The Beige Book

The Beige Book is published eight times per year. Each Federal Reserve Bank gathers anecdotal information on current economic conditions in its District through reports from Bank and Branch directors and interviews with key business contacts, economists, market experts, and other sources. The Beige Book summarizes this information by District and sector.

Boston (First District) Beige Book Report, March 5, 2025

Summary of Economic Activity

Economic activity was mixed yet increased slowly on balance. Home sales surged as buyers reportedly stopped waiting for interest rates to decline, but commercial real estate activity was flat. Retailers experienced modestly improved sales, while restaurants struggled under sagging demand and rising wholesale food prices. Manufacturing sales increased modestly, while staffing services demand grew slightly. Prices increased moderately on average as wholesale food prices spiked, and contacts expressed concerns that tariffs would contribute to more intense pricing pressures moving forward. Employment decreased slightly, and wages increased modestly on average. Employers reportedly became more selective in hiring, just as the number of job applicants increased. At the same time, workers became less likely to change jobs. The outlook was slightly optimistic on balance but was marked by a high degree of uncertainty. Some contacts perceived risks of rising inflation and slowing labor demand, while others saw upside potential for residential and commercial real estate activity.

Labor Markets

Employment was down slightly overall, and wage increases were modest. The slight decline in employment reflected moderate layoffs of corporate staff by one retailer, as headcounts were otherwise stable. Wage increases ranged from slight to moderate, depending on the sector and occupation. Manufacturers offered mixed wage increases, including one who held back on raising wages because of macroeconomic uncertainty and another who enacted an above-average wage increase to catch up to market rates. Restaurant contacts noted a decrease in wage pressure as labor supply improved. According to staffing services contacts, employers became more selective in their hiring—for example, by interviewing more candidates and/or adding drug screenings and background checks—and hoped that such measures would boost employee retention and reduce turnover going forward. Labor supply increased moderately for light industrial, skilled manufacturing, engineering, administrative services, and accounting roles. Existing employees reportedly sought to avoid changing jobs because of perceived economic uncertainty, and among jobseekers, the ability to work remotely was an especially prized job attribute. The labor market outlook was mixed, as some contacts expected hiring to hold steady or improve moving forward, and a staffing contact said that certain clients were planning to announce layoffs later this year.

Prices

Prices increased moderately on average despite isolated cost pressures. Wholesale food prices to restaurants were up nearly eight percent from one year ago, driven in part by large increases in the price of eggs that were tempered by slight declines in fresh produce prices. However, restaurants posted only modest increases in menu prices in recent months and said that profit margins narrowed as a result. Manufacturers' output prices increased modestly on average, although one firm enacted a sizable price increase for 2025 that exceeded its long-run target for price growth. Staffing firms' bill and pay rates were stable, but their insurance costs increased significantly. Aside from wholesale food prices and insurance rates, input price growth was described as slight, but contacts were concerned about emerging cost pressures related to actual and potential increases in tariffs. As a result, contacts said that the chances they would have to raise their prices in 2025 had increased recently. Nonetheless, one retailer planned to hold its prices steady at least through the fall.

Retail and Tourism

Retail sales improved modestly while restaurant sales fell sharply, leaving consumer spending roughly flat. Following a very slow fall season, a clothing retailer experienced a strong holiday season and an even stronger January, attributing the improvements in part to promotions that brought out price-sensitive consumers and in part to atypical weather patterns that boosted demand for cold-weather gear nationwide. A discount retailer reported slightly higher revenues from the previous quarter, but sales were nonetheless flat from one year ago. A Massachusetts restaurant industry contact said that sales in January 2025 were the weakest in years for any single month, even accounting for past seasonal patterns. Factors cited for weak demand included higher menu prices, poor weekend weather, and increasing popularity of "Dry January." Strong reservations activity in advance of Valentine's Day suggested that at least some of the weakness in restaurant demand would prove temporary, but on balance, the restaurant outlook became less optimistic. Retailers, on the other hand, were cautiously optimistic, despite signs of nascent weakness in demand from Canadian consumers.

Manufacturing and Related Services

Manufacturing sales grew modestly from the previous quarter, with results exceeding expectations for most firms. Firms reported modest declines in inventories consistent with plans. Capital expenditures stayed in line with targeted levels for all firms. Firms expected modest growth in the coming months on average. Nonetheless, the outlook was marked by a high degree of uncertainty related to the potential impact of tariffs on their own input and output prices.

Staffing Services

Demand for staffing services increased slightly among contacts in the First District, with greater emphasis on provisional ("temporary-to-hire") positions and legal roles. Employers reportedly became more selective in their hiring behavior, and jobseekers became choosier in their job searches. Contacts were generally optimistic regarding demand for staffing services in the coming months, despite having some concerns over how tariffs and inflation might impact their clients.

Commercial Real Estate

Commercial real estate activity in the First District was mostly flat. Multifamily housing and retail continued to experience solid leasing and investment demand, and rents in those sectors increased modestly. Industrial rents were stable at very high levels amid steady leasing demand and low vacancy rates in that sector. The office sector continued to struggle with mostly tepid demand, as vacancy rates and rents were flat, although Providence experienced an uptick in activity. Some contacts expected stronger return-to-office policies to gradually boost office leasing activity in the coming months, but proposed cuts to NIH funding threatened the District's life sciences sector. One contact noted that larger banks were starting to resume lending for select commercial properties, which led to small reductions in borrowing rates. At the same time, the prospect of tariffs introduced considerable uncertainty into construction costs, putting a damper on lending for multifamily developments despite strong demand for such loans. Loan maturations on distressed office properties remained a concern, as forced sales became more common. The outlook was slightly pessimistic on balance but included some cautious optimism. The pessimism stemmed from uncertainty concerning inflation and the expectation that interest rates would remain elevated for some time, while the optimism reflected perceived upside risks to office leasing and investment activity.

Residential Real Estate

According to residential real estate contacts across the First District, home sales increased sharply on a year-over-year basis in either December 2024 or January 2025 depending on the market area. Those results represented a strengthening of activity since the previous report that contacts attributed to the resolution of election-related uncertainty and the fact that prospective homebuyers no longer expected imminent declines in interest rates. Home prices continued to rise at a brisk pace year-over-year but did not accelerate. Inventories increased moderately on average from a year earlier and by large margins in some markets, but contacts stressed that inventory levels remained low, with very little new construction activity. Contacts were nonetheless optimistic that inventories were on an upward trajectory that would facilitate further robust sales activity for the spring season.

For more information about District economic conditions visit: www.bostonfed.org/regional-economy.

All Beige Book content going back to 1996 can be found at the Board of Governors website.

The Minneapolis Fed hosts the Beige Book archives by district, going back to 1970.