Beige Book Report: Richmond
June 2, 2021
Summary of Economic Activity
The regional economy expanded moderately since our previous report. Manufacturers reported strong growth in shipments and new orders, intensifying already-sizeable backlogs and long lead times. Port and trucking volumes also rose as both import and export activity picked up. Retailers experienced moderate growth and increased foot traffic at physical stores. New car sales were limited by low inventories, which spurred higher demand for used vehicles. Consumer travel and tourism rose, particularly for weekend destinations, while business travel remained low. Despite the easing of COVID-related restrictions, some restaurants and hospitality services were unable to open to full capacity because they were unable to hire more workers. Similarly, demand for nonfinancial services rose but growth was constrained by labor shortages. The demand for residential real estate remained high amid very low inventory levels. Commercial real estate leasing increased moderately, including some office leasing as businesses returned to working in-person. Loan activity rose, particularly for business loans. Employment increased modestly, but many firms reported having difficulties filling open positions. Prices rose sharply in recent weeks as shortages of labor and materials led to higher costs, some of which translated to higher prices to customers.
Employment and Wages
Employment rose modestly in recent weeks, but job growth was somewhat constrained by labor shortages as firms across a variety of industries reported having difficulty filling open positions. One contact speaking about the hospitality sector thought that many former workers were either choosing to remain unemployed or had found new jobs in another industry. Several contacts also noted increased turnover and one reported that employees were leaving for advancement opportunities. Wages increased moderately, overall. Strong demand for workers, particularly at the entry-level, drove up starting wages. Several employers also noted that raising wages for entry-level positions led them to raise wages to retain more experienced staff.
Prices
Overall, prices increased sharply in recent weeks. Price increases were largely attributed to strong demand, rising input costs, and supply constraints. Firms across goods-producing and service-providing industries experienced increased prices paid for labor, energy, shipping, raw materials, and inventories, but the degree to which those price increases were passed on to customers varied. For example, a furniture store said that they were unable to pass along increased costs because of online competition and MSRP pricing. In contrast, a small appliance manufacturer was able to pass along price increases because others in their industry faced similar rising input costs and were also raising prices.
Manufacturing
Fifth District manufacturers saw strong growth in demand in recent weeks, as both shipments and new orders increased. Manufacturers of materials, home goods, and food reported especially high demand. Lead times lengthened, and inventories of inputs fell. Backlogs of orders grew, as shortages of labor and input goods constrained production. Trucking and shipping container shortages, as well as delays at ports, contributed to difficulties in receiving inputs and in getting final goods to customers. Because of the delays in receiving and high costs of inputs, many manufacturers looked for substitutions for regular inputs and eliminated certain products.
Ports and Transportation
Fifth District ports saw robust growth in recent weeks, as volumes continued to break records. Growth of both imports and exports was strong, with notable acceleration in the growth of exports. On the import side, volumes were driven by retail goods, especially furniture, home goods, and home improvement goods. On the export side, volumes of agricultural products were high. Both imports and exports of automobiles were volatile, which contacts attributed to the microchip shortage.
Fifth District trucking companies reported moderate growth from already high volumes in recent weeks. Demand exceeded supply, as labor and equipment constraints caused truckers to turn business away. Shipments of most goods rose, as volumes of home improvement goods were especially strong, and some supplies for business conventions began to move. Supply shortages and long lead times for new tractors and trailers led companies to rely more heavily on repairing and reusing older equipment.
Retail, Travel, and Tourism
Fifth District retailers reported moderate growth in demand and revenues in recent weeks. Shopper traffic increased, and shoppers were generally serious about making purchases. Clothing sales began to increase after a soft year, and demand for home goods remained strong. However, many retailers reported that supply chain disruptions, such as shipping and production delays, were limiting inventories. Auto inventories were especially low and continued to shrink, as the microchip shortage limited supply of new cars and increased demand for used vehicles, which were also in short supply.
Travel and tourism increased moderately in the Fifth District since our last report. Visitation was especially strong at beaches and other outdoor attractions. Some museums and restaurants opened amid strengthening business conditions. Hotels saw short booking-windows but high occupancy on weekends, which contacts attributed to leisure travel, mostly from people who live in drivable distance. Hotel occupancy was lower during the week, as group and business traveled remained soft, but inquiries for group travel increased. Restaurants, hotels, and other attractions reported cutting services and restricting capacity because of labor constraints.
Real Estate and Construction
Demand for homes held fairly steady at high levels since our last report. Prices continued to rise, and the average time to sell a home shortened. Builders saw a continued drop in inventories, with some communities selling out of homes. Agents noted that more resale homes were being put on the market but were being absorbed too quickly to boost inventories. Construction and material costs continued to increase, and shortages of materials caused building delays. Real estate agents noted that mortgage applications were getting approved, but they were increasingly seeing cash sales.
Commercial real estate leasing expanded moderately in recent weeks, but new projects were delayed by shortages and high costs of inputs. Multifamily occupancy and rental rates rose. Retail leasing strengthened, leading to falling vacancy rates as stores and restaurants opened and expanded, and contacts noted an increase in new construction. Office leasing improved as businesses returned to the workplace, and some agreed to longer-term leases than in the past year and took advantage of leasing concessions. Industrial leasing remained strong despite increasing rates, and new construction continued.
Banking and Finance
Overall loan demand rose moderately this period due in part to the need for increased capital as businesses continuing to emerge from the pandemic. Financial institutions indicated a moderate demand for conventional commercial lending driven by improving consumer and business sentiment as well as sustained low rates. In addition, contacts noted a continued slight growth in mortgage lending, but reported a slight decline in refinancing requests. Deposit growth was strong owing to the recent round of stimulus payments. This has led to increased competition among financial institutions as firms seek to deploy these deposits. Credit quality and delinquencies remained good.
Nonfinancial Services
The demand for nonfinancial services rose moderately in recent weeks. An increase in health services demand was driven by non‑COVID-related services and elective procedures. A university president reported a substantial spike in applications, but noted that applications from lower income students were down slightly. Meanwhile, an advertising agency reported solid growth in new ad spending, particularly from small businesses. There were several reports, however, that the inability to find additional workers was limiting sales and revenue growth.