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Beige Book Report: Richmond
April 14, 2021
Summary of Economic Activity
The Fifth District economy grew moderately in recent weeks. Manufacturers experienced robust growth and demand that often-exceeded production capacity, due in part to labor constraints and shortages and shipping delays of raw materials. Ports also saw strong increases in shipping volumes, particularly for retail and medical goods. Trucking volumes were little changed at near-record high levels. Retailers reported moderate growth in consumer spending but also faced shortage and delays receiving inventories. Travel and tourism picked up modestly in recent weeks and vacation rental bookings were strong. Residential real estate demand remained strong and low inventory levels led to higher selling prices. Commercial real estate leasing rose modestly, overall, but some firms downsized their office space. Loan activity grew moderately, lifted by new PPP applications, plus strong deposit growth from stimulus payments. Nonfinancial service demand also picked up moderately, overall. Employment rose modestly as hiring was constrained by challenges filling open positions. Prices rose moderately, on balance. Manufacturers reported sharp increases in both prices paid and prices received while construction materials were little changed at elevated levels and service sector prices rose moderately.
Employment and Wages
Employment increased modestly in recent weeks, with wide variation across sectors. Several contacts noted that they had open positions, but difficulties recruiting workers constrained employment growth. A hotelier said they were able to hire some front desk workers but had unfilled cleaning staff positions and little interest from workers in those jobs. Several firms also reported increased turnover and challenges retaining workers. One manufacturer said that they needed to hire and train three workers to retain one. In contrast, a professional business firm said it was difficult to find engineers and technical professionals because those workers were hesitant to change jobs. Wages rose moderately, on balance. A staffing agency noted that firms seeking hourly and lower-wage workers were raising wages due to challenges filling open positions.
Overall, prices rose at a moderate rate in recent weeks, but price growth was uneven across sectors. Manufacturers reported sharp increases in both prices paid and prices received. In particular, prices for durable goods, such as autos and home appliances, increased amid strong demand and low inventories, due in part to the shortage of microchips. Prices for construction materials were little changed in recent weeks but remained considerably higher than year-ago levels, particularly for copper, steel, and lumber. Service sector prices rose moderately, on balance. Some legal and professional business services were able to increase prices in response to strong demand.
Fifth District manufacturers reported robust growth since our last report, as both shipments and new orders increased sharply. Producers of furniture and food saw especially high demand, often exceeding supply. Contacts reported that decreases in COVID cases were leading to fewer delays from labor constraints. However, manufacturers saw capacity constraints resulting from supply side disruptions, particularly lengthening lead times on imports. Shortages of packaging and raw materials were especially pronounced. Manufacturers also struggled to ship finished goods amid limited trucking supply and a shortage of containers for exports. While input costs were elevated, profits remained strong as manufacturers were able to pass costs through to customers.
Ports and Transportation
Ports continued to see robust growth in shipping volumes in recent weeks. Growth of imports far exceeded growth of exports. Furniture, retail goods, and medical products drove much of the growth on the import side, but auto imports weakened somewhat. Agricultural exports increased, and contacts noted a decrease in the number of empty containers being exported. Sea ports struggled with delayed arrivals but reported efficient processing of goods once they reached shore, as turn times for loading trucks fell significantly. Air shipments increased, and a Fifth District airport relied on temporary workers to handle high cargo volumes.
Fifth District truckers reported that volumes held fairly steady at near-record highs since our last report. Demand for freight was strong across many industries, as shipments of home improvement goods and manufacturing inputs remained particularly high. In many cases, companies were unable to meet demand for freight, as capacity was constrained by a lack of drivers and delays in orders of trailers. Contacts expected these constraints to continue and demand to rise, leading to longer delays in shipments.
Retail, Travel, and Tourism
Fifth District retailers saw moderate growth in demand and revenue since our last report. Contacts reported increased shopper traffic, although some clothing retailers reported that many shoppers did not make purchases. Meanwhile, retailers of food and home goods saw especially high demand. Retailers reported shipping delays, shortages, and higher prices for some inventories. Profit margins on both new and used cars increased, as inventories of new cars shrank, which auto dealers attributed to microchip shortages.
Travel and tourism in the Fifth District grew modestly in recent weeks. Vacation rentals saw strong bookings and restaurants had more business, particularly on the weekends. Beach destinations saw high visitation, and other outdoor attractions and activities registered strong demand. Hotel rates remained low, although occupancy picked up in some areas. In the District of Columbia, tourism remained low, and some restaurants and hotels closed, both temporarily and permanently. However, museum visitation increased and restaurants were hopeful that warm weather would attract more outdoor diners.
Real Estate and Construction
Demand for homes remained strong in recent weeks, although some realtors noted a slight decrease in sales, resulting from shrinking inventories of both new and existing homes. Prices continued to rise, and days on the market remained low, with most homes selling in less than a week and many selling within hours. Builders limited their number of weekly sales to preserve inventory and some were holding lotteries to accept customers. Home builders experienced delays in and high costs of materials and appliances. Realtors reported due diligence payment prices are rising.
Commercial real estate leasing grew modestly since our last report but remained below pre-pandemic levels. Multifamily saw strong demand and new construction. Retail conditions were mixed as some businesses closed, but new ones expressed interest in vacated spaces. Many office tenants downsized, and office vacancies rose, even as landlords increased concessions. Businesses continued to ask for short-term extensions on leases. One contact noted an increased interest in small office spaces for individuals working remotely who want to leave home. Demand for industrial real estate was strong, as rates increased and new construction continued, both speculative and built to suit.
Banking and Finance
Overall, loan activity grew moderately this period and was attributed to improving sentiment. Respondents indicated modest growth in business lending, led by a new round of PPP. Contacts stated that commercial real estate lending also experienced slight growth. Mortgage volume remains moderately strong despite rates moving off of historic lows and the lack of housing inventory. Deposit growth was strong due to the new round of stimulus payments. Interest rates on deposits continued to decline slightly, but respondents noted significant market pressure to increase loan rates on the long end. Overall credit quality and delinquencies remained good.
Overall, the demand for nonfinancial services rose moderately. Firms in the legal and professional business services saw increased revenues and demand as some in-person visits and travel resumed. Life science companies reported steady to increasing business. Demand for health care services was little changed, overall, as non-COVID-19 related demand rose to offset the decline in COVID-19 related care. One health care administrator saw a return to surgical procedures and huge demand for physician services but noted a steep decline in the maternity care unit as births were down almost 10 percent compared to last year.
For more information about District economic conditions visit: www.richmondfed.org/research/data_analysis