Beige Book Report: Richmond
May 27, 2020
Summary of Economic Activity
Economic activity in the Fifth District continued to decline after the sharp fall reported in our previous Beige Book. Manufacturers experienced declines in shipments and new orders, as well as cancellations of exiting orders, leaving some with excess inventories. Ports saw steep declines in volumes compared to the same time last year although imports from China increased somewhat. Trucking companies had a moderate decline in volumes as the increases in shipments of essential supplies did not make up for the losses in other shipments such as retail goods. Most retailers reported very little sales compared to last year and were concerned about low demand persisting for some time. Travel and tourism remained depressed with hotels reporting little occupancy outside of some health care and construction workers. Some restaurants pivoted to carry-out sales, while others remained closed. Home sales declined moderately and inventories were further reduced from low levels as few new listings came on the market. Commercial real estate leasing also declined moderately and some tenants requested payment deferments. Banks reported a slight decline in overall lending activity, but strong demand for CARES Act loans. Nonfinancial services firms reported a moderate decline in revenue and demand. Employment continued to decline sharply in recent weeks. Wages were little changed, overall, but there were a few reports of temporary wage increases or bonuses to keep workers on payrolls. Price growth slowed slightly but remained at a modest pace, overall.
Employment and Wages
Overall, employment continued to decline sharply in recent weeks. The only reports of firms hiring or looking to hire came from high demand industries, such as food manufacturing, logistics, cleaning services, and some segments of retail.
Also, some employers noted that while they didn't lay off staff, they did reduce the number of hours they worked. Others expressed difficulties retaining or rehiring workers because they had child or elder care responsibilities, or because it was more financially beneficial to collect unemployment insurance. While there were few reports of permanent wage increases, there were several reports of employers temporarily increasing wages to retain essential on-site staff, to match the amount employees could earn on unemployment, or to reduce absenteeism.
Prices
Price growth slowed slightly but overall remained modest. According to our most recent surveys, growth in prices received by firms slowed across manufacturing and service sectors. Conversely, growth in prices paid rose slightly for manufacturers and increased moderately for services firms. Coal prices declined further in recent weeks, from already low levels, while oil and gas prices fluctuated but remained historically low. Agriculture commodity prices mostly trended lower although prices paid by food manufacturers and consumers increased for some food groups, like meat and eggs.
Manufacturing
Manufacturers reported steep declines in shipments and new orders since our last report. Firms also reported a rise in cancellations of existing orders, which led to inventory build-up and a need for more storage capacity. A meat processor reported a decline in production as some plants shut down after employees tested positive for COVID-19. A prepared food manufacturer reported a decline in sales as panicked buying led customers to purchase frozen and canned foods, but was optimistic that people would start to transition back.
Ports and Transportation Shipment volumes at Fifth District ports fell sharply relative to last year. Exports were hit especially hard, declining further in recent weeks from already low levels. Imports were down over the year but recovered somewhat since our previous report as China resumed shipments. Automotive shipments were particularly weak as manufacturers were shut down and low oil prices softened the West African market for used vehicles. Contacts expected both imports and exports to remain low in the coming months.
Trucking companies had a moderate drop in volumes since our previous report, and said volumes were down significantly from a year ago. Firms lost business from customers who were temporarily closed or faced decreased demand. Retail clothing, wine and convention-related shipments were especially soft. Some weakness was also attributed to supply-chain disruptions from overseas. Declines were partially offset by increased shipments of food, building materials, medical and cleaning supplies, and cardboard shipping boxes. Spot market rates fell sharply, and some companies had to remove trucks from the road.
Retail, Travel, and Tourism
Retail sales in the Fifth District remained low in recent weeks and decreased greatly on a year-over-year basis. Many retailers were required to shut down temporarily, but were able to conduct business online or by appointment. Retailers expressed concerns about demand and looked for ways to encourage customers to safely return once they reopened, such as requiring and providing masks, extending hours, and implementing measures that allow for social distancing inside stores. Clothing retailers struggled with a build-up of seasonal inventory that will be hard to move in the coming months.
Travel and tourism remained extremely weak since our last report, with sharp declines reported on a year-over-year basis. Many hotels closed temporarily and those that were open saw low occupancy, which mainly came from healthcare workers and construction workers. Some contacts expected demand for tourism to come back strong because of pent-up demand. In parts of the Fifth District, advanced hotel bookings were up over the year for later this summer. Restaurants struggled as some were able to continue carry-out business, but others had to close. As restaurants were allowed to reopen with limited capacity, some opted to remain closed as operating at low capacity would not be profitable.
Real Estate and Construction
Fifth District home sales declined moderately since our last report. Contracts that were underway before the health crisis moved forward, but fewer new sales were initiated. Inventories, which were already low, declined as potential sellers were reluctant to list and show their homes. There were a few reports of deals falling through because buyers failed to qualify for a mortgage as banks increased credit score requirements. Existing construction projects continued, but speculative building slowed, and contractors reported supply chain disruptions. Realtors also reported logistical challenges with electronic and curbside closings.
Fifth District commercial real estate leasing softened moderately in recent weeks. Landlords worked with tenants on rent deferments. Retailers, restaurants, and salons were especially likely to miss payments. Office leasing was also weak, as many tenants asked for deferments, and businesses did not look for new space. Current projects continued, but speculative construction softened. Demand for industrial leasing, on the other hand, was high. Multifamily leasing also remained strong, and some landlords allowed tenants to extend leases without added fees.
Banking and Finance
Overall, loan activity declined slightly for this period. Respondents indicated tepid conditions for conventional commercial lending, but strong demand for Paycheck Protection Program (PPP) loans. Residential mortgage demand declined compared to the first quarter but was higher than a year ago, while mortgage refinance lending continued to grow moderately. Auto loans declined sharply on a year-over-year basis. Deposit growth was strong, mainly due to proceeds from federal aid disbursements. Overall, credit quality remains good; however, a few bankers noted an uptick in 15-30 day past due payments and numerous requests for loan extensions, deferrals, and mortgage forbearances.
Nonfinancial Services
On balance, nonfinancial services firms saw a moderate decline in demand and revenues since our previous report. Hospitals and health care service providers reported sharp declines in revenues and total volumes, overall, because of the limitations on non-COVID-19-related services such as elective surgeries. Higher education institutions in the Fifth District also reported declines in revenues, largely due to reimbursements made to students for forgone room and board.
Demand for professional services were mixed. For example, an accounting firms saw a modest reduction in business while a marketing company said sales were up, although the number of clients was down.
For more information about District economic conditions visit: www.richmondfed.org/research/regional_economy