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Beige Book Report: Richmond
September 2, 2020
Summary of Economic Activity
The Fifth District economy continued to expand in recent weeks, but activity remained below pre-pandemic and year-ago levels. Manufacturers experienced a moderate increase in new orders and shipments, on balance, but demand was described as unreliable and varied across different goods. Ports saw a modest rise in both imports and exports, but volumes were comparatively low. Trucking companies reported robust growth in demand, particularly for pharmaceuticals, food, beverages, retail and industrial shipments. Much of retail shopping remained weak, particularly at brick and mortar stores. Auto sales, on the other hand, were strong. Travel and tourism activity improved slightly as short-term renting showed some strength. Residential home sales increased robustly and although the inventory of homes for sale increased recently, there were more potential buyers than homes available for purchase. Commercial real estate leasing was little changed, overall, although retail vacancies rose. Financial institutions reported strong demand for home purchase loans and mortgage refinancing but a modest decline in lending for business investment. Overall, demand for nonfinancial services increased slightly, but reports varied. Some firms said that workplace safety measures led to increased costs. Employment continued to increase, but the pace of hiring slowed and many businesses report having difficulty filling open positions. Price growth picked up in recent weeks, but remained modest, overall.
Employment and Wages
Employment in the Fifth District continued to rise in recent weeks, but the pace of hiring slowed compared to our previous report. There were several reports of employers having difficulty filling open positions. Some contacts cited skills mismatches as a barrier to finding the workers they needed while others believed that the generous unemployment insurance benefits had discouraged workers from applying for available jobs. Also, multiple contacts said that some former employees were recalled but did not report back to work. Many firms said they were trying to figure out how to provide flexibility to workers with children schooling at home. On balance, wages were unchanged.
Since our previous report, price growth picked up but remained at a modest rate, overall. According to our most recent surveys, manufacturers reported a rise in prices paid and prices received; both of which remained below two percent. Service sector firms, on the other hand reported a slight increase in prices paid and a slight decline in prices received. Energy and agriculture commodity prices generally remained at low levels.
Fifth District manufacturers reported a moderate increase in shipments and new orders since our last report. Several contacts said that demand was unreliable while others expressed concerns about growing uncertainty relating to COVID and the upcoming presidential election. Manufacturers of food and home goods such as furniture reported strong business, but some manufacturers further up the supply chain struggled as uncertainty led to caution among customers and reduced orders. Several companies reported that supply chain disruptions were restricting production and that tariffs on inputs were hurting profits.
Ports and Transportation
Fifth District ports saw a modest increase in shipments since our last report, but volumes remained below year-ago levels. Import volumes exceeded export volumes in recent weeks, but exports were down less over the year than imports. Auto shipments increased but were generally weak on both the import and export side. Imports of retail goods increased, but imports of machinery, farm equipment, and manufacturing inputs were low. On the export side, shipments of apparel and agricultural products rose while metal exports were down. An airport saw strength in cargo, as an increase in medical supplies and diversity of product offset weakness in auto shipments.
Trucking volumes had strong growth in recent weeks. Contacts reported strength in pharmaceuticals and food and growth in retail, wine, and industrial shipments. Volumes of budget-friendly goods that have risen during the pandemic remained high. As demand strengthened, spot market rates rose, and driver shortages created capacity constraints. One executive reported buying new trucks due to strong demand. Despite strong business right now, other truckers expressed concerns over economic uncertainty from the pandemic and political uncertainty in an election year.
Retail, Travel, and Tourism
Retail demand was little changed in recent weeks, remaining at low levels overall. Customer traffic was low, and brick and mortar stores saw low demand, as the market shifted toward online sellers. Retailers cited COVID and civil unrest as deterrents to in-person shopping. Auto dealers reported strong demand, particularly online. Auto prices were high, boosting profits. Grocery stores also saw strong demand, but profit margins tightened due to increased cleaning costs.
Travel and tourism grew slightly since our last report but generally remained weak. Hotel occupancy was improved over recent months but down significantly over the year. However, short-term rentals did fairly well as people looked for more secluded vacations or enjoyable places to work remotely. Travel was mostly by car, but tourists were willing to drive longer distances. Beaches had strong visitation, but museums and other indoor attractions were closed or saw weak visitation. Indoor capacity limits led restaurants to expand outdoor seating, making demand more dependent on weather. Business travel remained low, and venues reported little to no demand for conferences or events.
Real Estate and Construction
Fifth District home sales increased robustly in recent weeks. Some realtors reported record months. Homes for sale rose from a few months ago, and demand continued to surge. Customer traffic increased, and customers were serious about buying. Days on the market fell, as many houses were bought sight unseen and some sold in hours. Home prices rose across most locations and price levels. Realtors attributed much of increased demand to low interest rates and to a desire to move from urban to suburban areas for larger homes with land.
Commercial real estate leasing held fairly steady since our last report. Industrial leasing remained strong, but retail leasing was weak, as vacancies rose. Leasing to stores and restaurants was particularly soft and was expected to worsen with potential closures in the coming months. Office leasing held fairly steady, with tenants asking for short-term lease renewals, but there was not much new interest or construction in office space. Rental rates for retail and office were fairly stable, but many tenants were unable to pay rent in full due to cash flow issues. Multifamily leasing varied across markets as some urban areas saw falling rental rates and increasing concessions, while suburban areas had rising rental rates.
Banking and Finance
Overall, loan activity improved slightly for this period, driven primarily by strong demand for both home purchase and mortgage refinance loans. However, the respondents indicated a modest decline for conventional commercial lending, due to continued uncertainty for capital investment as a result of the prolonged COVID pandemic. Additionally, some financial institutions reported tightening underwriting standards in selected commercial sectors. Deposits grew moderately this period, despite lower rates on interest-bearing accounts, mainly due to federal aid disbursements. Credit quality remained excellent, but a few financial institutions reported a slight increase in delinquencies.
Nonfinancial services firms indicated a slight increase in demand in recent weeks, but individual reports varied considerably. Business that rely on events and in-person visits with clients, for example, reported very low levels of sales and revenue. Firms that provide services through federal government contracts, on the other hand, noted an increase in COVID-related contracts. A few businesses said that while their primary concern was the safety of their customers and employees, the additional safety measures were costly.
For more information about District economic conditions visit: www.richmondfed.org/research/data_analysis