WASHINGTON (MNI) – The following is the second and final part of
the text of the Beige Book survey of economic conditions in the Federal
Reserve’s First District, published Wednesday:
Staffing Services
New England staffing firms generally report lighter-than-expected
volumes through mid-August, with most contacts characterizing business
as “slow” or “flat.” The May-to-August dip reportedly reflects a
softening of demand for office and clerical assistants and light
industrial workers. Nevertheless, year-over-year revenue changes in the
second quarter remained largely positive, bolstered by steady demand
from the engineering, legal, and IT sectors. The number of permanent and
temporary-to-permanent placements continues to grow slowly, with one
contact noting that clients are “definitely more willing to commit.”
Labor supply has gone largely unchanged since May. Contacts continue to
have difficulty finding candidates with high-end skill sets such as
mechanical and electrical engineers, software developers, and IT
personnel; two contacts report that this shortage of qualified labor is
putting upward pressure on pay rates and recruiting costs. Looking
forward, staffing contacts are slightly less upbeat than they were 3
months ago. Most expect only modest growth until 2013.
Commercial Real Estate
Commercial real estate fundamentals held roughly steady in recent
weeks across the First District. Boston continues to enjoy strong
leasing demand in pockets of the city and comparatively slow but steady
activity in the Financial District. Leasing activity remains light in
Hartford, where the retail sector is seen as a weak point. Activity in
Providence is mixed across sectors and year-to-date has fallen short of
expectations as a result of vacancy shocks. In Portland, office leasing
activity is up from earlier in the year, but rents have stayed roughly
flat. Across the District, a few contacts note that traditional downtown
tenant types, such as law firms and large financial firms, continue to
reduce square footage of office space per worker. These reductions are
viewed as structural and suggest that future employment growth in
professional services may lead to less absorption than previous norms of
office space would imply.
Investor interest in Greater Boston commercial real estate remains
high, especially for multifamily rental properties, and interest rate
spreads are lower than a year earlier for comparable deals. Apartment
construction extended its recent boom in the city and some large
build-to-suit office projects have broken ground in recent months. One
Boston-based bank lender notes an increase in small-scale (under $10M)
loan demand in recent months in the office and retail sectors. Outside
of Boston, construction and investment sales activity remain limited. A
few contacts remark that political uncertainty is putting a damper on
business sentiment. In particular, the threat of tax hikes (at all
levels of government) is seen as a possible restraint on economic
activity in the coming months. By contrast, no contacts cite significant
upside risks to growth in the commercial property sector, although
Boston is expected to remain a magnet for investors.
Residential Real Estate
Sales of single-family homes and condominiums continued to grow
year-over-year in June and July throughout most of the First District.
However, in Connecticut, June sales increased marginally in the
single-family home market and declined year-over-year in the condo
market, but the latest reports for July suggest more substantial
increases in Connecticut home sales. Similar to previous reports,
contacts cite low interest rates and prices, in addition to pent-up
demand, as significant factors in improving sales activity. According to
a contact in Greater Boston, rising residential rents continue to spur
interest in home ownership. Reports for July suggest the median sales
price of homes rose in five of the six New England states; the exception
was Rhode Island, where prices continue to decline. Contacts outside of
Rhode Island cite declining inventory as the cause for modest price
appreciation. Several contacts in areas with low inventory levels note
some potential sellers are waiting for their homes to appreciate in
value before listing them. Falling inventories in Greater Boston have
prompted concern among local real estate professionals that potential
homebuyers will be discouraged by an insufficient variety of homes.
Consecutive months of year-over-year growth in sales have made
contacts feel more confident about recovery in the housing market. In
areas where inventory levels have been high for the past few years,
concerns have been calmed by declining inventory and increasing home
prices. Most contacts predict year-over-year growth in sales, albeit at
a slower pace than recently, and anticipate modest increases in the
median sale price of homes in coming months.
(2 of 2)
** MNI Washington Bureau: 202-371-2121 **
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