Beige Book Report: Richmond
March 3, 2021
Summary of Economic Activity
The Fifth District economy continued to grow at a modest rate. On balance, manufacturers reported modest growth in shipments and new orders, with some food and furniture manufacturers experiencing strong growth. Port volumes increased further from already-high levels. Trucking volumes rose modestly and were constrained by shortages of drivers and trailers. Retail sales declined modestly as many stores experienced low foot traffic and supply chain issues affecting inventories. Travel and tourism picked up modestly and short term rentals saw increased occupancy rates. Sales of both existing and new houses increased, as did prices, but sales growth was limited by low inventory levels. Commercial real estate leasing rose modestly and contacts saw new interest in vacant restaurant spaces. Lending activity declined slightly as demand for commercial real estate loans remained soft and residential demand slowed down due to the low inventory of available homes for sale. Demand for nonfinancial services increased moderately, overall, with some sectors seeing strong demand, such as technology consultancy services. Employment rose slightly as firms struggled to find employees to fill open positions and were reluctant to raise wages. Only a few manufacturers reported slight increases in wages in recent weeks. Prices increased at a moderate rate as firms faced increased costs of raw materials and non-labor inputs. Food manufacturing inputs and construction materials prices were particularly high and increased further in recent weeks.
Employment and Wages
Employment in the Fifth District rose slightly since our previous report. Many contacts reported having difficulties finding workers, with several of them noting that fewer women were returning to their jobs due to childcare and homeschooling needs while others cited skills mismatches as a hinderance. One contact said that there were many hospitality workers out of a job and manufacturers who need workers, but those skills don't easily translate. Additionally, a staffing agency contact believed that workers were hesitant to change jobs right now and firms were unwilling or unable to raise wages. Indeed, there were few reports of firms raising wages outside of a few manufacturers that reported slight wage increases.
Prices
Prices rose moderately in recent weeks. According to our most recent surveys, manufacturers and service sector firms reported increases in over-the-year growth of prices received, which slightly exceeded two percent. Manufacturers experienced a sharp increase in input prices paid, some of which were explained by supply shortages and some by strong demand. Food manufacturers noted rising prices for some raw materials while meat prices remain at historically high prices. Construction materials prices, lumber in particular, rose from already-high levels.
Manufacturing
Manufacturing in the Fifth District grew modestly since our last report as shipments and new orders increased. Furniture and food manufacturers had particularly strong business and were often unable to meet demand. Many firms reported supply chain disruptions as shortages of materials and packaging, both domestic and imported, led to longer lead times and higher input prices. Some manufacturers were also constrained by labor shortages and employee absences. Several manufacturers reported transportation delays and high prices both from trucking and from sea transport.
Ports and Transportation
Shipping volumes strengthened somewhat from already high levels since our last report, with import volumes remaining well above export volumes. Contacts reported strong growth in imports and modest growth in exports, noting export growth was constrained by a shortage of shipping containers. Import volumes of furniture, perishable food, and toys were particularly high. Autos and lumber showed strength on the export side. An airport contact reported that there are not enough cargo planes to meet demand, leading companies to use passenger planes for cargo shipments.
Fifth District trucking volumes rose modestly in recent weeks. Companies were unable to meet demand and had to turn away business as driver shortages and delays in acquiring new and replacement trailers limited capacity. Shipping rates increased, and customers offered to pay extra to have their goods shipped. Firms saw increased shipments in a broad range of goods, with particular strength in home goods such as furniture, appliances, and building materials. Meanwhile, spot market demand and rates remained high.
Retail, Travel, and Tourism
Retailers in the Fifth District saw modest declines in business in recent weeks, and sales remained well below pre-pandemic levels for most retailers. Many contacts reported supply chain issues, including longer lead times and higher prices of inventories. Several retailers, such as clothing and jewelry stores, saw very low foot traffic and depressed sales. However, hardware stores, food providers, and furniture shops reported strong demand, and some looked to expand. Meanwhile, auto sales were constrained by low inventories of new vehicles, but low supply increased profit margins
Travel and tourism in the Fifth District increased modestly since our last report but remained below pre-pandemic levels. Restaurants saw healthy demand but struggled with capacity constraints on indoor dining and cold weather affecting outdoor dining. Outdoor attractions such as ski resorts saw strong visitation, and some indoor attractions reopened with limited hours. Hotel rates and occupancy remained low. Lack of business travel and conventions persisted, but one contact noted increased travel for weddings and athletic events. Short term rentals saw increased occupancy, and in some beach destinations, rentals were already booked through the summer.
Real Estate and Construction
Home sales in the Fifth District increased modestly since our last report and were well above pre-pandemic levels. Inventories of both new and existing homes were very low, as demand exceeded supply. Prices continued to increase sharply, and average days on the market decreased. Realtors reported that houses frequently sell within an hour, often sight-unseen. Many builders limited the number of houses they sold each week so as to have some inventory available in the spring market. Construction of new homes was strong, but long lead times for appliances led to delays and some houses closing before appliances arrived.
Fifth District commercial real estate leasing increased modestly in recent weeks but was below year-ago levels. While retail vacancies remained elevated, more businesses looked to add locations, and vacated restaurant space sparked interest. Office tenants continued to ask for short-term lease renewals, and many downsized, but others added space and some landlords found new clients. Industrial leasing was very strong, as inventories were low and new construction continued. Multifamily leasing remained soft, with some landlords upping incentives and reducing rent.
Banking and Finance
Overall, loan activity declined slightly for this period. Respondents indicated tepid conditions for commercial real estate lending. Business lending picked up slightly despite companies being uncertain about economic conditions and less demand for round three of PPP funding. Mortgage volume remains strong but down from previous periods due to the limited supply of available homes for sale. Deposit growth was tempered as financial institutions reduced rates on interest bearing accounts. Overall credit quality and delinquencies remained good despite an ending of most deferrals and forbearances. The respondents reported increased competition as financial institutions are struggling for loan growth.
Nonfinancial Services
On balance, the demand for nonfinancial services increased moderately in recent weeks. A technology consulting firm saw robust growth and the demand for health services remained high. A digital marketing contact noted a recent uptick in radio advertising from local restaurants and small businesses, particularly from home improvement and repair companies. College enrollment, on the other hand, was down considerably. The president of a community college in North Carolina said that majority of the students not returning were black or Hispanic and enrollment in high school equivalency programs was down the most substantially.
For more information about District economic conditions visit: www.richmondfed.org/research/data_analysis