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Richmond: November 2022

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Beige Book Report: Richmond

November 30, 2022

Summary of Economic Activity
The Fifth District economy expanded slightly, on balance, since our previous report. Manufacturing activity slowed mildly as new orders and backlogs declined while shipments remained flat. District ports saw overall activity decline as loaded exports decreased while import volumes only picked up slightly. Trucking companies reported a slight decline in volumes and in shipping rates. Retail spending grew modestly overall. New vehicle sales remained low but used vehicle sales picked up as prices eased and inventories improved. Travel and tourism grew modestly; business travel was notably strong for some hotels. Residential real estate activity declined as high home prices and elevated mortgage rates put a damper on demand. Commercial real estate activity also slowed overall, although class A office leasing held strong in some markets. Consumer and commercial lending declined moderately, and deposits increased more slowly as customers looked to earn higher interest elsewhere. Nonfinancial services reported declining demand and rising costs of labor, particularly for non-wage benefits. Overall, employment continued to grow moderately, and many firms still looked to fill open positions but struggled to find qualified workers. A majority of firms reported stronger wage growth compared to previous years. Price growth remained robust in recent weeks.

Labor Markets
Employment in the Fifth District increased moderately in recent weeks and many firms indicated that they still had positions to fill. The supply of labor remained tight with several contacts noting difficulties finding workers with necessary skills. One company that was looking to hire an experienced worker decided to hire an entry-level worker instead and pay for their training. A staffing service noted a mismatch between candidates' and employers' preferences with many candidates wanting fully remote positions and businesses looking for employees to come to the office. A majority of firms indicated that they were increasing wages for new and existing staff by more than in the past few years.

Price growth remained robust in recent weeks. According to our most recent surveys, both manufacturers and service sector firms reported continued strong year-over-year price growth in both prices paid for inputs and prices received from customers. Although the majority of businesses reported flat to increasing input costs, one contact noted that softening demand led to lower prices for their inputs, but the cost savings were not being immediately passed through to customers due to uncertainty about future price increases.

Manufacturing activity in the Fifth District contracted slightly in recent weeks. On balance, new orders declined while shipments were unchanged as producers continued to work through their backlogs. A textile manufacturer noted that their overall decline in orders was driven by consumer facing products as demand for their commercial products held up. A medical supply manufacturer said that although they did see an increase in orders recently, the volume was below expected for what is normally a busy time of the year. Supply chain backlogs showed signs of easing as vendor lead times declined.

Ports and Transportation
Respondents indicated that they were beginning to see a decline in volumes with overall loaded freight down at most Fifth District ports. Import volumes were flat or up slightly this period, but loaded exports continued trending down. Import volumes were led by furniture, sporting goods, and heavy equipment. The volume of empty containers leaving the ports was robust. Dwell time at the ports declined, leading to less congestion and lower storage fees. Spot rates from Asia to East Coast ports decreased 33% from last period but remained above the pre-pandemic rates. Air freight volumes remained soft, with exports volume remaining down significantly.

Trucking firms in the Fifth District pointed to a slight decrease in freight volumes this period, that were more than the usual seasonal slowdown. There continued to be solid demand with industrial customers, but retail shipping volumes declined modestly this period. Spot market rates decreased moderately due to expanded truckload capacity. Trucking companies noted that they were not hiring drivers as their current headcount could manage the existing volumes. New truck tractors and trailers were still backordered about one year. In addition, the cost of new 2023 equipment had increased substantially. Higher diesel fuel costs impacted overall transportation costs this period.

Retail, Travel, and Tourism
Retailers in our region reported modest growth in sales and revenue in recent weeks and rising inventory levels. A hardware store said that the number of customers was down considerably from last year, but revenue held up as the value of the average sale had increased. New vehicle sales remained low due to the combination of low inventory levels, rising prices, and higher borrowing costs. Used vehicle sales, on the other hand, increased moderately as more inventory became available and prices have started to come down.

Travel and tourism increased moderately, on balance. A hotel in South Carolina reported a record month in October and a strong start to November due to strong business travel and steady leisure travel. Air travel was unchanged in recent weeks at moderate levels and was expected to pick up soon due to holiday travel. A winter resort in West Virginia was concerned that labor shortages would limit their ability to provide the full range of services for this holiday travel season.

Real Estate and Construction
Demand for housing slowed considerably this period with reduced buyer traffic and listings. Days on market and inventory levels have increased but were still below normal levels. Respondents indicated that there were fewer closed and pending sales due to higher interest rates and low inventory. In most markets in the Fifth District, home prices remained unchanged, but sellers were offering more concessions, such as temporary rate buydowns or paying closing costs, to complete sales. Buyers were not having any difficulty obtaining mortgages and there were no issues with appraisals. New home construction also slowed down this period, and builders were no longer acquiring new lots due to high building costs and economic uncertainty.

Commercial real estate activity slowed this period in some Fifth District markets with reduced leasing and higher vacancy rates in retail, office, and industrial sectors. Market activity for Class A office space remained robust, especially in suburban markets, as companies were paying to upgrade to nicer workplaces in order to persuade employees to return back to the office. Capital market sales activity was down significantly due to higher interest rates. Rising interest rates and higher construction costs also had a dampening effect on new commercial real estate projects. New construction continued to experience supply chain disruptions as well as a shortage of skill workers.

Banking and Finance
Rising interest rates continued to drive a moderate weakening of demand for both commercial and residential loans. Commercial loan demand was also being impacted by higher input costs as well as higher financing costs. Residential loan demand was mainly being impacted by higher interest rates. Demand for new auto loans also weakened, primarily due to lack of consumer demand. Deposit growth continued to slow as customers search for higher yields in other instruments. Delinquency rates continued modest increases, primarily in the consumer portfolio. Overall, institutions anticipated a moderate decrease in growth due to seasonality and rising rates.

Nonfinancial Services
Nonfinancial service providers continued to report moderate decreases in both growth and demand for their services. Contacts were also noting continued wage increases being necessary to maintain their workforces. An employment firm noted that overall employee compensation costs continued to rise as benefits become a valuable tool in both retaining and attracting employees. Another contact noted that once their current contracted work has been completed, they will start adjusting their hiring, as well as current workforce, to match current, lower demand. Inflation and rising interest rates continued to be a focus of contacts as well.

For more information about District economic conditions visit: