Beige Book Report: Richmond
November 29, 2023
Summary of Economic Activity
The Fifth District economy grew slightly in recent weeks, mainly due to continued strength in consumer spending. There were some reports of reduced spending on durable goods like furniture and appliances, but spending on nondurable goods and on travel was strong and growing. Nonfinancial service activity remained stable, however real estate activity and bank lending softened amid higher interest rates. The labor market remained tight, overall, but employment rose, and some firms reported finding workers a little easier. Price growth moderated slightly in recent weeks but remained elevated on a year-over-year basis.
Labor Markets
Employment in the Fifth District picked-up moderately in the most recent reporting period. Although the labor market remained tight, several contacts reported some easing. A motorcoach company reported that they were still understaffed but that finding workers "is better than it was." This was the first time they indicated hiring optimism in several years. A construction company reported that a slowing industry made finding workers a little easier. Retaining workers, especially high performers, was mentioned by several contacts. For example, a general contractor reported wage increases as large as 15% to retain their highest performers.
Prices
Year-over-year price growth moderated slightly in recent weeks but remained elevated. According to our most recent surveys, prices received by service providers increased by a little more than four percent compared to last year, this was down from the peak of about seven percent, but still elevated compared to historical averages. Meanwhile, prices received by manufacturers increased by just over two percent compared to the same time last year. A few contacts noted that higher interest rates were making the cost of operations more expensive.
Manufacturing
Fifth District manufacturing activity remained mixed. A textile manufacturer reported an increase in demand because their clients have worked through the excess inventories that they built up during COVID and were now needing to place new orders. Conversely, a furniture manufacturer reported that the home furnishings industry had been in an 18-month recession and did not expect demand to increase soon. To counteract labor shortages and declining purchasing power from businesses and households, several contacts invested in automation to increase productivity and manage costs. A contact that produces equipment for businesses invested in automating several of their back-office functions to reduce the need for labor. A coffee manufacturer incorporated a suite of customer-service software products that will change the type of skills needed as well as the amount of labor.
Ports and Transportation
Volumes were sluggish at Fifth District ports this period as trade volumes were down; imports were flat year-over-year but up slightly month-over-month. The higher import volumes were mainly due to more consumer goods coming into the ports. Exports were mostly down this period. Spot shipping rates continued to decline on transatlantic cargo but were slightly up on freight from Asia. The ports were not having any issues with container congestion and railroads were no longer metering freight. Carriers were doing more blank sailings to streamline services in order to cut costs and have greater vessel utilization. Demand for airfreight improved this period, especially for exports. Air cargo rates were back to 2019 levels.
Trucking firms reported that underlying demand was low, particularly on the industrial side as freight volumes for construction materials were down. Due to decrease capacity in the less-than-truckload segment, spot prices remained stagnant. However, freight rates in the truckload segment were down slightly this period. Trucking firms noted that drivers were more readily available but that it remained very difficult to hire skilled mechanics. Trucking companies stated that they were not having any issues maintaining their fleet of trucks and trailers and that there were no significant backlogs on orders of new equipment.
Retail, Travel, and Tourism
Consumer spending increased modestly, on balance, in recent weeks. Reports from retailers, however, were mixed. Clothing and grocery stores reported steady to increasing sales and demand while furniture and appliance stores reported declines in purchases. A jewelry store owner said that foot traffic was steady, but sales were down, and they felt that some customers were browsing now but waiting until closer to the holidays to make any purchases. Meanwhile, travel and tourism contacts generally reported steady to increasing activity. A hotel chain manager said that after experiencing a lull in the summer, fall bookings were up and better than expected. Airline bookings remained solid and passenger traffic was up compared to last year.
Real Estate and Construction
Residential real estate respondents indicated that sales volumes and buyer traffic decreased this period as buyers pulled back amid low inventory and higher mortgage rates. The number of new listings were down as well. Days on market increased slightly but remained below historic averages. Sellers were often providing concessions and/or dropping sale prices for homes that have been on the market for over 30 days. However, there remained upward pressure on home prices, especially in more desirable neighborhoods. Builders indicated that it was more difficult to build new homes at a fair price due to the high cost of materials, labor, trades, and financing.
In the Fifth District, overall market activity in commercial real estate (CRE) was slow this period. Industrial and retail were both fairly stable with low vacancy levels and rising rental rates. In the office sector, owners were having to offer generous concessions, incentives, or tenant improvement allowances to secure new leases—so effective rental rates were much lower. In multifamily, rents were flat or down due in part to the amount of new construction coming to market. Banks were being very selective on financing any type of CRE investment. The lack of available financing dampened a broad range of activities within the CRE sector, including new development and refinancing. Contractors noted a slowdown in new work.
Banking and Finance
Loan demand continued to slow down with several respondents describing demand as "softening." This was observed in all loan portfolios, but especially in the commercial and consumer real estate segments. Higher interest rates as well as global and domestic political concerns were noted as factors driving this softening demand. Many institutions renewed their focus on deposit retention and growth by continuing to increase rates with a focus on money market accounts and certificates of deposit. Overall loan delinquencies and credit quality remain stable with institutions continuing to monitor their portfolios closely and making underwriting adjustments as needed.
Nonfinancial Services
Nonfinancial service providers continued to report that demand for their services as well as revenues remained stable. One firm observed from their clients that available capital is still sitting on the sidelines due to increased borrowing costs, which, in turn, has constrained the clients' growth opportunities. Wage and expense pressures still existed but have started to moderate. A staffing firm noted there was still demand for high skilled workers and a slight increase in the candidate pool. One firm expressed concern that demand was going to soften due to the restarting of student loan repayments and decreased discretionary income available to consumers.
For more information about District economic conditions visit: https://www.richmondfed.org/research/data_analysis