Fed sees modest economic growth in Fifth District

Economic activity in the Federal Reserve’s Fifth District grew at a modest pace in recent weeks, as consumer spending and tourism picked up despite a winter weather slowdown, according to the Fed’s latest edition of the Beige Book released Wednesday.

The district encompasses Virginia, Maryland, North Carolina, South Carolina, Washington, D.C., and most of West Virginia. Published eight times per year, the Beige Book is based on anecdotal information about economic conditions gathered from the nation’s 12 Federal Reserve Banks. It is compiled from reports by Fed executives, as well as information collected from business contacts, community organizations, economists, market experts and other sources. The April edition is an update from the Fed’s March 4 report.

According to the latest Beige Book edition, employment in the Fifth District increased slightly in recent months. However, economic uncertainty prompted some firms to reassess hiring. The report said that labor market conditions were mixed, with some businesses pulling back while others with greater certainty investing and expanding headcount. The Fed said several contacts reported modest wage increases to retain talent and keep pace with inflation.

Prices increased moderately from the last cycle, with service-sector prices rising around 3% year-over-year and manufacturing prices closer to 5%, as firms faced higher input costs from tariffs and rising oil prices, the Beige Book said.

Manufacturing activity in the Fifth District was unchanged, with uncertainty continuing to affect operations. The book cited a compressor manufacturer that reported difficulty forecasting business performance due to unpredictable import costs. However, other businesses noted reported some improvement.

Cargo volumes at Fifth District ports saw a modest increase as firms restocked inventories and responded to a February Supreme Court decision limiting the president’s use of emergency powers to impose tariffs. However, port contacts warned that a prolonged conflict in the Middle East could push up supply chain costs.

Consumer spending edged up since March but was tempered by winter storms. Retailers reported continued price sensitivity and lackluster discretionary spending. Several firms said tariffs on raw materials and finished goods have cut into profit margins by more than 20%.

However, hotel occupancy and revenue improved in recent weeks, with areas like Northern Virginia and Washington, D.C., seeing a modest uptick in seasonal travel demand compared to last year.

Residential real estate activity was little changed, the report said, with early signs of a strong spring market fading as mortgage rates climbed back above 6.5%, dampening buyer optimism. The recent rise in rates has come amid broader market volatility, in part tied to the war in Iran.

Commercial real estate and retail and industrial activity were also largely unchanged. Unlike residential real estate, one Maryland agent said deals were proceeding despite a “fog of uncertainty.”

Loan demand remained steady, though a banker observed borrowing was largely driven by necessity rather than expansion. The Fed said that demand for nonfinancial services rose slightly, but clients remained hesitant to proceed with new projects amid economic uncertainty.