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Fed Beige Book Reflects More Business Optimism and Tourism Interest in Early 2021

  • Federal Reserve’s latest Beige Book report shows greater optimism about economic conditions amid easing business restrictions and COVID-19 vaccination efforts
  • Businesses show more concern about inflation, with some reporting double-digit increases in input prices
  • Report from the Federal Reserve Bank of Boston, which covers New England, largely reflects national trends

Summary by Dirk Langeveld

Businesses are increasingly optimistic about a recovery from the COVID-19 pandemic, according to the latest “Beige Book” update from the Federal Reserve Bank. At the same time, more companies were reporting higher input costs and raising concerns about inflation.

The Beige Book offers a summary of economic conditions based on reports from each of the 12 Federal Reserve Districts. Each district bank gathers information on conditions through interviews and online questionnaires completed by sources such as businesses, community organizations, economists, and market experts. The latest report covers the period from late February to early April.

Nationally, the Fed found that economic activity picked up moderately, including more consumer spending and greater interest in tourism and leisure due to stimulus funds issued through the American Rescue Plan, easing business restrictions, and ongoing COVID-19 vaccination efforts. Manufacturing and lending activity accelerated, and the housing demand continued to boom under high demand and limited inventory.

Manufacturing, construction, and hospitality and leisure were the sectors with the strongest job growth. The Fed also found persistent shortages in specialty and skilled tradespeople as well as commercial truck drivers, with low-wage workers facing hiring challenges.

Companies were reporting higher prices, particularly in metals, lumbers, food, and fuel. This trend was driven in part by ongoing supply chain problems as well as severe winter events in some parts of the nation.

The Federal Reserve Bank of Boston, whose district includes New England, reported that business outlooks were in line with national trends. Workforces generally remained stable or increased, and more than half of the firms contacted in manufacturing, retail, and software and IT sectors reported that they were implementing wage increases for 2021. Software and IT companies said that while their revenues were relatively unchanged, their profit margins were higher due to ongoing remote work arrangements.

Manufacturers were generally optimistic, although some expected that the end of the pandemic will reduce demand for their products. Some firms also expressed worries about inflation, with many businesses reporting steeper input prices – sometimes as high as a double-digit increase over the previous year.

The district saw high demand for new warehouses and distribution centers, strong construction activity from the life sciences industry (including the conversion of vacant space), and healthy retail leasing for smaller urban spaces even as malls and big box stores continued to struggle. With expectations of continuing downward pressure on rents, some commercial landlords were planning to delay listing available space until later in the summer.

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