOSTON – New England’s economic activity continued to grow as 2013 started, “albeit slowly,” according to the Beige Book report released by the Federal Reserve Wednesday afternoon.
Most contacted retailers reported higher sales in the latest period than last year, but, according to the report, although half of manufacturers reported higher sales from December to early February than they did the previous year. “Nonetheless, most manufacturers are upbeat about 2013,” said the report.
According to the report, part of the disconnect between the responding manufacturing firms was due to the “highly cyclical nature” of the semiconductor industry, which accounted for two of the firms reporting negative results but a positive outlook for 2013.
On average, most retailers contacted reported overall fiscal year 2012 sales increased from 1 to 3 percent over 2011. For January 2013, comparable-store sales ranged from a 1 percent decrease to a 6 percent increase year-over-year, according to the Beige Book.
Retailers reported that demand was strong for clothing, home furnishings and furniture, though some retailers said demand was “softening” in February due to consumer uncertainty over job creation, budget deficits and sequestration as well as weather-related issues.
The tourism industry posted record highs in 2012 for hotel occupancy rates and revenue. “Expectations for 2013 are that hotel occupancy will be flat or down about 1 percent compared to 2012, but that room revenues will be up about 6 percent,” said the report, adding that international travel is expected to rise roughly 9 percent in 2013.
New England’s restaurants continue to have “less robust” results than hotels, said the Beige Book, adding that average table check prices were expected to be lower than the figures from 2009 to 2011.
“Manufacturing firms in the First District continue to paint a picture of slow recovery,” said the report. Of the 12 respondent firms, six reported higher sales in the fourth quarter versus the same period a year earlier, two reported flat sales and four reported lower sales. “In contrast to the mixed sales picture, 10 of the 12 firms say their outlook for 2013 is positive.”

“Employment growth seems to be following sales and not the outlook,” said the report. Only four of the 12 contacts increased hiring during the fourth quarter or had plans to increase hiring in 2013. Four reported the opposite plan.
The report added that “investment appeared similar to employment,” and four of the 12 firms reported higher planned investment.

New England’s software and information technology services sector reported “lackluster activity” through February. Several industry respondents pointed toward the economic uncertainty in Europe and Japan for weaker-than-expected demand and delays in executing large license agreements.
“The outlook among New England software and IT contacts is generally consistent with that of three months ago, with most expecting more robust growth in the second half of 2013,” said the report.
New England’s staffing contacts reported that business “continues to strengthen,” said the report. “Labor market activity since January is characterized as ‘improved’ or ‘encouraging,’ with all but one contact registering a year-over-year increase in billable hours.”
According to respondents, the continued growth in staffing reflects an increased labor demand in the IT, industrial and business services sectors that is “partially offset by a softening demand for office and clerical assistants and personnel.”
From December 2012 to February 2013, the number of permanent and temporary-to-permanent placements continued to grow compared to a year earlier. “Looking forward, staffing contacts are generally more upbeat than they were three months ago, with most expecting steady or accelerated growth in the second quarter,” said the report.
Contacts in New England’s commercial real estate industry offered “somewhat mixed reports” concerning recent activity and outlook for the industry, but overall, results were largely unchanged compared to the last report, said the Fed.
In good news for Rhode Island, “investment sales reportedly picked up in both Hartford and Providence as some investors were priced out of primary markets such as Boston,” said the report, adding that across the region, multifamily structures remained the favored investment class, but that high-quality office and industrial structures were also seeing “healthy demand.”
In the residential real estate industry, strong year-over-year sales growth continued in December in both the single-family home and condominium markets across New England. The report added that initial sales figures for January suggest “similarly robust” year-over-year growth.
Industry contacts attributed the residential real estate market’s success to low interest rates, affordable prices and improving economic conditions. Some contacts noted that a small increase in interest rates may prompt homebuyers to purchase more quickly.
“Overall, realtors say they are confident in the strength of buyer demand, but worry that declining inventory could damp sales growth,” said the report, adding that contacts anticipated continued year-over-year growth in sales and that most expressed confidence that home values will continue to appreciate.
The Federal Reserve publishes the Beige Book eight times each year. The report is considered an informal gauge of the regional economies in the United States.
The First District, which is overseen by the Federal Reserve Bank of Boston, includes the six New England states. U.S. economy
Overall, the U.S. economy grew at a modest to moderate pace across most of the country amid rising consumer demand for homes and autos, the Federal Reserve said.
“The majority of districts reported modest improvements in labor market conditions, although hiring plans were limited in several districts,” the central bank said in its Beige Book business survey. “Residential real estate markets strengthened in nearly all districts and home prices rose amid falling inventories across much of the country.”
The U.S. economy “generally expanded at a modest to moderate pace since the previous Beige Book,” the Fed said in a description that was similar to the prior report. Five districts reported economic growth was “moderate” and five as “at a modest pace,” with the Boston district expanding “slowly” and Chicago activity “at a slow pace,” the Fed report said.
Manufacturing tied to home construction “was a source of strength for many districts,” the report said. It cited wood product manufacturing in St. Louis and San Francisco, household goods production in the Chicago region and cement in Dallas.
Housing has gained as Fed easing pushed mortgage rates to record lows. Home prices rose 6.8 percent in December from a year earlier, according to the Case-Shiller 20 City index, the fastest increase since 2006. The gauge rose every month last year. New home sales accelerated in January to a 437,000 annual pace, the highest since 2008.

To view the full Beige Book report, visit: www.federalreserve.gov

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Bloomberg News contributed to this report.

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