THE BEIGE BOOK FIRST DISTRICT ECONOMIC ACTIVITY EXPANDS SLIGHTLY AGAIN, BUT OUTLOOK MORE PESSIMISTIC AMID INFLATION CONCERNS

The following information was released by the Federal Reserve Bank of Boston:

The Beige Book is published eight times per year. Each Federal Reserve Bank gathers anecdotal information on current economic conditions in its District through reports from Bank and Branch directors and interviews with key business contacts, economists, market experts, and other sources. The Beige Book summarizes this information by District and sector.

Boston (First District) Beige Book Report, September 2, 2026

Summary of Economic Activity

Economic activity expanded further at a slight pace. Consumer spending grew only marginally overall. Manufacturing activity ticked up further on balance. Nonfinancial services firms noted small revenue gains, and bank loan volume increased a bit. Commercial real estate activity was mostly unchanged, but office leasing showed small improvements. Residential real estate sales improved modestly. Employment edged up, although labor demand was somewhat mixed. Wages rose slightly overall. Output prices continued to rise at a slight pace, with contacts expressing heightened uncertainty about the path of inflation. The outlook was mixed, but became somewhat more pessimistic on balance, with contacts expressing concerns about inflation, conflict in the Middle East, tariffs, and longer-term interest rates.

Labor Markets

Head counts rose slightly overall, reflecting minimal to moderate increases among various manufacturers, tourism and retail businesses, and nonfinancial services firms. Employment was flat for hospitals and financial services firms, whereas moderate layoffs occurred in higher education. Job openings ranged from flat to up moderately among nonfinancial services firms and rose a bit among retailers and manufacturers. On the other hand, one college enacted a hiring freeze. Job opportunities for recent college graduates improved from a year ago but remained scarce relative to the number of applicants. Retail and tourism contacts perceived small improvements in labor supply, but selected contacts in other sectors experienced tighter labor supply. Wages and benefits rose slightly on average, with most of the gains occurring among manufacturers. Retail and tourism contacts saw modest increases in health insurance costs. On average, contacts expected head counts to rise marginally over the next six months.

Prices

Output prices rose slightly on average, although many firms kept their prices fixed. The majority of manufacturers and services firms registered stable output prices, although some reported minimal price increases. Prices rose moderately at high-end resorts but rose only minimally for budget-friendly accommodations. Cost pressures varied across industries, although some common drivers existed, most notably fuel and energy. Specifically, restaurants' menu prices increased modestly in response to higher food and energy costs. Retailers cited elevated transportation and fuel expenses as factors that contributed to small price increases. Manufacturers reported slight increases in input prices, citing cost pressures from fuel and energy, raw materials, tariffs, and transportation. Input prices were mostly stable among financial and nonfinancial services firms. Hospitals planned to keep prices steady going forward, while expected price changes among tourism contacts were mixed. Contacts across industries expressed heightened uncertainty and upside risks to inflation around elevated energy prices and potential new tariffs.

Consumer Spending

Consumer spending increased slightly in recent months, as tourism spending grew modestly and retail spending was flat on balance. Hotel contacts saw modest revenue gains on average, driven by increases in daily room rates, particularly among higher-end accommodations and for Boston locations. Mid-market lodging options saw only very small increases in revenue amid softer demand. Boston restaurant and retail sales were strong throughout July and into early August, rising considerably from the previous summer; the momentum started in June with the World Cup and persisted during July's tall ships festivalpart of the nation's semi-quincentennialand other high-profile events. Restaurant and retail sales on Cape Cod decreased modestly, as above-average temperatures kept visitors at beaches instead of shopping districts, and higher lodging costs left households with less to spend otherwise. Retailers elsewhere in the First District saw flat revenues, with some noting softer demand and rising inventories, while others saw modest revenue growth. The outlook for consumer spending was cautious. Many contacts cited high energy costs as a strain on consumer budgets and were concerned that the impacts could intensify during the home heating season if the conflict in the Middle East remained unresolved.

Manufacturing and Distribution

Manufacturing activity and revenues were up slightly in recent months, with most contacts reporting performance at or above expectations. Profits increased somewhat on average, but the changes ranged from slight decreases to large increases. Most firms reported solid to robust demand, but some consumer-facing firms experienced softer demand, and a polymer manufacturer cited tariff uncertainty as a drag on demand for its materials. Capital expenditures increased slightly overall, with one contact noting higher spending on automation in response to labor scarcity. The outlook improved on balance, even though more contacts perceived an increase in uncertainty rather than a decrease. Contacts expected business activity to expand overall but cited the conflict in the Middle East, inflationary pressures, and tariffs as ongoing sources of uncertainty.

Nonfinancial Services

Revenues increased slightly on average among nonfinancial services firms, with one professional services firm noting a large increase. However, education contacts noted a moderate slowdown in activity, as one Massachusetts college closed recently, and another reversed expansion plans and trimmed head counts in response to declining enrollments. Capital expenditures increased marginally on average among contacts in the health-care, software, legal, and accounting industries, and one health-care contact expected further slight increases in capital outlays going forward. Contacts agreed that uncertainty remained elevated, but most carried on with decision-making regardless. The outlook became more optimistic on balance, with contacts in professional services expecting activity to pick up a bit going forward. However, the outlook for higher education appeared increasingly pessimistic.

Financial Services

Business activity among banking contacts and non-bank financial services firms increased slightly on average in recent months. A large financial services firm reported stable revenues, profits, and capital expenditures. Loan volume among banking contacts grew somewhat overall, although some recorded no change in loan volume and a few experienced moderate increases. Changes in loan demand ranged from very small decreases to moderate increases. Credit standards were mostly unchanged, although one contact said standards had tightened. Loan pricing rose a bit, and nonperforming loans were unchanged. The outlook was mostly stable, although banking contacts expressed growing uncertainty related to inflation, interest rates, tariffs, and the impact of those factors on spending and borrowing by households and businesses.

Real Estate and Construction

Commercial real estate activity remained stable on average. In the industrial market, leasing activity was mixed, and rents and vacancy rates were flat. Retail leasing activity, rents, and vacancy rates were unchanged, with one contact noting lack of new supply. Office leasing activity increased slightly, driven by class A properties, resulting in a small increase in rents and reduction in vacancy rates. One contact attributed the improvements to increased return-to-office policies by large employers. Multifamily leasing softened, with vacancy rates edging up, and construction slowing. Nonresidential construction was flat. Loan activity to the sector increased, resulting in tighter credit spreads. Contacts expressed a somewhat more negative outlook, with increased uncertainty tied mostly to interest rates.

Residential markets saw a modest increase in activity for both single-family homes and condominiums. Closed and pending sales increased somewhat more than expected for the season, which one contact attributed to the region's relatively cool spring and resulting delay in the typical warm-weather surge. There were small increases in inventory in most New England states, though inventory continued to decrease in Massachusetts. Sales prices remained stable on average. Contacts reported a mostly positive outlook, consistent with the previous cycle, although one New Hampshire contact perceived the market was softening.