Fed’s Fifth District economy shrinks slightly

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

Published eight times per year, the Beige Book is based on anecdotal information about economic conditions gathered from the 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. Wednesday’s release is an update from the Fed’s Sept. 6 report.

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

Employment and wages in the Fifth District grew modestly over the previous few weeks. Companies reported continued trouble finding skilled workers, such as CDL drivers and motorcoach drivers. However, a staffing firm that specializes in executive-level marketers had too many candidates for the number of available jobs.

Prices continued to increase at an elevated rate, but growth was lower than this time last year. Manufacturers reported an unchanged growth in prices received and a slight increase in prices paid for nonlabor inputs. Services firms saw a marginal slowdown in prices received and a decline in nonlabor input prices. Labor costs for both continued to grow.

Manufacturers in the Fifth District reported mixed results, and several cited macroeconomic factors, like fears of a potential recession, as reasons for slowdowns. A gaskets manufacturer reported it was halting hiring, citing fears of a potential economic downturn. A fabric manufacturer said consumer demand declined because retailers had too much inventory, while a steel manufacturer reported strong demand during the same period.

Fifth District ports reported weak demand. Imports were lower both year-over-year and month-over-month, mainly because fewer consumer goods were coming into port. Export volume remained flat, however. Container dwell times returned to normal.

Trucking firm respondents said demand was flat this reporting period, but several trucking companies shut down, allowing carriers to slightly raise freight rates as they exited and reduced market capacity. Companies did not see the normal seasonal uptick this period.

Consumer spending in the district grew slightly, but spending growth varied by category. Food service, grocery stores and office supply stores reported steady or increased sales, while furniture, appliance and home remodeling and repair stores reported declining sales.

Travel and tourism activity slowed slightly this period, partly because of a typical seasonal shutdown and partly because of the threat of hurricanes in coastal destinations, according to respondents. Business travel picked up, helping to offset the reduced leisure travel.

Elevated prices, a lack of inventory and high mortgage rates constrained home sales in recent weeks, and the number of new listings in the Fifth District was down year-over-year. Days on the market increased slightly. Home prices held steady, although some were reduced for homes that had been on the market for more than 30 days.

Commercial real estate development and construction reduced significantly. The availability of credit and cost of capital were the main barriers to projects moving forward, as credit underwriting requirements tightened. Industrial and retail leasing demand continued to outstrip supply, escalating rents.

In the financial sector, loan demand continued to slow, primarily in consumer and commercial real estate portfolios. Banks struggled to maintain deposits.

Nonfinancial services providers reported stable demand and revenues. In terms of labor, applicant pools grew but remained under historical norms, and wage pressure continued.