Beige Book Report: Richmond
March 5, 2025
Summary of Economic Activity
Economic activity in the Fifth District increased at a modest rate, on balance. Consumer spending slowed from a moderate rate to a modest one as winter weather adversely affected retail sales and leisure travel. Nonfinancial service providers reported modest growth in demand but expressed uncertainties about the overall direction of the economy. Financial institutions saw a modest increase in loan volumes. Manufacturing activity was flat, and many firms were worried about tariffs affecting their supply chains and costs. Port and trucking activity was little changed in recent weeks. On net, employment levels were unchanged as hiring slowed and some layoffs were reported. Prices grew at a moderate year-over-year rate, but some firms expected future price growth to increase due to tariffs on their inputs.
Labor Markets
Employment in the Fifth District, on net, was unchanged in recent weeks. Some federal employees were laid off and some private sector business said they cut jobs in response to a reduction or cancellation of federal funding. Several other private sector firms reported slowdowns in their hiring. An IT recruiting agency reported that their clients had significantly slowed down their need for tech talent. A furniture manufacturer was not hiring new workers and planned to allow attrition to right size their labor force. Finding workers with the right skills continued to be an issue in some cases. For example, a chartered bus company reported that due to increased competition from new businesses in their industry, finding workers had become more difficult.
Prices
Prices grew at a moderate annual rate this cycle. According to our most recent surveys, prices received by nonmanufacturing firms increased at a moderate rate and manufacturing firms reported modest price growth. A few contacts said that the threat of tariffs has already led to some increased input costs, and many more expressed concerns about tariffs leading to increased input costs and the prices they charge customers. Some firms, however, felt that they would not be able to raise their prices and would look to cut costs elsewhere.
Manufacturing
Manufacturing activity in the Fifth District was flat this cycle. Nearly all contacts reported increased uncertainty due to potential tariffs, but only a handful said that they were directly impacted so far. For example, a machine tool producer and an office equipment manufacturer reported increases in new orders and attributed it to customers pulling forward their orders due to being concerned about tariffs and future prices. A rail car manufacturer reported an unexpected decrease in new orders and was not sure if conditions would improve. A furniture manufacturer reported continued weakness across their retail division and signs of some softening in their commercial business.
Ports and Transportation
Overall cargo volumes in the Fifth District were relatively flat since the last reporting period. Winter weather disruptions along the East Coast caused some isolated shutdowns and delays while ports continued to feel the impact of temporary shipment diversions to the West Coast. Vessel traffic was expected to return gradually with the settlement of the International Longshoreman Association labor contract. Fifth District ports related that they did not see a recent spike in shipments responding to potential US import tariffs, though daily volumes have trended upwards. Despite the slow start, ports described a moderately favorable outlook for the spring and the remaining year with spot rates stabilizing and major capital investments underway to expand capacity like double-stacked rail capability, deeper harbors, two-way vessel traffic, and wharf extensions. Trucking conditions were little changed at low levels of volume; however, firms expressed "cautious optimism" from their customers and sales teams about improvement in the freight economy in the coming months.
Retail, Travel, and Tourism
Consumer spending increased modestly in recent weeks, which was a slowdown from the moderate rate of growth previously reported. Retailers reported positive growth but noted sales and customer traffic were impeded by winter weather and price sensitivity of consumers. A fast casual restaurant said that they were less optimistic about the year ahead, citing declining consumer sentiment, particularly among lower income customers that are central to their business. Tourism and hospitality contacts also reported a slowdown in activity due to disruptions from winter weather. A hotelier in South Carolina said that the adverse weather conditions led to lower occupancy rates compared to the same time last year. A Virginia hotelier added that while weekend leisure travel was lower, mid-week business travel had picked up and led to an increase in rooms sold across the state.
Real Estate and Construction
Residential real estate conditions remained the same for most of the district. Buyers had no issues qualifying for loans but were challenged with limited inventory and elevated mortgage rates. Agents in Virgina noted there is an added fear of job loss causing buyers to hold off on home purchases. Multiple contacts expressed their uncertainty regarding tariffs and the impact it will have on lumber and building supplies. Builders across the district noted weather events and slow regulatory permitting process continued to lengthen the expected time to complete projects. A North Carolina agent expressed that remote western North Carolina areas affected by Hurricane Helene was struggling to get homes back on the market as they struggle with insurance and repairs.
Commercial real estate activity took a slight pause as companies waited to get a clearer picture on policy changes. A South Carolina agent stated, "uncertainty is not good for business" while a Maryland agent mentioned "psychographic data is beginning to complicate buyer's decision making." Two Virginia agents noted office space saw a bit of an uptick as employees were slowly coming back in-person. New construction and remodel activity remained limited as costs remain high.
Banking and Finance
Financial institutions continued to report a modest increase in loan demand with one banker describing the demand as slow and steady. This demand was still being seen within the commercial real estate portfolios with slightly less demand in their business loan segments. With respect to consumer lending, home equity loan demand increased modestly while auto and first mortgages demand softened. One credit union reported that they were seeing decreased credit quality on new applications they have received from their members. Deposit levels remained stable with competition easing as rates remain level in the marketplace.
Nonfinancial Services
Nonfinancial service providers reported a modest increase in the demand for their services, but noted an uncertainty whether this trend would continue throughout the year. A business consulting firm mentioned the uncertainty of tariffs and other changes were leading their clients to be more cautious and could leave them with less funding for their businesses. Wage rates and labor force concerns were still top of mind with an engineering firm noting that finding qualified, trained labor was their primary impediment to growth. Most respondents were holding off hiring or adding staff until they have more clarity on the direction of the overall economy.
For more information about District economic conditions visit: https://www.richmondfed.org/research/data_analysis.