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Beige Book Report: Richmond
December 2, 2020
Summary of Economic Activity
The Fifth District economy expanded at a moderate rate in recent weeks. Although some sectors reported strong growth, most businesses reported demand or sales at levels below their pre-pandemic or year-ago levels. Manufacturers experienced robust growth in shipments and new orders, and in some cases, demand exceeded capacity as producers were constrained by labor and supply chain factors. Ports and trucking companies saw strong growth in volumes, driven by high demand for furniture, consumer goods, and autos. Retailers reported little change in overall sales and low customer foot traffic, however there was strong growth in certain categories. Travel and tourism declined modestly as leisure travel softened. Restauranteurs voiced concerns about colder weather impacting outdoor dining in the coming months. Residential home sales picked up markedly and prices rose for both new and existing homes. Commercial real estate grew modestly. Office and retail vacancies remained elevated but rent payments held up. Despite moderate growth in mortgage demand, total loan volumes declined slightly, according to Fifth District financial institutions. On balance, the demand for nonfinancial services rose slightly in recent weeks. Employment continued to rise, but some firms looked to invest in technology or automation rather than hiring more workers. Overall, price growth was little changed as prices received by firms grew modestly.
Employment and Wages
Employment in the Fifth District rose moderately since the previous report. Despite recent increases, the overall level of employment remained below the pre-pandemic level. Some professional and financial services firms reported a recent uptick in hiring, particularly for accountants, lawyers, and IT professionals. An infrastructure design and consulting firm was hiring engineers due to strong demand for their services. Similarly, an advanced manufacturing firm reported strong growth in hiring for engineers, technicians, and administrative staff. Several businesses, however, were hesitant to hire and some looked to invest in technology or automation rather than increasing employment. Other firms reported difficulty finding workers to fill open positions. Wage growth remained modest, overall.
Price growth was little changed, on balance, in recent weeks. According to our most recent surveys, manufacturers and service sector firms reported modest growth in prices received, averaging well below two percent. Growth in prices paid for inputs remained moderate and generally outpaced growth in prices received. Firms in both goods producing and service providing sectors continued to state that additional cleaning measures and purchases of personal protection equipment contributed to the growth in input costs compared to last year.
Manufacturers reported strong increases in shipments and new orders since our last report. Producers of furniture, textiles, home goods, food, and shipping materials reported robust demand, often exceeding capacity. However, many manufacturers reported that production was constrained by unavailability of labor and supply chain disruptions resulting from tariffs, shutdowns, and shortages. Some manufacturers expressed concerns about recent increases in new COVID cases, leading to uncertainty about the extent that they would be able to operate in the near future.
Ports and Transportation
Fifth District ports saw robust growth in shipping volumes in recent weeks. Contacts reported volumes were up over the year and neared record levels. Import levels continued to exceed export levels, but both registered strong growth and high volumes. Furniture, consumer goods, and auto imports were particularly strong, but machinery and beverage imports were weak. On the export side, machinery, meat, and grocery products were strong. Lumber and grain exports improved slightly but remained soft compared to year-ago levels.
Trucking companies reported high volumes and strong growth since our last report. High rates and fairly stable costs led to strong profits. Volumes of home improvement goods and packaging materials were particularly high. Demand often exceeded supply, leading some companies to turn away business. Trucking companies continued capital investments but faced capacity constraints from lack of available drivers. Contacts noted that drivers from smaller companies that closed during the pandemic often left the industry or did not qualify to drive for larger companies with higher safety standards.
Retail, Travel, and Tourism
Fifth District retailers reported little change in recent weeks, and business remained below year-ago levels. Home goods and food retailers continued to see strong demand. Local retailers that also sell online reported solid online sales while in-store shopper traffic remained low. Auto sales were fairly stable, and dealers held out for higher prices because of low supply. Retailers worked to restock inventories to prepare for holiday sales, but some contacts reported that delays and shortages were limiting their ability to do so.
Travel and tourism in the Fifth District saw a modest decline since our last report and was well below year-ago and pre-pandemic levels. Hotel occupancy was low, as leisure travel softened and business travel remained very low. Restaurateurs expressed concerns about the feasibility of outdoor dining heading into the colder weather, as both restrictions and low demand limited indoor dining. Attractions, museums, and performing arts also saw weak demand. Many businesses felt that demand would not return until a vaccine becomes widely available, and many businesses faced renewed constraints on activity with the recent surge in virus cases. However, some mountain resorts reported solid to strong demand.
Real Estate and Construction
Home sales in the Fifth District continued to be strong since our last report. Sales were robust across price ranges and locations; demand for moderately priced suburban homes was particularly strong. Prices were strong and rising for both new and existing homes, which contacts attributed to low inventories, high demand, and low mortgage rates. Average days on the market decreased, as did the number of listings. Construction costs were high as lumber prices remained significantly elevated. Realtors reported that buyers were increasingly looking for houses with more land, multiple home offices, pools, and personal gyms.
Commercial real estate leasing grew modestly in recent weeks. Vacancy rates remained elevated for office and retail, but rent payments generally have held up. Office tenants asked for short-term renewals as they reevaluated space needs and increasingly looked to locate in smaller buildings, often in the suburbs, instead of renting space in urban high-rises. Some retail vacancies opened up as tenants went out of business, but realtors reported new interest in those spaces. Industrial space remained in high demand, driven largely by ecommerce. Multifamily vacancy rates varied by location and were notably high in the District of Columbia. Rents were soft in retail and multifamily but high for industrial space. High construction costs encouraged repurposing of old buildings by companies instead of building new sites.
Banking and Finance
Overall, respondents reported that loan activity declined slightly for this period, despite moderate mortgage loan growth. On balance, contacts indicated conventional commercial lending remained unchanged with several banks indicating tightening credit standards, especially for hospitality, retail, and office loans. Deposit growth was moderate even with interest rates paid on deposits remaining low. Credit quality remained good, but a few respondents said they were carefully watching how some mid and lower tiered loans will perform in 2021. In addition, there was some concern regarding increased competition as banks search for loan volume to help offset lower yields.
On balance, demand for nonfinancial services picked up slightly in recent weeks. Some firms reported moderate growth, particularly those engaged in construction related services, information technology, legal, and financial services. Several other firms, however, reported flat to declining demand due to limited business-to-business spending. A marketing company, for example, said that businesses seemed to be conserving resources and marketing budgets were one of the first places that companies look to cut. Health service providers continued to report strong demand.
For more information about District economic conditions visit: www.richmondfed.org/research/data_analysis