Federal Reserve Bank of Richmond · Beige Book

Federal Reserve Bank of Richmond

Summary of Economic Activity

The Fifth District economy continued to grow at a modest pace since our previous report. Manufacturing activity picked up modestly and lead times lengthened but producers struggled to keep up with demand due to supply and labor shortages. Ports and trucking companies saw modest to moderate increases in volumes from already high levels, and they had difficulty meeting demand due to capacity and labor constraints. T1Retail demand remained strong and stores continued to report inventory challenges and staffing shortages. Travel and tourism rose moderately, lifted by an increase in business and group travel. Residential real estate activity softened modestly but remained strong as prices held steady and homes sold quickly.

Inventory remained low but increased slightly. Commercial real estate leasing rose modestly amid flat to slightly rising rental rates. Financial institutions reported modest loan growth, overall, as commercial real estate and business lending increased modestly while mortgage lending slowed slightly. On balance, nonfinancial services firms indicated modest growth. Employment rose moderately and demand remained strong. There were widespread reports of difficulty finding and retaining workers at all skill levels, leading to a moderate increase in wages. Prices increased further in recent weeks and remained elevated on a year-over-year basis.

Employment and Wages

Total employment in the Fifth District increased moderately in recent weeks and demand for workers remained robust. T2Contacts from across sectors of the economy reported difficulties finding workers at all skill levels. Many also reported difficulties retaining workers and faced increased turnover. Several employers expressed concerns that their current workforce was being overworked. Some contacts had success recruiting young people into their training and apprenticeship programs while others were able to find workers more easily for fully remote positions. Wages continued to rise at a moderate rate as employers increased pay for both new and existing workers.

Prices

T3Price growth intensified slightly in recent weeks from an already high rate. According to our surveys, average prices were up nearly five percent compared to last year in the service sector. Manufacturers reported even stronger growth in selling prices, above nine percent. In both sectors, selling prices rose as firms were able to pass along at least some of their rising costs for raw materials, intermediate and finished goods, and labor. Several contacts noted that strong demand, shortages of inputs, and elevated shipping and transportation costs contributed to input price growth.

Manufacturing

Fifth District manufacturers reported a modest increase in shipments and new orders in recent weeks. However, lead times continued to lengthen as inventories remained low. T4Manufacturers struggled to find shipping for goods, and production was constrained by shortages of staff and inputs. A furniture manufacturer reported record shipments in recent weeks but struggled with machinery breaking down from overuse. Multiple contacts reported that long lead times for machinery parts limited production. T5Manufacturers saw high revenue but reported shrinking profit margins resulting from increased costs of materials, high shipping rates, and rising wages.

Ports and Transportation

Fifth District ports saw moderate growth since our last report, as some handled record-breaking volumes. Import volumes drove growth, but export volumes rose as well. Imports of furniture, apparel, and other consumer goods were especially strong, as were agricultural exports. However, both imports and exports of autos were weak. T6Shortages of transportation equipment and warehouse space led imports to dwell at the ports for longer times, causing congestion. Contacts noted that many empty containers were being shipped back to Asia, before they could be loaded with exports as ocean carriers could get higher rates for import cargos.

Demand for trucking in the Fifth District increased modestly from already high levels in recent weeks. Contacts reported turning away business because of shortages of drivers and equipment. Volumes were high across most goods in both the industrial and retail sectors. Delays in getting new trucks led to companies to run old ones longer, leading to increased need for repairs, which, in turn, were delayed by long lead times for parts. One contact expected this issue to get worse, reporting that suppliers are not taking orders for next year because they are unsure what they will be able to produce.

Retail, Travel, and Tourism

Demand for retail in the Fifth District held fairly steady at high levels. Customer traffic was strong, but low inventories limited sales. Inventories of automobiles continued to shrink, but dealers saw strong profits because of high prices of vehicles. Retailers ordered goods early to allow time for inventories to arrive. Some contacts reported swiching from ocean to air transport for goods from overseas, which was more costly but helped to replenish inventories. Many retailers limited operating hours because of staffing shortages, and businesses invested in automation where possible.

Travel and tourism in the Fifth District increased moderately since our last report. Contacts reported seeing more business and group travel than they had since the beginning of the pandemic, and air travel increased in many areas. Hotel occupancy and rates strengthened, but hotels limited the number of rooms offered and restricted services because of staffing shortages. A resort reported staggering services and activities offered throughout the week in order to operate with fewer staff. Restaurants saw strong demand but limited hours because of lack of staffing and implemented limited menu choices because of supply chain disruptions.

Real Estate and Construction

T7Demand for Fifth District homes softened modestly in recent weeks, but remained strong. Inventories remained low but increased slightly. Prices were little changed, and realtors noted homes were still getting multiple offers, but fewer than in the past year. Average days on the market increased but remained low. Realtors noted that buyers are increasingly requesting inspections and offering smaller deposits, but many continue to buy homes sight-unseen. One contact added that buyers were increasingly willing to purchase homes in urban areas. Builders noted that long lead times for materials and appliances were slowing construction and delaying the availability of new homes.

Commercial real estate leasing in the Fifth District increased modestly in recent weeks. Office leasing improved slightly, but some businesses looked to downsize. Incentives and concessions increased, but rental rates for office space held steady. Companies saw an increase in retail leasing, particularly for restaurants and services, driving rental rates up and vacancies down. Contacts noted that vacated retail spaces were quickly occupied by new businesses. Demand for industrial space remained strong and continued to rise. Multifamily leasing remained strong, and contacts noted increasing multifamily construction.

Banking and Finance

T8Loan growth was modest, overall, for this period due mainly to higher than normal credit payoffs. On balance, banks indicated a slight increase in demand for commercial real estate and business loans, and a slower pace of mortgage loan growth. Direct auto lending was almost nonexistent due to a lack of inventory on car dealer lots. Most financial institutions stated that deposits continued to grow moderately despite a further reduction in rates on interest-bearing accounts. Credit quality remained good, with a few respondents noting that delinquency rates continue to decline to well below pre-COVID levels.

Nonfinancial Services

Demand and sales for nonfinancial services rose modestly in recent weeks. Firms engaged in mechanical repair services, such as automobile, elevator, and manufacturing equipment repair saw strong demand. Professional and legal services firms reported steady demand, overall. Health services providers saw continued demand for both COVID and non-COVID related services. For example, a behavioral health practice reported increasing demand and continued to provide services virtually. A North Carolina community college president noted that while enrollment remained below pre-pandemic levels, female and Latinx enrollment was up.

For more information about District economic conditions visit: www.richmondfed.org/research/data_analysis