Beige Book Report: Richmond
April 15, 2020
Summary of Economic Activity
Fifth District economic activity declined across many sectors, quite sharply in some, due in large part to the measures taken by businesses and consumers to slow the spread of the coronavirus outbreak. Manufacturers reported a slowdown in shipments and new orders but most were able to keep plants open, albeit at lower levels of production. Producers of essential supplies and food saw an increase in demand. Port contacts reported a moderate decline in import volumes, particularly from China and Europe. Trucking companies saw steady demand as the decline in retail shipments was offset by increases in shipments for other essential supplies. Retail, travel, and tourism firms saw sharp declines in demand and occupancy rates and many restaurants closed or shifted to take-out or delivery only. Residential real estate contacts reported a slowdown in foot traffic and sales while new home construction faced delays. Commercial real estate leasing fell and some tenants looked to break leases or sought relief due to economic hardship. Bankers, on the other hand, saw a moderate increase in demand, mainly coming from residential construction and refinance loans. On balance, nonfinancial services firms saw a modest decline in revenue. Some farmers reported increased demand and more favorable selling prices. Low oil and natural gas prices led energy companies to reduce activity. Employment fell sharply, overall. Price growth remained muted.
Employment and Wages
On balance, employment declined sharply; however, individual firm experiences varied considerably. Some manufacturers cut production and reduced staff. Others, such as food and personal care products manufacturers, increased hours and employment in response to stronger demand. Some business-to-business services firms reduced weekly hours for employees and cut temporary positions. Many consumer facing businesses like hotels, restaurants, and retail shops reduced staff sharply due to steep declines in demand owing to social distancing guidelines. An outdoor recreation establishment said that they normally hire three to four hundred seasonal staff at this time of year but right now all hiring was on hold. No changes to wages were reported.
Prices
Overall, price growth remained muted since our previous report. According to our most recent surveys, manufacturers reported a slight deceleration in growth of prices paid. A couple of producers pointed to recent declines in oil and gas prices as contributing factors to slower input price growth. Service sector firms saw an acceleration in growth of prices paid and prices received. Some agricultural commodity prices, such as soy, wheat, beef, poultry, and eggs rose, in recent weeks.
Manufacturing
Manufacturers in the Fifth District reported declines in shipments and new orders since our last report. Many manufacturers had drops in demand resulting from retailers closing, which led some firms to slow production. Manufacturers also experienced supply chain disruptions, involving inputs from China or Europe. Some were hopeful that supply from China would improve soon but were concerned that demand would decrease further in the U.S. A cabinet manufacturer had a sharp drop in demand, and made plans to consolidate and downsize operations. A food manufacturer, on the other hand, experienced strong demand.
Ports and Transportation
Fifth District port volumes fell moderately since our last report, driven largely by a decline in imports, especially from China and Europe. Import levels continued to exceed export levels although the gap between the two narrowed. Exports remained strong, particularly agricultural products and lumber. Despite softer imports, inventories built up at ports as companies, particularly car dealers, refused deliveries. Port revenues were hurt by the cancellations of cruises. However, a Fifth District airport saw a slight increase in international cargo flights, which was attributed to a decrease in passenger flights on which some goods are normally transported.
Fifth District trucking companies reported fairly steady business in recent weeks as declines in retail shipments were offset by increased demand from other parts of the market. Shipments of food, laptops, and cigarettes were particularly high. Spot market rates rose slightly as demand shifted across sectors. Some companies struggled to find enough drivers, as a small number of drivers were quarantined and newly trained drivers could not get their licenses while the DMV was closed. Also, low fuel prices helped lower operating costs.
Retail, Travel, and Tourism
Fifth District retail sales declined sharply since our last report. Many stores were forced to close, and others saw decreased demand. Retailers looked for creative ways to remain open. A clothing store allowed for appointment-only in-store shopping, and a florist switched to curbside pickup. Stores lowered prices and offered free shipping to attract customers and move inventories. Grocery store sales increased. They added workers to stock shelves and warehouses, but struggled to maintain inventories. Retailers that remained open also reported increased cleaning efforts.
The tourism industry contracted significantly in the Fifth District in recent weeks. Hotel occupancy fell to unprecedented levels, leading several hotels to close and others to operate with minimal staff. However, some people continued to visit rentals and vacation homes. Many restaurants closed when dining in was disallowed, while others tried to remain open for take-out and delivery. For many restaurants, especially those not structured for takeout, this was not a long term solution but a way for them to sell their perishable inventory.
Real Estate and Construction
Fifth District home sales declined modestly in recent weeks. Buyer traffic decreased, but some who viewed houses were serious about buying quickly. Inventory levels remained low, as showings decreased since prospective sellers were reluctant to let others into their homes. Builders worried about excess inventories if demand slowed further. Sale prices and days on the market held fairly steady. Construction projects continued but at a slower pace, and new starts fell. One realtor mentioned that appraisals and inspections were delayed as fewer workers were in the field.
Fifth District commercial real estate leasing decreased moderately since our last report. Office and retail leasing declined sharply as companies reported no new leases. Existing office and retail tenants looked to break leases or asked for rent reductions and deferments, with many claiming force majeure. However, industrial leasing remained fairly strong, as companies looked for extra storage space for accumulating inventories during temporary closures. Brokers reported mixed conditions in multifamily. Existing construction projects continued, but new construction starts declined.
Banking and Finance
Overall, loan demand grew moderately mainly due to an increase in construction financing and mortgage refinance loans. Respondents indicated tepid demand for commercial real estate and C&I loans, though several banks mentioned that they anticipate strong demand for CARES Act SBA loans. Auto loans declined sharply in recent weeks. Most banks reported that deposits grew moderately despite lower interest rates paid on all accounts; however, they also reported rate compression. Financial institutions noted that credit standards, delinquencies, and credit quality remained solid; however, they expect an uptick in delinquency rates within the next 60 days due to deterioration in the economy caused by the coronavirus outbreak.
Nonfinancial Services
Overall, nonfinancial services firms indicated a modest decline in revenue and demand in recent weeks, which many attributed to the coronavirus outbreak. Several business-to-business service providers said that clients were putting work on hold or delaying new projects. An HR outsourcing firm in Northern Virginia said that only about half of their field staff had security clearances to work remotely, thereby reducing billable hours. In contrast, a law firm said that they saw an increase in business as clients were looking for help understanding recently passed coronavirus aid legislation.
Natural Resources
Reports from agriculture and energy contacts were mixed. Some farmers reported increased demand from grocery stores and rising commodity prices. One egg farmer said that this probably saved many farmers as selling prices had been depressed in recent months. Energy contacts, on the other hand, saw declines in extraction and new exploration due to sharp declines in oil and gas prices.
For more information about District economic conditions visit: www.richmondfed.org/research/regional_economy