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Beige Book: New England Economic Optimism Persists Despite Heightened Uncertainty

  • Federal Reserve’s Beige Book reflects ongoing challenges but also cautious optimism among businesses at the end of 2021
  • Report collected data from a period predating the surge in COVID-19 cases caused by the Omicron variant
  • National trends are reflected in New England, which is also reporting more conversions of office and retail space to purposes such as laboratories and warehouses

Summary by Dirk Langeveld

Business owners in New England remained cautiously optimistic about 2022 as the region added jobs and grew its economic output at a steady pace, according to the Federal Reserve’s latest Beige Book report. However, the report also reflected ongoing uncertainties due to issues like labor and supply shortages, and covers a period before the explosion of COVID-19 cases driven by the spread of the Omicron variant.

The Beige Book assesses changes to economic conditions in the United States as well as the 12 regions covered by the Federal Reserve Districts. It includes reports from Federal Reserve officials as well as questionnaires issued to businesses, community organizations, economists, and other groups. The latest report covered the final weeks of 2021.

Overall, the Beige Book found that there was modest economic growth in the U.S. as a whole. Supply chain issues and labor constraints continued to add to price pressures, though some contacts noted that the former challenges have alleviated in recent months. Wage growth was strong, and employers were more likely to make adjustment such as accommodating part-time work and easing job qualifications in order to find workers.

Consumer spending was also robust. However, the report also captured the initial impact of Omicron as economic expectations cooled and there was a sudden retreat from spending in areas such as restaurants, hotels, and travel.

The Federal Reserve Bank of Boston, which covers the New England states, reported modest employment gains and strong wage growth. While elevated turnover rates were creating problems, one contact said COVID-19 vaccine mandates had not driven an increase in quits. Hiring plans were uneven; some firms were planning a robust expansion to their workforce, while one was planning to lay off employees.

While price trends were stable in software and information technology, retailers and manufacturers in New England were experiencing higher input costs. Some of these businesses said they were striving to limit increases to their sales prices, with one retail firm saying they had received consumer pushback after hiking their prices.

Businesses were generally optimistic about the 2022 across a variety of sectors. Manufacturers were more uncertain due to ongoing challenges created by inflation and supply chain disruptions. Some firms, including one specializing in semiconductors and another that makes cardboard boxes, saw major growth while others experienced flat or declining sales.

Business travel continued to lag behind travel for pleasure, but air traffic into Boston tripled during one recent period in late 2021 when compared to the same period in 2020. Hotel occupancy rates in Boston also improved modestly. However, the surge in Omicron cases in the region could dent this recovery at the start of 2022.

Although commercial real estate markets remained stable, office leasing activity continued to be tepid with the exception of a mild acceleration in Rhode Island. There were some hopes for an increase in activity in 2022, these were balanced by concerns that Omicron will pose at least a transitory risk to return-to-office plans. There were also fears that companies will focus on higher quality spaces while demand for generic offices will languish.

Contacts reported an increase in commercial real estate conversions to more in-demand purposes. These included outfitting office spaces as laboratories to support the life sciences industry and shifting retail spaces to use as warehouses.

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