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Beige Book Report: Richmond
July 15, 2020
Summary of Economic Activity
The Fifth District economy grew compared to our prior report, although economic activity generally remained well below pre-COVID-19 levels. Manufacturers experienced a slight uptick in new orders but shipments of finished goods were little changed. Ports reported modest declines in both imports and exports. Trucking companies, on the other hand, indicated a modest increase in demand as the reopening of stores and restaurants spurred new shipments. Retail shopping picked up modestly as more stores were able to reopen, but sales remained below year-ago levels. Leisure travel and tourism activity increased moderately, particularly at drivable locations. Business travel, in contrast, remained depressed. Residential home sales increased despite a low inventory of existing homes. Commercial real estate leasing rose modestly, overall, due to strong demand for industrial space. Bankers reported a slight increase in lending, predominately loans for home purchases and mortgage refinancing. On balance, demand for nonfinancial services declined moderately. Employment rose moderately in recent weeks as many firms called back previously furloughed or laid-off workers; however, total employment remained well below pre-pandemic levels. Price growth increased modestly, overall. Prices for some goods, like personal protection equipment, rose sharply due to supply chain disruptions and high demand.
Employment and Wages
Since our previous report, employment increased as firms across a wide variety of industries reported calling some of their previously separated employees back to work, hiring new workers, and posting for vacant positions. Despite the rise in employment in recent weeks, total employment remained considerably below pre-pandemic levels. Several contacts noted challenges bringing workers back, including fear of contracting COVID-19 at work, inability to find childcare, or their ability to make more money on unemployment. While most firms reported no changes to wages or salaries, a few said that they cut hourly wages to reduce costs.
On balance, price growth picked up modestly in recent weeks. According to our most recent surveys, manufacturers reported a slight increase in both prices paid and prices received while services sector firms reported a moderate increase in both price measures. One service firm noted that supply chain disruptions and high demand for personal protection equipment led to a substantial increase in prices for those goods.
Manufacturing conditions in the Fifth District were little changed since our previous report. Shipments were fairly steady, and new orders increased slightly. However, lost revenue forced some manufacturers to cut budgets and discretionary spending as well as cancel capital spending projects. Customers who were unable to pay for products created additional stress for manufacturers. Payroll Protection Program (PPP) loans allowed some companies to remain solvent. One firm that contracts with government agencies expressed concerns about government budget changes in the wake of the virus. Some firms were able to offset losses, by shifting production to COVID-related goods such as medical supplies or sneeze guards.
Ports and Transportation
Fifth District ports experienced modest declines in shipping volumes in both exports and imports in recent weeks. On the import side, declines were seen in home furnishings, autos, and engine parts, while apparel and medical supplies showed some strengthening. Port contacts attributed some of the weakness in exports to supply chain disruptions. One port lost business as large retailers closed, eliminating distribution centers. Ports saw some canceled calls, although not as many as in the last few months. An airport operator said cargo flights had increased to partially offset the decline in cargo space from the reduction in passenger flights.
Trucking companies in the Fifth District reported a moderate increase in demand since our last report. Contacts noted increased shipments of retail goods and wine as stores and restaurants reopened. Shipments of food, cleaning supplies, and home-improvement goods remained strong. Some businesses reported lingering softness as shipments were still below last year. However, one company had more freight than it could haul and looked to expand its fleet, while others continued capital expansion plans in order to be well-positioned upon full recovery. Spot market activity picked up, and most customers who had temporarily shut down reopened.
Retail, Travel, and Tourism
Retailers reported that business picked up modestly in recent weeks as more stores were able to reopen, but demand remained below the level of a year ago. Several companies struggled as supply chain disruptions led to low inventories. In particular, automobile dealers reported that manufacturer shutdowns led to low inventories of new cars, which boosted sales of used cars. In addition, the supply of used cars increased as rental companies closed and corporations sold their excess fleet vehicles. Some retailers also experienced soft demand, and one store expressed concerns that closures of nearby restaurants would hurt business. However, others, such as grocers, hardware stores, and consumer appliance and electronics stores, had strong sales, and some faced higher demand than they could meet.
Travel and tourism improved moderately since our last report but were soft compared to last year. Hotels and vacation rentals in some areas reported high occupancy, spurred by leisure travel, particularly in the drivable market. However, business travel remained low, and event venues were hit by lack of conventions, which they anticipated would hurt business for some time. Meanwhile, restaurants continued to struggle as they operated at reduced capacity, and some shut down because of virus spikes or fear of vandalism. Attractions, theaters, and performing arts groups struggled as many remained closed and those that opened had soft demand.
Real Estate and Construction
Fifth District home sales increased modestly since our last report. Realtors said business picked up after some softness in recent months. Contacts reported that demand exceeded supply, partially because listings were low, as people were still reluctant to show their homes. Days on the market decreased, and low interest rates boosted sales. Realtors noted particularly strong demand for lower priced homes, but low listings caused some customers to shop in higher price ranges than they had originally planned. New construction continued, but starts were delayed due to the remote work and distancing policies of local agencies.
Commercial real estate leasing increased modestly but remained soft compared to pre-pandemic levels. Rental rates were somewhat lower, but contacts said buyers were not getting the low prices they expected. Retail remained weak as some stores and restaurants closed permanently. Office leasing was modest, and several tenants asked for short-term lease renewals in order to allow them to re-evaluate their use of and need for office space. Industrial leasing remained strong, and one broker expected a continued rise in industrial leasing to allow companies to hold more inventory. Multifamily leasing was somewhat soft, and some landlords increased concessions to attract tenants.
Banking and Finance
Overall, loan activity picked up slightly for this period. Respondents reported higher residential mortgage growth and strong demand for mortgage refinancing. On balance, conventional commercial lending declined moderately, although demand improved slightly in Fifth District states that reopened earlier. Auto lending remained below year-ago levels. Deposit growth continued to be strong, despite lower rates on interest-bearing accounts, driven mainly by proceeds from federal aid disbursements. Delinquency rates remained low, but a few financial institutions reported being more cautious in terms of their underwriting in light of the pandemic.
Nonfinancial services firms reported moderate declines in demand and revenues in recent weeks. Several contacts who engaged in business to business services, such as consulting, employee training, and marketing, said that their clients have reduced spending as a result of their own revenue declines. A few others said that revenue was down because they could not attend conventions and events, which typically generate new business for them. Lastly, an executive from a firm that provides services to federal government agencies expressed concerns that budget cuts would result in reduced demand in 2021 after current contracts expired.
For more information about District economic conditions visit: www.richmondfed.org/research/data_analysis