Fed’s Fifth District sees modest growth

The Federal Reserve‘s Fifth District — a region encompassing Virginia, Maryland, North Carolina, South Carolina, Washington, D.C., and most of West Virginia — saw its economy grow modestly in recent weeks despite numerous sources raising concerns about economic uncertainty, according to the latest edition of the Fed’s Beige Book, released last week.

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 September edition is an update from the Fed’s July 13 report.

The most recent Beige Book edition revealed that employment flatlined, with most firms making minor adjustments to ensure the correct headcount for the current level of demand. For instance, a dental implant manufacturer laid off several employees in anticipation of weaker demand for new orders, while policy changes created uncertainty for many firms and impacted their ability to make future hiring plans.

Construction companies faced increased difficulties finding workers due to a limited immigrant labor pool and expressed skepticism about future labor availability. Due to increased economic uncertainty, a building materials supplier scaled back its hiring plans.

Fed sources reported a noticeable increase in wages, with one Maryland car lubrication system installer saying the increases were to accommodate the cost of living.

Year-over-year price growth increased slightly in recent months, with manufacturers reporting low price growth (low 3% range) and nonmanufacturers reporting a somewhat higher annual price growth. Firms in the services sector that reported the largest increases in year-over-year prices received tended to have higher exposure to tariffs, particularly wholesale and retail sellers of metals, wood products, appliances, and other imported equipment and machinery.

The Fifth District’s manufacturing activity continued to decline amid rising costs and supply chain disruptions caused by tariffs. Multiple businesses described uncertainty in tariff policy as “a significant administrative burden,” requiring them to allocate resources to understand and track its impacts. Even manufacturers not directly impacted by tariffs felt secondary effects. For example, a printer manufacturer that doesn’t import products reported supplier cost increases of five to 15% due to tariffs.

A glass manufacturer noted that tariffs have forced their main supplier out of business while other suppliers consolidated into fewer plants.

Overall cargo volumes at maritime ports — excluding automobiles and heavy machinery — were slightly down this cycle, the Fed reports. Fed sources attributed the decline to frontloading and high warehousing levels. They also attributed a decrease in agricultural exports to retaliatory tariffs from China. The contacts reported that ocean freight carriers have been adjusting their vessels and services in response to the Chinese vessel tax and don’t expect it to have much of an impact on volumes.

Meanwhile, trucking demand remained flat, with sources reporting continued low volumes and low revenue. For example, one trucking firm acquired a company that chose to sell, despite still being profitable, because of slim profit margins and a sluggish market.

Consumer spending continued to modestly increase during the most recent reporting period, with most retailers reporting steady sales and foot traffic and hotel contacts reporting growth driven by leisure travel. The Fed reports that auto, motorcycle, and boat sales all increased in recent weeks and that travel and tourism activity picked up modestly. However, business travel was down, especially in the Washington, D.C., area, due to fewer conferences and training events being held in recent months.

Fifth District residential real estate transactions slightly decreased during the summer, as expected. A North Carolina agent was quoted as saying, “It feels like we are living in two markets: those listing at the right price or those listing like it is 2021.” A Virginia broker said many potential homebuyers struggle with monthly payments, which “aren’t realistic with today’s rates.” Some agents fear that renting will continue to be more affordable than buying a house.

The Fed reported that commercial real estate remained unchanged on balance. On the development side, several builders raised concerns about tariffs, zoning regulations, an aging workforce and immigration policies driving up construction costs. Agents contacted said they were uncertain about the effects of “The Big Beautiful Bill” on the market. And brokers in Virginia, Maryland and D.C. said that office space was in “modern turmoil,” with outdated office buildings being torn down and sold for land value while companies impose return-to-office mandates.

Financial institutions continued to report steady demand for all loan types, with some reporting a slight increase for residential mortgages and auto loans. Both deposit levels and loan delinquencies remained stable, and there was no meaningful change reported in the creditworthiness of borrowers.

Nonfinancial service providers saw continued stable demand for their services, but many expressed uncertainty. Firms noted clients being more fiscally conservative and delaying investment and growth plans until the economic picture becomes clearer.