Beige Book Report: Richmond
July 14, 2021
Summary of Economic Activity
The regional economy continued to grow at a moderate rate in recent weeks. Manufacturers experienced robust demand and increases in shipments and new orders. District ports reported strong growth in volumes driven by imports of retail goods and exports of agriculture products. Trucking companies also reported strong growth and a level of demand that exceeded supply. Retailers saw strong growth, particularly for home goods and clothing. Auto sales picked up, overall, but car sales were limited by low inventory levels. Travel and tourism, particularly in vacation destinations, was strong, but some companies had to limit services due to labor shortages. Nonfinancial businesses reported moderate growth in revenue and some firms cut back on advertising because demand was exceeding their ability to meet it. The residential real estate market remained strong and new listing sold quickly. Commercial real estate leasing picked up and office vacancies declined. Banks reported modest loan growth, solid credit quality, and historically low default rates. Employment rose modestly and firms continued to struggle to fill open positions. Wages rose modestly, overall, as firms increasingly turned to non-wage incentives to attract workers. Price growth edged up further from already elevated year-over-year rates.
Employment and Wages
Total employment in the Fifth District rose modestly in recent weeks. The demand for workers remained strong and contacts continued to report difficulties filling open positions. Some employers said that they were investing in automation or using more part-time workers as a result. A firm in Charlotte was able to recruit tech workers from the west coast by allowing them to work remotely. Overall, wages rose modestly. Many contacts continued to report raising entry-level wages, which created pressure to increase wages for existing employees. Additionally, employers were increasingly turning to non-wage cash incentives such as referral and sign-on bonuses to recruit workers.
Prices
Price growth picked up slightly in recent weeks from an already elevated rate. According to our surveys, service sector firms reported, on average, a four percent increase in prices received compared to a year ago. Meanwhile, manufacturers reported little change in selling prices in recent weeks; however, on a year-over-year basis, price growth remained robust. Firms across sectors also reported sharp increases in input costs and many noted that they were only passing a portion of those higher input costs on to customers.
Manufacturing
Fifth District manufacturers reported robust growth in demand since our last report leading to increases in shipments and new orders. Producers of retail goods, including food and furniture, saw especially high demand. Many manufacturers were unable to meet demand as shortages of labor, raw materials, and equipment constrained output. Manufacturers tied to the auto industry reported slowing production because of the microchip shortage. Lead times and backlogs lengthened as inventories remained low. Transportation issues also caused delays in getting finished products to customers, both domestically and internationally.
Ports and Transportation
Fifth District ports saw strong growth of both imports and exports and handled record volumes since our last report. Import growth was primarily attributed to retail goods, including furniture, home goods, and food. Industrial and medical imports were also strong. Export growth was largely driven by logs, grains and soybeans. Ports increasingly stored imports, as trucking and rail disruptions caused delays getting imports from ports to customers.
Truckers in the Fifth District reported robust volume growth in recent weeks. Volumes were high for most goods, but especially for retail and industrial goods. Companies were unable to meet demand amid labor constraints and equipment shortages, which led to higher spot market prices and increased profit margins. Contacts reported keeping trucks and trailers longer than intended, to help with both increased demand and delays in equipment arrivals.
Retail, Travel, and Tourism
Fifth District retailers saw robust growth in demand and revenues since our last report. Sales of hardware, furniture, and home goods grew from already strong levels. Clothing stores reported increased demand, particularly for formal apparel, including wedding dresses, as consumers began to plan events and return to the office. However, many retailers struggled with inventory shortages and delays in receiving products. Auto dealers, in particular, faced shrinking inventories of new cars because of microchip shortages, but experienced higher profit margins on sales of used cars.
Travel and tourism in the Fifth District showed strong growth in recent weeks. Some beach communities reported record visitation, as hotels saw record-breaking occupancy and beach short-term rentals were booked solid through the summer and into the fall. Outdoor attractions continued to do particularly well, although some indoor attractions, such as movie theaters, museums, and bowling alleys also saw increased visitation. Many hotels and restaurants continued to report labor shortages that led them to limit capacity or services. Contacts attributed demand to domestic travel, and visitation to the District of Columbia strengthened but remained below pre-pandemic levels.
Real Estate and Construction
Fifth District home sales remained strong, average selling prices rose, and the average days on the market declined. Inventories remained low as new listings sold quickly and many home builders were either sold out or limited the sales of homes. Realtors noted that many buyers offered cash in order to close quickly and then refinanced. One contact noted that buyers are increasingly willing to buy homes in poorer or unknown condition.
Fifth District commercial real estate leasing expanded moderately since our last report. Office leasing increased modestly as more companies returned to onsite work and began to sign longer term leases, leading to an overall decline in office vacancy. Office rental rates increased, but realtors noted that office tenants generally required high incentives and concessions. Demand for retail leasing grew, and contacts noted that many restaurants were looking for more land in order to add drive-throughs. Multifamily leasing also increased, and rents rose. Industrial leasing continued to grow from already high levels.
Banking and Finance
Overall loan demand increased modestly this period. Financial institutions indicated soft business loan demand and low utilization rates on commercial lines of credit, attributed in part to temporary labor and supply shortages. Respondents noted continual modest growth in both commercial real estate and mortgage lending but remarked that the limited inventory of homes on the market has reduced mortgage originations. However, contacts reported increased loan competition, particularly focused on interest rates. Deposits exhibited moderate growth this period. Banks stated that credit quality continued to be good and delinquencies remained at historically low levels.
Nonfinancial Services
Nonfinancial services firms reported a moderate increase in revenue and demand in recent weeks. An accounting firm saw steady growth with new activity coming from merger and acquisition and tax accounting work. Meanwhile, an IT service provider noted an increase in demand for cloud and security solutions. An advertising and marketing agency contact said that clients were cutting back on advertising because demand was strong and outpacing their ability to meet it, so they didn't want to attract any new business. Lastly, an education services provider was expanding summer programs for children and was looking for other creative ways to support workers with children.
For more information about District economic conditions visit: www.richmondfed.org/research/data_analysis