Beige Book Report: Richmond
September 8, 2021
Summary of Economic Activity
The regional economy continued to grow at a moderate rate in recent weeks, but firms across a variety of sectors reported constraints to growth. Manufacturing activity picked up moderately, but some manufacturers were unable to keep up with demand due to shortages of inputs and labor. Ports and trucking companies continued to report strong demand growth from already high volumes. Retailers reported moderate growth in sales but faced low inventory levels, longer lead times, and higher costs. Travel and tourism remained strong, largely driven by consumer travel. Home sales slowed slightly, and more homes came on the market, but the market remained strong overall. Commercial real estate activity picked up moderately in recent weeks although office vacancies remained high. Reports from financial institutions echoed that demand for mortgages eased but was somewhat offset by moderate commercial loan growth. Nonfinancial services reported little change in recent weeks as several firms cited labor and inventory shortages constraining growth. Employment rose moderately and demand for workers intensified, giving way to moderate wage growth. Price growth picked up in recent weeks and was robust compared to a year ago as many firms increased prices in response to higher costs.
Employment and Wages
Employment in the Fifth District increased moderately since our previous report. Demand for workers intensified with contacts across industries reporting an acute shortage of labor. In several cases, the shortage of workers constrained growth and led some firms to modify business operations by reducing hours or services. Some employers noted that the rise of COVID cases due to the Delta variant led to delays and challenges bringing workers back to the office. Wages rose moderately, on balance, as contacts reported increasing wages to both recruit and retain workers. One manufacturer noted that they not only increased starting wages but also offered guaranteed raises after three and six months.
Prices
Price growth increased moderately in recent weeks and, compared to a year ago, price growth was robust. According to our surveys, both manufacturing and service sector firms reported a substantial rise in prices paid for non-wage inputs in recent weeks, particularly for materials in short supply due to global supply chain disruptions. Gas and freight prices also rose from already high levels. Many firms reported raising their prices in response to higher input costs for materials, energy, transportation, and labor.
Manufacturing
Fifth District manufacturers saw moderate growth in shipments and new orders in recent weeks. Furniture, food, and packaging manufacturers saw especially high demand, which they were often unable to meet. Inventories of both materials and final products declined. Lead times continued to lengthen, and many manufacturers of perishables turned away business. Low and unpredictable supply of inputs as well as labor shortages constrained production. Contacts also noted increasing difficulty finding transportation, both domestically and internationally, which was delaying shipments of finished products as well as arrivals of materials.
Ports and Transportation
Fifth District ports saw robust growth in volumes since our last report, mostly driven by imports. Furniture imports were especially strong, along with food, machinery, and textiles. Auto parts imports showed some strengthening. Ships were delayed arriving at ports but port operations ran smoothly upon arrival. Rail delays, along with a chassis and truck driver shortage, left containers waiting at ports for an extended time before being shipped inland. An airport contact noted that passenger planes that had helped with excess imports during the pandemic are now being used for passenger flights thereby decreasing the number cargo flights.
Trucking companies in the Fifth District reported that demand remained robust in recent weeks. Volumes were high across most goods, with contacts noting particular strength in home goods. Truckers reported turning away business amid high demand as a lack of drivers restricted capacity. Contract and spot market rates were high, giving many companies record margins despite high operating costs. Contacts also noted that a long backlog of parts for repairs is leaving trucks and trailers out of use for extended periods of time.
Retail, Travel, and Tourism
Fifth District retailers reported moderate sales growth in recent weeks. Demand for cars continued to exceed supply while inventories were low, leading to lower carrying costs and increased margins for auto dealers. Clothing sales rose, and demand for furniture and home goods remained strong. Retailers noted shortages of and increased lead times for merchandise, particularly on foreign-made goods. One contact reported refunding several bridal parties because dresses did not arrive on time for weddings. Many retailers were able to maintain margins despite increases in costs of products and shipping.
Travel and tourism remained strong and were little changed in the Fifth District since our last report. Hotels and short-term rentals had solid bookings, and daily rates remained strong. Leisure travel remained strong through the summer, and outdoor attractions continued to see high visitations. However, some contacts expressed concerns as they saw delays in bookings for conferences, businesses travel, and group travel, resulting from uncertainty surrounding COVID variants. Hotels continued to limit services because of lack of staffing, and some restaurants temporarily shut down because they were unable to find workers.
Real Estate and Construction
Fifth District home sales remained strong but decreased modestly since our last report. Sale prices continued to rise, but growth of prices slowed. Days on the market remained low but increased in some areas. Buyer traffic softened slightly, which contacts reported could be partly seasonal. Listings of resale homes rose, boosting inventories. However, builders remained sold out of lots. New construction was strong, but builders faced delays and rapidly rising costs resulting from supply chain disruptions in materials and appliances. Realtors reported an increasing number of investors in the market for homes to remodel and resell.
Commercial real estate leasing grew moderately in recent weeks. Demand for industrial space remained high, driving rental rates higher. Both speculative and built-to-suit industrial construction were strong, but developers struggled to find space. Multifamily occupancy and rents rose. Contacts reported new multifamily construction was filling quickly and was increasingly including office space for one- and two-bedroom apartments. Retail rental rates were strong, with especially high occupancy for restaurants as new restaurants replaced ones that had closed during the pandemic. Office vacancies remained high and were little changed despite landlords offering increased incentives and concessions.
Banking and Finance
Overall, loan growth was moderate this period reflecting solid underlying economic conditions but was tempered by uncertainty related to COVID variants. Financial institutions indicated modest demand for conventional commercial lending, but a slowdown in mortgage lending activity due to a cooling of the housing market with some lenders also noting fewer refinancing requests. Competition remains strong for A-rated commercial loans, particularly around lower fixed rates and longer maturity terms. Deposit growth was modest despite the low interest rates paid on accounts. Credit quality continued to be excellent and delinquencies remained at historically low levels.
Nonfinancial Services
Nonfinancial service firms saw little change in revenues in recent weeks despite continued strong demand. Several firms noted that revenue growth was being suppressed by supply side factors, such as low inventories and labor shortages and turnover. Several business across a variety of professional and legal services said that they recently lost employees to competitors, which impacted their ability to meet demand.
For more information about District economic conditions visit: www.richmondfed.org/research/data_analysis