Thu, September 10, 2009
Boston Fed Sees Signs Economy Is Stabilizing
The Federal Reserve’s latest “beige book” report offers a few encouragements on the state of the New England economy.
The most recent update from the twelve Federal Reserve banks, released today, suggests that economic activity has been stabilizing in most parts of the US. In the First District (New England), despite levels of economic activity that are lower than this time last year, there’s greater confidence among retailers, manufacturers, and software/IT vendors.
Most firms providing providing staffing services were cautiously optimistic; demand for temporary labor has improved, but firms note that “clients are currently hiring to fill vacancies, rather than hiring to expand.” Expected numbers of layoffs are declining.
Commercial real estate seems to be in the doldrums, with very little construction and landlords seeking to retain tenants at all costs. Moreover, the Boston Fed reported that:
“In recent weeks, our Providence contact has seen an increase in foreclosure sales of commercial properties…. Sale prices on these properties reflect discounts of up to 60 percent from peak prices observed in 2007. A Boston contact has observed declines in property value ranging from 30 percent to 60 percent on various downtown office buildings. One contact predicts that the national commercial property value index will decline 50 percent peak-to-trough before recovering. In a number of cases, rents have fallen below the level that supports debt repayment. In light of these conditions, delinquencies and foreclosures are expected to increase further in the coming months.”
In the realm of residential real estate, prices continued to fall as sales increased. As in other parts of the country, there are indications that sales at the lower end of the market are being buoyed by the first-time home buyers tax incentive. With the exception of the Boston area, median home prices were down 5 to 14 percent in July vs. the previous year. In Massachusetts, inventories of homes for sale have fallen below the perceived “balanced” market level as potential sellers seem to be keeping their homes off the market, waiting for prices to improve.
The report, while not indicative of a growing economy, suggests that the economy’s decline may be stabilizing. The weakness of commercial real estate is worrying, though. I’ll be very interested to see the New England Economic Partnership’s assessment in November of how things are going.