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Beige Book Report: Richmond
October 20, 2021
Summary of Economic Activity
The regional economy grew modestly in recent weeks. Firms across a variety of sectors noted that demand outpaced their ability to meet it because of shortages in labor, finished goods, parts, and raw materials. Manufacturers saw a slight slowdown in activity amid strong demand due to labor and input constraints. Ports and trucking companies continued to report robust volumes and difficulties delivering those shipments because of labor and equipment shortages. Retail sales increased modestly and saw low levels of inventory, some of which were due to the microchip shortage. Travel and tourism slowed slightly but remained strong, overall. Restaurants struggled to keep up with demand and also faced challenges with the availability of labor and ingredients. Demand for nonfinancial services rose moderately and firms struggled to meet demand amid labor and input shortages. Residential real estate demand remained strong, but sales decreased modestly in recent weeks. Commercial real estate leasing rose modestly, with growth mainly coming from the industrial and multifamily segments. Financial institutions saw modest growth in loan activity, overall. Employment rose modestly, but the demand for workers strengthened. On balance, wages grew moderately and employers continued to offer bonuses to recruit and retain workers. Price growth held steady at an elevated rate.
Employment and Wages
Total employment in the Fifth District rose modestly in recent weeks. The demand for workers strengthened from an already robust level, and employers increasingly reported difficulties filling open positions. Many firms also saw increased turnover, leading some to offer both monetary and nonmonetary incentives, such as flexible work arrangements, to retain staff. A few employers expressed concern that federally mandated COVID regulations, such as vaccine requirements, could exacerbate their workforce challenges. Average wages increased moderately as firms offered higher starting pay and increased wages to recruit and retain staff. Many also continued to provide sign-on and stay-on bonuses.
Price growth was little changed in recent weeks but remained significantly elevated on a year-over-year basis. According to our surveys, service sector firms reported, on average, slightly more than four percent growth in their selling prices compared to last year. Services firms continued to report strong price growth for inputs as well, but those prices moderated slightly in recent weeks. Manufacturers, on the other hand, reported a slight increase in their selling prices and a sharp increase for input costs.
Fifth District manufacturers reported a slight slowing of activity since our last report. While many manufacturers still saw strong demand, labor constraints and shortages of materials limited production. Long lead times and high prices of inputs led some manufacturers to substitute inputs or halt production of certain products. Additionally, many manufacturers were unable to obtain packaging or saw shipping delays on finished products. A cabinet manufacturer reported that customers were not able to accept orders on schedule because of construction delays. Some manufacturers also reported that delays in obtaining parts to repair machinery slowed production.
Ports and Transportation
Fifth District ports saw strong growth in recent weeks, as volumes continued to break records. Growth was largely driven by imports, but exports grew as well. Imports of furniture, food, and machinery showed especially strong growth while agricultural products drove much of export growth. While auto parts held steady, finished auto imports dropped amid the microchip shortage. One contact noted that vessels normally used for finished new vehicles are now being used to ship trailers of goods. Port operations were smooth on the vessel side, but delays in inland transportation left imports sitting at the ports for extended times. These delays were caused largely by shortages of chassis and drivers as well as rail delays and warehouse space constraints. One contact noted that companies are increasingly storing products on chassis, exacerbating the problem.
Fifth District trucking companies reported moderate increases in demand from already high levels since our last report. Volumes were high in nearly all areas of both retail and industrial shipping. Truckers were unable to meet demand and had to turn away business from both new and existing customers, as a shortage of drivers constrained capacity. Some companies also struggled with shortages of trucks and trailers as new vehicles and repair parts were delayed.
Retail, Travel, and Tourism
Fifth District retailers reported a modest increase in demand since our last report. However, lack of inventories often limited actual sales. Supply of automobiles was especially low, which contacts attributed to the microchip shortage. High prices led to record profits for some auto dealers, but contacts believed profits were not sustainable, as inventories continue to drop. Other retailers also struggled with long lead times for and limited availability of products as well as high shipping costs. Supply chain disruptions disproportionately affected smaller retailers who were often unable to secure containers for imports.
Travel and tourism in the Fifth District were strong but decreased slightly in recent weeks. The seasonal shift from leisure to business travel led to this slowdown, as many businesses have not resumed normal travel operations. Despite the slowdown, hotels saw strong bookings and high rates, but many limited services and the number of rooms offered because of staffing shortages. Restaurants also were unable to meet high demand and had to cut operating hours because they did not have enough employees. Many restaurants struggled with availability of ingredients and were forced to change their menus daily, depending on what ingredients they received.
Real Estate and Construction
Demand for Fifth District homes remained robust but decreased modestly in recent weeks. Realtors reported they continued to get multiple offers on homes but fewer offers than in the past year. Sale prices rose overall, but sellers increasingly had to sell for under listing price. Inventories and average days on the market were low but increased somewhat as more homes came onto the market. Builders continued to struggle with low inventories and supply chain disruptions that delayed construction. Many sellers of existing homes also experienced delays getting new appliances, paint, or other materials they wanted for improving homes before showing them.
Commercial real estate leasing increased modestly since our last report. More companies looked to lease office space, but many remained hesitant because of uncertainty surrounding space needs, and occupancy was little changed. Rents held steady, and concessions and incentives remained high, mostly consisting of free rent at the beginning of a lease and increased tenant improvement allowances. Demand and rental rates for industrial leasing remained high. Contacts reported rising demand for restaurant space, as new restaurants opened and existing ones added locations. Multifamily leasing was strong, as landlords saw high occupancy and rising rental rates.
Banking and Finance
Overall, respondents reported that loan activity was modest this period, with moderate growth in residential mortgages amid continued low rates. Financial institutions indicated a slight increase in demand for commercial real estate and business loans, but noted that firms are reluctant to make capital investments due to uncertainty related to the Delta variant and supply chain shortages. Auto lending has decreased due to lack of inventory on car lots. Deposit growth was moderate despite many banks further lowering rates on interest-bearing accounts. Credit quality remained excellent, but a few respondents noted increased rate competition on loans.
Nonfinancial services firms reported a moderate increase in demand in recent weeks, but many businesses indicated that they were not able to fully meet demand due to shortages of workers as well as shortages and delays in receiving other business inputs. In many cases, those shortages also led to higher costs. Community college enrollment remained below pre-pandemic levels. Meanwhile, nonprofit organizations generally saw strong giving and were hiring, but they had to compete with for-profit companies for workers.
For more information about District economic conditions visit: www.richmondfed.org/research/data_analysis