Steady Business Conditions Expected for Greater Boston

The first Beige Book report of 2023 from the Federal Reserve Bank of Boston was released January 18. As the first release of the New Year, it reviews local business conditions from previous months, and offers a projection for the months ahead. Here are highlights for the Greater Boston area!

Tourism: Airline traffic through Boston increased steadily during the last half of 2022, reaching 93% of pre-pandemic levels. Cruise ship activity between Boston and Maine increased as well. Greater Boston hotel occupancy rates increased to pre-2020 levels. Convention bookings increased substantially. Improved tourism and travel activity has allowed hotel room prices to increase, especially in the Cape Cod area. Hospitality sector leaders are optimistic about the upcoming vacation and event seasons.

Labor and Wages: Labor costs increased across the board during 2022. The labor shortage is easing in some cases. However, staffing challenges persist for service, transportation and hospitality businesses. Information technology and medical professions have seen significant wage growth, but improved business demand and rising revenue have helped offset these costs. When asked about preparing for a potential recession, major employers said that no layoffs are planned at this time. Investment in technology is expected to improve throughout 2023, potentially slowing new hiring as companies focus on improving productivity.

Commercial real estate: Mixed conditions are found in the Greater Boston commercial real estate market. Bright spots include retail properties, industrial buildings and food and beverage businesses. The office sector demonstrated weakness in late 2022; pressures to the sector include remote work, new space coming to market, and rising operational costs against reduced demand. The possibility of recession, along with rising interest rates, may be suppressing acquisition activity and affecting new leases. Still, analysts see a potential upswing by mid-2023, assuming interest rates stabilize.

Overall, the Beige Book report from the Federal Reserve Bank of Boston shows the glass half-full. Optimism is tempered by the risk of recession, which is causing some companies to postpone expansion plans. On the positive, supply chain issues are resolving, which is moderating costs and improving inventory. As long as consumers keep spending, Boston area business leaders expect steady conditions ahead.

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