Beige Book Report: Richmond
October 21, 2020
Summary of Economic Activity
Economic activity in the Fifth District increased modestly since our last report but remained soft compared to pre-COVID and year-ago levels. Manufacturers saw a moderate increase in new orders and shipments, overall, but supply chain disruptions limited output and increased cost of production. Ports experienced a moderate rise in volumes, particularly of imports, as shipments neared year-ago levels. Trucking companies had strong growth in volumes, particularly of retail goods and noted tight capacity in the market. Retail sales showed modest growth as demand for home goods was strong, but customer traffic at brick-and-mortar stores remained soft. The travel and tourism industry saw modest improvement, but remained weak, as hotel occupancy rates were low. Residential home sales showed robust growth across price ranges, as inventories of both new construction and resales remained low. Commercial real estate leasing saw some declines, as retail was particularly weak. Bankers reported a moderate increase in loans, as demand for home mortgages remained strong, but commercial lending softened somewhat. Overall, demand for nonfinancial services increased slightly, as most firms reported flat to improving sales. Employment rose in recent weeks but remained below year-ago levels, and some businesses struggled to find workers. Price growth was fairly stable but varied across industries, as some firms noted increased costs of raw materials.
Employment and Wages
Total employment continued to rise in recent weeks, but the level of employment remained well below pre-pandemic and year-ago levels. A staffing and recruiting company said that demand for temporary and part-time workers remained somewhat elevated but demand for direct placement was very low. An employer of hourly workers remarked that it was very hard to find workers, particularly for positions paying less than $20 an hour. Many businesses said that they were offering flexible scheduling and remote work opportunities to workers with children schooling at home. Wages were little changed, overall, but there were some reports of recent wage gains in industries with significant order backlogs.
Prices
Price growth remained modest, overall, since our previous report. According to our most recent surveys, manufacturers reported a slight slowdown in growth of prices received while service sector firms reported a modest acceleration. Businesses in both sectors reported a small increase in prices paid. Some manufacturing and construction firms noted supply shortages and rising prices for certain raw materials. Several businesses reported longer lead times and higher prices for personal protection equipment.
Manufacturing
Manufacturers in the Fifth District reported a moderate increase in shipments and new orders in recent weeks. Food, furniture, and appliances were strong, with demand often exceeding capacity. Manufacturers who had shifted to making hospital gowns, sneeze guards, or other COVID-related equipment saw strong demand. However, manufacturers for retail stores struggled. Supply chain disruptions and tariffs put continued pressure on costs of inputs while unavailability of workers constrained production. Many contacts were cautious about investment because of uncertainty from the virus and the election year, but one West Virginia contact planned to expand factory space to increase capacity.
Ports and Transportation
Fifth District ports observed a moderate increase in shipping volumes since our last report. Many contacts reported volumes exceeded expectations from the spring. Import levels remained above export levels and grew faster than exports. Both import and export automotive shipments were strong, as were consumer goods, with one contact noting high volumes of toy shipments. Imports from east Asia grew, but heavy equipment was soft. Port contacts noted higher shipping rates, as some blank sailings limited capacity. An airport saw strong cargo shipments of both imports and exports, while capacity on passenger flights was limited.
Trucking companies reported strong growth in recent weeks. Capacity was tight as some companies had experienced closures. This shifted activity to the spot market, which saw rates reach record highs. Retail shipments for certain goods were high as some retailers looked to replenish inventories. Competition for drivers from companies developing their own delivery services led to some attrition and wage pressure. Contacts reported some capital expenditures but remained cautious, citing high uncertainty in the market.
Retail, Travel, and Tourism
Retail sales saw modest growth in recent weeks but remained soft compared to last year. Demand was somewhat mixed across products. Sales of home improvement goods and furniture remained strong. Clothing stores continued to struggle with low traffic and revenues in general, but they noted fairly strong sales of high-end clothing. Several retailers reported that inventories were out of season as excess remained from the spring. Contacts also noted a shift in customer traffic from large malls to individual destination stores. Some business expressed concerns about cash flow after Paycheck Protection Program loans run out.
Travel and tourism in the Fifth District increased modestly since our last report but were below year-ago levels. Hotel occupancy rose slightly in some areas, but hotels still struggled with low prices and occupancy rates that cannot sustain business in the long run. Demand for short term rentals was solid, particularly in areas with outdoor attractions, away from cities. Restaurants struggled, and some closed permanently. Restauranteurs expressed concerns about the effect of coming cold weather on demand for outdoor dining while indoor space remains limited or undesirable. Outdoor attractions saw strong demand but noted that capacity restrictions limited business.
Real Estate and Construction
Fifth District home sales growth remained robust in recent weeks. Demand for homes was strong across locations and price ranges. Inventories were low for both new construction and resales, and new construction remained strong. Prices rose, and days on the market fell. Realtors reported increasing numbers of offers made on homes. Customer traffic remained somewhat sluggish, but customers were eager to buy. Low mortgage rates incentivized buyers, but rapidly growing prices led to unpredictable appraisals. Realtors noted that buyers increasingly want homes with more land, home offices, pools, and rooms suitable for homeschooling multiple children.
Commercial real estate leasing declined slightly since our last report. Vacancy rates for both retail and office were up, while rental rates fell. Retail was particularly weak, as some stores and restaurants closed permanently or were unable to pay rent. Office leasing was soft. Many office tenants asked for short term lease renewals while determining the space they will need in the future, and some looked to sublet office space. Built-to-suit office construction was soft, and contacts did not see speculative office building. Multifamily leasing struggled in some urban areas, as many tenants moved to the suburbs, but was fairly stable in less densely populated areas. Demand for industrial space exceeded supply, leading to high rent and increasing construction.
Banking and Finance
Overall, respondents reported that loan activity picked up moderately for this period, mainly driven by continued strong demand for mortgage loans. On balance, they indicated conventional commercial lending declined slightly, especially in the hospitality and retail sectors. A few financial institutions stated that downward rate pressure had squeezed their net interest margins. Deposit growth was moderate despite low rates on interest-bearing accounts. Credit quality remained good, but a few respondents noted being more cautious in terms of their underwriting due to the pandemic. In addition, there is some concern that delinquencies may increase as a result of pending layoffs or furloughs.
Nonfinancial Services
Overall, demand for nonfinancial services increased slightly since our previous report. A majority of professional and business services firms reported flat to slightly improving sales and revenue. A few firms noted, however, that a slowdown in retail and office construction led to a decline in demand for their services. Health care service providers reported little change in demand, but one clinic saw an increase in demand for virtual visits and was increasing capital spending on technology as a result.
For more information about District economic conditions visit: www.richmondfed.org/research/data_analysis