Federal Reserve Bank of Boston · Beige Book

Federal Reserve Bank of Boston

Summary of Economic Activity

Economic activity edged up further, with a slight increase in consumer spending amid otherwise mixed results. Manufacturing and commercial real estate contacts reported stable activity, while nonfinancial services firms reported moderate growth in revenues. T1Residential home sales showed moderate declines from a year earlier, in part because the federal government shutdown led to mortgage delays. Employment and wages were flat, and prices continued to rise at a modest pace. T2The outlook improved on balance, with more optimism and a bit less caution than in the last report, boosted in part by reduced uncertainty from tariffs.

Labor Markets

T3Employment was unchanged on balance amid mixed labor demand conditions and an easier hiring environment. Wages were flat, but benefits payments increased modestly, and some firms planned cost-of-living raises for early 2026. Retail and hospitality employment was stable, net of seasonal factors. New Hampshire automotive dealers showed steady demand for service technicians and a healthy labor pipeline. Manufacturing employment also showed no meaningful change, and one manufacturer prioritized apprenticeships and internal talent development rather than external hiring. A staffing services contact reported an increase in temporary hires, many of which could convert into permanent roles in early 2026. The same contact noted that some larger companies had made selective layoffs to reduce costs but said that AI was not a factor behind these decisions.

Nonetheless, T4one IT services firm paused hiring plans as it considered using AI instead. Contacts in hospitality, health care, and staffing all mentioned modest increases in labor supply. Overall, employers expected slight increases in employment in the coming months.

Prices

T5Prices rose modestly further, on balance, as contacts reported a variety of cost pressures. Restaurants' profit margins remained under pressure from earlier food price increases, as owners were reluctant to raise already-high menu prices. A New Hampshire contact noted that several restaurateurs implemented credit card processing fees of up to 4 percent as an alternative to raising prices. Maine and Vermont contacts said sharp increases in energy costs, driven in part by colder-than-normal weather, affected a wide range of businesses. Most nonfinancial services firms experienced no changes in either costs or prices, but one firm highlighted a substantial increase in health-care costs. Manufacturers' input and output prices were mostly stable recently.

However, some manufacturers experienced moderate, tariff-related increases in the prices of glass and other raw materials and noted that they intend to pass at least part of the cost increases on to customers in 2026. Firms in other industries also planned selective price increases for the coming months, ranging from low single digits for pharmaceuticals to 5 to 10 percent for certain consumer products.

Retail and Tourism

Consumer spending rose slightly on balance, with modest gains in experiential spending and flat goods spending. Tourism, hospitality, and restaurant activity increased modestly, led by rising demand for high-end hotels and a surge in holiday parties over seasonal norms. T6Retail goods sales were unchanged from a year earlier, and main street retailers credited holiday festivals and promotional events with having supported sales in an otherwise soft holiday season. Unseasonably cold and snowy weather boosted activity at ski resorts as well as sales of sporting equipment and snowmobiles. Auto sales in New Hampshire were down slightly, but auto servicing activity held steady. In areas with relatively high concentrations of federal workers, retail sales dipped in October and November during the federal government shutdown but rebounded in December.

Reduced Canadian tourism continued to hurt retail sales in some areas in Maine, but other parts of the state reported improved sales to Canadians. Massachusetts hospitality contacts noted ongoing weakness at mid-tier hotels, with modest declines in occupancy from a year earlier. Retail and tourism contacts were cautiously optimistic heading into 2026, based on recent stability in consumer spending, greater clarity on tariffs, and Boston's 2026 World Cup soccer events.

Manufacturing and Related Services

T7Manufacturing activity was stable on balance since the last report. Revenues met expectations for most contacts, although some noted mixed demand conditions across revenue streams. In year-over-year results, a consumer goods maker achieved double-digit revenue growth attributed to increased spending by affluent consumers, and a pharmaceuticals maker said that sales for 2025 had exceeded expectations. Capital expenditures declined slightly but aligned with projections. Firms reported an abatement of tariff-related uncertainty from a combination of stabilized tariff policy and their own adjustments, such as the completion of a new production facility by a frozen foods manufacturer. In addition, international manufacturers increased their presence in the region recently, resulting in lower tariff burdens among local manufacturers buying inputs from those international firms. On balance, the outlook improved, with firms expressing cautious optimism for 2026.

Nonfinancial Services

T8Demand remained strong among First District contacts in nonfinancial services industries, resulting in moderate revenue growth on average. IT services firms and staffing firms reported steady to robust revenue growth from the previous quarter, and a health-care industry contact experienced a modest increase in reimbursements. Most contacts felt optimistic and expected demand to increase further in the coming quarter. Recent and ongoing retirements of white-collar workers were expected to contribute to healthy demand for staffing services in 2026. However, one staffing firm noted increased uncertainty in the defense sector due to the possibility of another federal government shutdown at the end of January, and one accounting firm expressed increased pessimism related to uncertainty.

Commercial Real Estate

First District commercial real estate activity, net of seasonal factors, was flat recently. Office leasing activity was stable at a slow pace, on average. Office vacancy rates in suburban Boston rose slightly further, while demand for prime, top-floor office space in Boston proper strengthened. The retail property market remained strong, with modest rent increases and stable, low vacancy rates. The industrial property market showed steady activity but was less dynamic than it was two years ago. One contact reported a moderate increase in industrial vacancies from a year earlier, though from initially low levels. Multifamily construction activity slowed moderately, attributed to a combination of stalling rent growth and rising expenses. The outlook was optimistic on balance, based on solid recent leasing activity and signs that investors were showing increased appetite for commercial real estate.

Residential Real Estate

Home sales slowed moderately across the First District in November 2025 from the previous November, while condominium sales were even with last November, on average. According to one contact, the government shutdown delayed mortgage loans, contributing to the decrease in sales, as other indicators suggested demand remained healthy. Prices for single-family homes and condominiums rose moderately on a year-over-year basis. Home inventories climbed sharply in November in most of the market, relative to a year ago, despite declining moderately in Massachusetts. Homes spent more days on market than at the same time last year. Demand for apartments weakened further slightly, particularly in areas with large foreign-born populations, pushing vacancy rates higher and contributing to more moderate rent increases. However, projections for next year's home sales were strong, based on expectations that inventories would continue to rise and that mortgage rates were headed lower.

For more information about District economic conditions visit: https://www.bostonfed.org/in-the-region.aspx.