Beige Book Report: Richmond
January 14, 2021
Summary of Economic Activity
Fifth District economic activity increased modestly in recent weeks, but several industries continued to see business below year-ago and pre-COVID levels. Manufacturers reported moderate growth in shipments and new orders amid high demand, but they were sometimes constrained by supply chain disruptions and labor shortages. Ports saw volumes hold steady at high levels as imports of consumer goods such as furniture were especially strong. Trucking volumes were little changed, remaining at high levels, which were largely attributed to home goods and packaging volumes. Retailers experienced modest declines in in-store sales as customer traffic remained low; however, online sales were strong. The travel and tourism industry saw modest drops in business as hotel occupancy decreased and restaurants had more limited seating due to COVID restrictions and inclement weather. Residential home sales and prices held steady at high levels. Commercial real estate was little changed, as office tenants continued to downsize and industrial remained strong. Financial institutions reported slight loan growth due to continued strong demand for mortgage loans. Demand for nonfinancial services decreased slightly on balance. Employment rose modestly, and many firms reported difficulty finding workers. Overall, prices grew moderately, particularly for raw materials.
Employment and Wages
Total employment in the Fifth District rose modestly in recent weeks but remained below year-ago and pre-pandemic levels. Manufacturers and technology companies in particular reported increased hiring. Trucking companies saw driver shortages. Demand for health care workers was high. Several contacts reported that they had difficulty finding qualified workers, and many businesses reported that COVID-related absences were leaving them temporarily short-staffed. On the other hand, some restaurants had to cut serving staff. Some firms, including professional and business services firms were reluctant to hire because of uncertainty around the virus. In general, wages showed modest growth.
Prices
The Fifth District saw moderate price inflation since our last report. According to our most recent surveys, both manufacturing and service sector firms saw an acceleration in growth of prices received. Growth of prices paid for inputs increased moderately for service sector firms but slowed slightly for manufacturers. Inflation of prices paid outpaced that of prices received. Many firms reported rising costs of and longer lead times for raw materials, particularly those used in construction. Others reported continued elevated costs for personal protective equipment, which remained a strain.
Manufacturing
Manufacturers in the Fifth District reported moderate growth in recent weeks as shipments and new orders increased. Manufacturers of furniture, food, and construction materials saw especially strong demand. Several manufacturers pointed to supply chain issues resulting in delays and high prices of inputs. Some manufacturers also reported production constraints from understaffing while employees were on quarantine. Conversely, some manufacturers saw weak demand such as a South Carolina office supply producer and a Virginia souvenir manufacturer who were unsure how long they could remain open.
Ports and Transportation
Fifth District ports saw little change in activity since our last report. Shipping volumes remained near record highs and were substantially above year-ago levels. While there was strength in both import and export shipments, import levels remained above export levels. Contacts reported increases in furniture, toys, and produce imports, while meat and grains were strong on the export side. One contact noted that the rush to get empty containers back to Asia for future shipments is limiting container availability for exports. Ports saw increased shipments as vessels were added to normal rotations to transport excess volumes.
Fifth District trucking volumes held fairly steady at high levels since our last report. Demand exceeded supply as a shortage of drivers, partially attributed to suspensions of training programs during the pandemic, constrained trucking capacity. Volumes of home improvement goods and cardboard were high, and demand increased among industrial and manufacturing customers. Trucking rates were elevated, with one contact reporting that customers were offering to pay more to renew their contracts early because of the capacity shortage. Spot market demand and rates were high, and trucking companies continued to invest in capital expenditures for potential expansion.
Retail, Travel, and Tourism
Fifth District retailers reported modest declines in business since our last report and saw sales well below year-ago levels. Auto sales softened somewhat, particularly for import brands. Ecommerce was strong, but some retailers said sales were limited by customer capacity constraints that reduced foot traffic. Furniture, hardware, and home goods retailers saw strong business and depleted inventory levels as some experienced delays or shortages from suppliers. Meanwhile, some pop-up retailers developed, buying or leasing property where former retailers had gone out of business.
Travel and tourism activity in the Fifth District declined modestly in recent weeks and was below year ago and pre-pandemic levels. Hotel occupancy declined from already low levels. Restaurants struggled as cold weather deterred outdoor dining and restrictions limited indoor dining, leading to some restaurant closures. Many attractions such as museums either closed temporarily or reported low and decreasing visitation. Group travel, business travel, conventions, and the wedding business were very weak. However, a ski resort saw strong bookings and worked to adjust schedules to maximize business while observing social distancing.
Real Estate and Construction
Fifth District home sales decreased modestly in recent weeks but remained strong and well above year-ago levels. Realtors attributed the slight slowdown to both seasonality and COVID-related stay at home orders. However, inventories remained very low. Prices were little changed recently and were up on a year-over-year basis. Average days on the market held fairly steady at low levels since our last report. One contact reported that builders are limiting the number of home sales per week in order to not run out of inventory of quick-delivery homes. Builders described delays in and shortages of materials and appliances as well as a spike in the price of lumber.
Commercial real estate leasing in the Fifth District was little changed since our last report and remained weak compared to pre-pandemic levels. Many office tenants downsized on space as their leases ended or sublet as some employees worked from home, and others asked for short-term renewals of leases. Retail vacancies remained elevated compared to a year ago. By contrast, industrial real estate was very strong, with tight supply and new construction, both speculative and built-to-suit. Multifamily leasing was somewhat weak as vacancies were high and rents were soft.
Banking and Finance
Overall, respondents reported that loan activity improved slightly for this period, mainly driven by continued strong demand for mortgage loans. However, financial institution contacts indicated a tepid demand for commercial lending given the continued challenges in the economy. Deposit growth was moderate, even with low rates on interest-bearing accounts, due to many businesses holding cash in reserve. Credit quality remained good, but a few respondents noted a slight upward trend in delinquencies as CARES Act payment deferrals expired. Still, most financial institutions remarked that credit quality deterioration and delinquencies are not as severe as they expected at the start of the pandemic.
Nonfinancial Services
Overall demand for nonfinancial services softened slightly since our last report. Many firms reported decreases in demand and revenue. Some professional and business services firms reported struggling as they had clients, especially small firms, who were going out of business. Event-related businesses were uncertain how long they could remain open, and a marketing firm reported difficulties related to unreliable or delayed package delivery for clients. However, demand for education and health care remained strong.
For more information about District economic conditions visit: www.richmondfed.org/research/data_analysis