Beige Book Report: Richmond
June 4, 2025
Summary of Economic Activity
The Fifth District economy continued to expand at a mild rate in recent weeks. Consumer spending picked up slightly in recent weeks, but contacts were concerned that declining sentiment could mean slower activity in the near future. Nonfinancial services providers also saw a slight increase in demand this cycle. Meanwhile, demand for financial services remained steady and commercial and residential real estate activity was little changed. Port activity increased as import activity surged and was attributed to frontloading shipments to get ahead of tariffs. Export activity, on the other hand, contracted. Manufacturers also reported a slight contraction this cycle. Employment rose slightly, overall, amid modest wage growth. Year-over-year price growth remained moderate.
Labor Markets
Employment in the Fifth District increased slightly in the most recent period. Contacts were mixed on hiring plans based on business expectations. For example, a Maryland construction company planned on increasing employment due to available work and a fast-casual restaurant decided to move ahead with adding locations, thus increasing employment. Conversely, a different fast-casual restaurant located in the DC-region paused all hiring due to local economic uncertainty. A Richmond-based business consultant planned on reducing headcount by twenty percent due to declining revenues and uncertainty about future business. Contacts continued to report modest wage increases and felt pressure to raise wages further due to expected increases in cost-of-living for their workers.
Prices
Year-over-year price growth remained moderate, overall, despite rising input costs for many firms. According to our recent surveys, manufacturers reported a slight increase of annual price growth while non-manufacturers reported a slight decrease, with both sectors seeing prices grow in the 2.5 to 3.0 percent range, on average. Firms across both sectors reported input costs rising at faster rates, which many businesses attributed to tariffs on materials they import. Firms expected prices to increase at faster rates over the next six months.
Manufacturing
Manufacturing activity in the Fifth District declined modestly in the most recent reporting period. Multiple contacts reported adjusting their operations due to increased uncertainty. A multinational machine manufacturer shut down a domestic product line that sold internationally due to tariffs on exports. A small food manufacturer laid off a full-time employee due to uncertainty about future input costs. A furniture manufacturer reduced the average work week to four days. A few firms mentioned being surprised by an uptick in new orders. A cabinet maker saw an increase in business due to clients going ahead with office projects to get ahead of tariffs and interest rate changes.
Ports and Transportation
Overall cargo volumes in the Fifth District increased robustly since the last reporting period, with some ports seeing record import levels not seen since the Fall 2023 post-COVID surge. Contacts attributed the increase in imports to pre-tariff frontloading of goods from East Asian countries, with notable upticks in automobiles and auto parts. Export volumes decreased moderately, which was attributed to new tariffs imposed by other countries that shifted demand for U.S. agricultural products like timber, grain, and soybeans. Contacts reported that demand for bonded warehouse space has gone "through the roof" across the region as shippers look for space to hold cargo near ports and wait out changes in tariffs. After the initial tariff escalation, maritime bookings decreased by half with flattening freight rates and record blank vessel capacity space. Port contacts expected import volumes to slow down later this year due to the recent frontloading of shipments. Despite a surge in import volumes, trucking demand remained weak as those imports were largely being warehoused close to ports. One airport began expansion of warehousing space to accommodate the increased demand for cargo staging space.
Retail, Travel, and Tourism
Consumer spending increased slightly in recent weeks. Most retailers reported steady to increasing sales, overall, but noted a decline in big ticket purchases. Several contacts mentioned that consumers continued to be price sensitive and were opting for lower priced alternatives. Similarly, hospitality contacts saw an overall increase in activity and shifts in consumer preferences towards budget hotels and quick service restaurants. At the same time, some luxury retailers, hotels, and experience providers reported strong sales. Despite recent increases in activity, many contacts expected sales to slow in the coming months and pointed to declining consumer sentiment, potentially higher prices, and heightened uncertainty as potential headwinds.
Real Estate and Construction
Residential real estate activity flattened in recent weeks. Home inventory levels continued to increase while buyer traffic decreased slightly. Homebuilders in the district continued to echo their frustration with the expense that regulatory "red tape" adds to costs and the uncertainty that tariffs have on future prices for raw materials and home appliances. A Maryland builder stated they have started to see purchase agreement cancellations on new homes as many of their customers work directly or indirectly for the federal government. Buyers continue to qualify for loans across the district. A Virginia agent mentioned they have 60 to 70 people prequalified that are waiting to see if mortgage rates drop.
Commercial real estate flattened overall as companies hesitated to make new investments. Industrial space took the biggest hit as businesses tried to assess operating space, tariffs, or whether to continue their U.S. presence. A South Carolina agent said that "Industrial deals have dropped with pins in hand, companies freeze because they can't figure out the rules of this tariff game." Across the district, office space continued to see vacancy rates decrease as employees return to in person work. Upfits in office space are seeing a slight uptick with these returns. A Virginia agent mentioned government contractors have an impetus to upfit their space for security reasons.
Banking and Finance
Financial institutions continued to report steady demand for most loan types, and modest increases in demand for commercial real estate loans. One respondent noted that borrowers did not see current market disruptions as permanent, so they were continuing to move forward, albeit cautiously. Consumer real estate loan demand increases were described as seasonal in nature but still at historically low levels. Home equity loan demand continued to be steady. Delinquency rates continued to see modest increases, but overall rates are still at traditionally low levels. Deposit levels continued to remain stable with an easing of competition between institutions.
Nonfinancial Services
Nonfinancial service providers reported a slight increase in demand for their services, but they were unsure how long this demand would last. A marketing consulting firm noted that they have seen an increase in the number of inquiries they have received from job seekers, while those serving specialized industries such as mining were still finding it hard to fill positions. A number of consulting firms surveyed noted that they would either be reducing staff or at a minimum maintaining their current workforce until both their clients and they can gain more certainty with the overall economy.
For more information about District economic conditions visit: https://www.richmondfed.org/research/data_analysis.