The downturn in the New England economy may have bottomed out in June and July, according to the latest report on economic conditions from the Federal Reserve, but few businesses expect conditions to improve before next year.
“Economic activity continued to be weak” in the U.S. over the past two months, the Fed said in its latest Summary of Commentary on Current Economic Conditions – better known as the Beige Book, for the color of its cover. The Beige Book surveys business leaders in its 12 districts nationwide about the economic climate to guide the central bank in setting monetary policy.
The survey found some optimism among retailers in New England, with many “optimistic that they are past the bottom.” The region’s manufacturers, by contrast, “consider business to be bouncing along [the bottom], at best.” Consulting and advertising firms said business “seems to be leveling out.”
Eric Rosengren, president of the Federal Reserve Bank of Boston, told The Boston Globe yesterday that he expects New England and Massachusetts in particular to emerge from the recession sooner than the rest of the country because technology and other major industries here were not at the epicenter of the financial crisis.
However, there was little positive news in the latest survey about the short-term outlook for the region’s workers. “Many [survey] respondents continue to reduce headcount and cut benefits, if not pay,” the Fed said.
The commercial real estate in New England “weakened further, reflecting continuing cuts in office employment, among other factors,” while “residential real estate markets remain weak,” the Fed said.
The central bank also offered some specific details about the Rhode Island real estate market.
The office vacancy rate in downtown Providence stands at about 18 percent, the Fed said, while the vacancy rate for offices outside the city has climbed to 22 percent from 19 percent at the end of last year.
The year-over-year decline in commercial rent has “been less steep in Rhode Island” compared with the Greater Boston area, the Fed said, with an average decline of about 6 percent. The bank also noted that commercial rent only began to fall here about six months ago.
By contrast, the industrial real estate market “continued to perform relatively well, with vacancy rates still below 10 percent,” the central bank reported.
In the residential real estate market, Rhode Island stood out. The state saw a 25 percent drop in the median home price in May compared with a year earlier, which was more than the double the average for the region’s other states. Home prices in Greater Boston were down just 2 percent on an annual basis in May.
“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,” the Fed reported.
Sales did not fall as steeply. Rhode Island saw a single-digit year-over-year decline in home sales in May, which the Fed described as “more moderate” than the sales drop in Massachusetts and Connecticut. “Condo sales were still far below 2008 levels in Massachusetts, Rhode Island and Connecticut,” the bank said.
The Federal Reserve’s Open Market Committee will meet in Washington on Aug. 11 and 12. The committee is not expected to raise interest rates from the current near-zero level.
By Ted Nesi – pbn.com
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