Beige Book Report: Richmond
April 23, 2025
Summary of Economic Activity
On balance, the Fifth District economy grew mildly in recent weeks. Reports on consumer spending were mixed with some businesses seeing sales pick up as weather improved but others seeing sales decline due to declining consumer confidence and job security fears from federal workers. Residential and commercial real estate activity increased slightly this cycle. Manufacturers and financial services providers reported steady demand. Nonfinancial services, on the other hand, reported a modest decline in demand due to heightened uncertainty impacting their clients' ability to make decisions. Employment levels were little changed, overall. Price growth picked up slightly as some firms increased prices due to tariffs, but year-over-year price growth remained within a moderate range.
Labor Markets
Employment in the Fifth District, on net, was unchanged in the most recent period. However, many federal government workers were laid off or put on administrative leave in recent weeks. These cuts to the federal workforce have impacted businesses throughout the entire district. In addition, federal contractors have laid off workers in response to spending cuts. For example, a research organization headquartered outside the DC-region laid off workers due to contracts being cancelled. Similarly, a Northern Virginia consultancy reduced headcount by 25 percent due to losing half their contracts. Non-government employers generally reported a slight improvement in labor availability and moderating wage pressure, though firms in manufacturing and skilled trades continue to report that the availability of workers with the right skills constrains growth, particularly in smaller towns.
Prices
Price growth edged slightly higher in recent weeks but on a year-over-year basis growth remained moderate. Several firms said that they recently raised their prices because their costs had increased as a result of tariffs. Many firms said that they were receiving letters from suppliers and sending letters to their customers warning that prices could increase in the near future due to tariffs. Several businesses said that until they had a better idea of how tariffs might impact them, they were minimizing new investments and planning for various cost scenarios.
Manufacturing
Manufacturing activity in the Fifth District was unchanged in the recent reporting period. Several contacts had a positive first quarter but expected activity to be negatively impacted in coming months due to increased uncertainty and tariffs. A sheet metal fabricator wasn't sure about future orders due to steel tariffs leading to price increases. Several contacts put investments on hold due to increased uncertainty. A military equipment manufacturer reported conditions being "too chaotic" to make any decisions on future investments. A wall panel manufacturer has no long-term investment plans due to increased market uncertainty. A coffee roaster, whose beans can only be sourced internationally, reported historic cost increases which resulted in historic price increases for their customers.
Ports and Transportation
Overall cargo volumes in the Fifth District decreased modestly since the last reporting period, with some variance between ports. Cargo volumes briefly returned to normal in February as labor agreements were resolved but have been more volatile in recent weeks due to tariff announcements and enactments. For example, steep declines were reported for farm and construction equipment after steel and aluminum tariffs set in. In contrast, imports for autos and some retail goods increased as orders were placed to get ahead of potential tariffs. Loaded exports were down significantly with one port noting an "unexpected and disappointing" 25 percent decline month over month. Port contacts were particularly concerned about the proposed port call tax on Chinese vessels which, by their estimates, could quadruple cargo handling costs. Some ports received multi-million-dollar tariff bills on Chinese cranes that were already ordered and enroute as tariffs were enacted and are now subject to the tariff. Rail saw record volumes this period with high storage levels; contacts attributed the extra cargo to tariff front-loading and extended gate hours to accommodate the extra freight. Trucking volumes were relatively flat but respondents expected overall freight volumes from China specifically to dip in the coming months.
Retail, Travel, and Tourism
Consumer spending was flat, on balance, but individual reports were mixed. Some retail businesses said that sales were up compared to January and February, but both of those months were soft due to adverse weather conditions. Other retailers and restaurants in Virginia and Maryland said that sales were down and attributed some of the decline to consumer sentiment and the fact that their client base included federal workers and contractors who were pulling back on discretionary spending in case they lose their job. Travel and tourism contacts also gave mixed reports with some seeing a bounce back in March as weather was more favorable and others reporting declines in both leisure and business travel.
Real Estate and Construction
Residential real estate activity had a slight uptick from last cycle. Home inventory levels have begun to increase, and buyer traffic declined. Homebuilders across the district are worried about the impacts that tariffs will have on raw material pricing. A Virginia builder noted concerns that an increase in building supply costs will create greater housing affordability problems. This was echoed by a broker who stated, "It seems like there is no longer a first-time homebuyer market while million-dollar homes continue to sell." Simultaneously, buyers were still obtaining mortgages and receiving incentives in new construction close-outs.
Commercial real estate had a slight increase despite some uncertainty and hesitation. A North Carolina broker stated, "we are in a time of price discovery." Multifamily construction continued where projects had already started but few new projects were being green lit. Demand for retail and restaurant space remained strong despite some major retailers closing locations. Office space saw a slight decrease in vacancies as companies brought more workers back into the office. Another broker in Virginia noted that as federal layoffs continue in D.C., government contractors are moving from space in northern Virginia to occupy the open space in federally owned buildings. Construction continued to slow, in conjunction with fears that public sector projects will not have federal funds as expected.
Banking and Finance
Financial institutions reported loan demand to be steady, but commercial real estate loan demand continued to drop slightly. One lender attributed this slowing of demand to long-term higher interest rates, a tightening of credit standards, and economic uncertainty. A few institutions observed that consumer auto and mortgage loan borrowing continued to soften. Several institutions also noted that they were seeing a modest increase in delinquencies in both their commercial and consumer loan portfolios. Deposit levels continued to remain stable, but one institution noted they were seeing both businesses and consumers withdrawing more funds to manage their rising costs.
Nonfinancial Services
Nonfinancial service providers reported modest decreases in demand for their services and expected this trend to continue throughout the year. An architectural firm noted that the year was off to a strong start, but the threat of tariffs and uncertain economic conditions have impacted their clients' ability to make business decisions. A variety of firms, all with ties to some form of federal government funding, indicated that the uncertainty of these payments caused them to change their outlook for the year. The reactions to this change included the possibility of reducing their workforces and/or looking for other revenue streams.
For more information about District economic conditions visit: https://www.richmondfed.org/research/data_analysis.