Boston Business Journal – by Eric Convey
Wednesday, July 29, 2009
The Federal Reserve Bank of Boston offered a gloomy assessment of the New England economy — at least through 2009 — in Wednesday’s installment of the eight-times-a-year summary commonly referred to as the “beige book.”
“Business activity in the First District continues to be slow. Most retail contacts are optimistic that they are past the bottom, while manufacturers consider business to be bouncing along it, at best,” the Boston researchers wrote.
In more-detailed findings:
• While retail seems to have bottomed out, and headcounts are stable, sales at “family restaurants” continue to deteriorate.
• Manufacturers consistently reported “weak” business for the quarter that ended June 30.
“Many customers were said to be delaying or even canceling their orders for equipment and instruments, causing sales of nondefense capital goods to fall at double-digit rates from year-earlier,” the researchers wrote.
There was some improvement among companies serving the military or homebuilders.
Materials costs generally are down, but prices for petroleum products are rising and the cost of steel is beginning to “creep up.”
Two-third of manufactures have boosted pay for workers this year, with raises generally falling at between 2.5 percent and 3.5 percent.
• Consulting firms serving a variety of industries are seeing business hold stable or improve. An exception is health care consulting, which is seeing reduced demand. The researchers attribute the softness to “uncertainty about the upcoming health care reform.”
• Companies in the advertising business report that fierce competition is driving down what they can charge.
• Commercial real estate is taking a pounding.
“Throughout the region, vacancy rates rose again across all commercial property types as sublease supply continues to expand,” the researchers wrote. “In Boston, office vacancy downtown is estimated at roughly 15 percent. While this figure is the same as that reported last time, the perception is that the number is on the rise. The suburban vacancy rate is reportedly higher, but estimates range from the upper teens to as high as 24 percent (the figure reported last time).”
“One Boston contact estimates that asking rents for office space in June 2009 fell 30 percent to 40 percent on a year-over-year basis. Retail rents in Greater Boston were also ‘clobbered,’ with exact figures not cited,” the Fed researchers wrote.
Financing for real estate projects is available, the researchers wrote, from small- and medium-sized banks that have healthy balance sheets.
“Contacts expect fundamentals to continue to deteriorate for at least one more quarter, but expectations for the timing of the recovery vary from three to 12 months,” the researchers wrote.
On the residential side, the researchers wrote, “distressed properties make up a much larger share of the homes being sold this year than last, especially in Rhode Island, with negative effects on median prices.” However, inventory continues to decline in some areas, reducing excess supply.