Fed’s Fifth District economy grows slightly

The economy in the Federal Reserve’s Fifth District (a multistate region including Virginia, North Carolina, South Carolina, West Virginia and Maryland) grew slightly in recent weeks, according to the latest edition of the Federal Reserve’s Beige Book, released April 17.

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 bank and branch directors, as well as information gathered from business contacts, economists, market experts and other sources. The April release is an update from the Fed’s March 6 report.

Here’s what the most recent Beige Book edition revealed about the direction the economy is taking:

Employment in the Fifth District grew at a moderate pace in the most recent reporting period, according to the Fed. Contacts continued to report difficulty finding workers but noted improvement. Finding skilled trades workers remained difficult. Wage growth remained moderate.

Fifth District prices continued to grow at a moderate annual rate in recent weeks. Prices received by service providers continued to grow at a rate of about 4%, according to survey respondents, and prices received by manufacturers continued to grow at a rate between 2% and 3%. Respondents most cited increased labor costs as the reason price growth remained elevated. Some firms reported that higher borrowing and energy costs have raised operating costs.

Manufacturing activity in the region declined modestly in this reporting period. Several respondents said interest rates negatively affected their businesses. A cabinet manufacturer, for example, reported that clients were canceling projects because they couldn’t wait any longer for interest rates to drop. Manufacturers also mentioned increased cost pressure from nonproduction services, like legal, medical and other insurance services.

Fifth District port activity declined slightly, and the Francis Scott Key Bridge’s March 26 collapse shut down traffic into and out of the Baltimore harbor and the city’s main port terminal. Shipments were diverted to other East Coast ports, including the Port of Virginia.

Overall, loaded container volumes at ports were slightly down. Import volumes increased largely because of retailers restocking consumer goods. Imports and exports of rolling stock, or railway vehicles, were down this reporting cycle. Air freight volumes remained flat, and shipping rates remained low because of overcapacity.

Trucking demand continued to slightly increase as retailers restocked but reflected a seasonal drop in volume. Rates in the truckload segment dropped because the industry is oversaturated, but companies in the less-than-truckload segment said they were able to negotiate flat to slight increases in contract rates due to decreased capacity.

Trucking firms reported no significant backlogs on new equipment, and parts availability improved. Driver turnover remained at the industry average, but some specialized positions, like mechanics, remained difficult to fill.

Retail spending was little changed in this reporting period, according to the Fed. Several retail and restaurant respondents reported unseasonably low customer traffic, although a furniture store and a hardware store saw increased sales and foot traffic, which they attributed to the seasonal pickup in the housing market and yard work. Hotel contacts said occupancy had only slightly increased but noted they had strong future bookings for the next few months.

Residential real estate firms noted it hadn’t been a robust spring market but that the housing sector continued to have pent up demand. Total closed sales dropped month-over-month. Average days on the market increased slightly but stayed below the historic average, while housing inventory remained tight. Although listing prices remained flat, many homes sold above asking price. Increases in construction costs moderated.

Commercial real estate market activity in the Fifth District improved slightly from the last report. Retail and industrial/flex space leasing continued to have higher rental rates and low vacancy rates. The office sector saw greater leasing activity from firms looking for more efficient space and moving to suburban locations.

A growing number of commercial office buildings, however, were unable to qualify for refinancing. Commercial real estate values declined due to slowing sales and negligible capital markets activity. Commercial contractors noted a lack of qualified candidates and rising material and labor costs.

Most Fifth District financial institutions observed a slight increase in loan demand in their business and commercial real estate loan portfolios. Deposit levels continued to modestly decline, and competition for any available deposits remained high. Loan delinquency rates remained stable from the March Beige Book report.

Nonfinancial service providers reported that demand for their services and revenues continued to remain stable. Wages and workforce issues were less of a challenge as they continued to modestly stabilize.