Fed’s Fifth District economy stays the course

Economic activity in the Federal Reserve’s Fifth District was little changed in recent weeks, according to the latest edition of the Federal Reserve’s Beige Book, released March 6.

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 March release is an update from the Fed’s Jan. 17 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. Firms reported that skilled and trades workers, like engravers and aluminum welders, were more difficult to find than other workers, like advertising firm employees.

Price growth was largely unchanged from the January Beige Book report; year-over-year price growth remained moderately elevated. Prices received by nonmanufacturers grew about 4%, while the growth in prices received by manufacturers remained about 2.5%. Sources in both sectors expected price growth to moderate over the next six months.

Manufacturing activity in the Fifth District softened in recent weeks because of uncertain business conditions. One coffee manufacturer reported that difficulties getting freight through the Red Sea was increasing its production times and future costs. Several firms reported difficulty securing financing, and most contacts cited a shortage of qualified labor as a major issue.

Fifth District ports reported good underlying demand despite disruptions in the Panama and Suez canals that affected shipping schedules. Ports saw a slightly lower volume of loaded imports but an increase in consumer goods imports. Loaded export volumes were unchanged. Spot rates increased sharply as carriers tried to offset the higher costs resulting from longer transit times. The ports reported no stack congestion.

Some trucking freight volumes in the region declined because of winter weather, but underlying trucking demand was good, according to the Fed. In the less-than-truckload segment, companies reported increased demand in the consumer segment resulting from retailers restocking inventory. In the truckload segment, customers pushed to decrease their shipping costs, and rates fell. Although truck drivers were easier to find this period, mechanic and some office positions remained hard to fill.

Retailers in the Fifth District saw a slight decline in sales and customer foot traffic in the most recent cycle. Some firms attributed the decline to bad weather conditions, while a few home improvement and building supply retailers cited a slow real estate market and higher borrowing costs to finance home improvements. Hotel and restaurant respondents also reported a slight slowdown, although hotel revenues in the Northern Virginia market were up as hotels had steady occupancy rates and were able to increase room rates.

Residential real estate activity improved slightly, as pent-up demand remained. Firms reported an increase in listings and buyer activity, but said buyers were tentative because of high mortgage rates. Days on the market increased slightly but were still below historic averages. Construction costs started to moderate, although the market was constrained by difficulty finding land and receiving permitting.

The commercial real estate market activity improved slightly in the most recent reporting period. Firms upgraded their office space and moved away from central business districts, and landlords offered concessions or incentives to potential tenants instead of raising rents. Suburban retail space remained limited, with low vacancy rates and increased rental rates. New construction, especially for office and multifamily projects, was constrained by rising building costs and a lack of available financing.

Loan demand softened modestly, reported Fifth District financial institutions, because of higher interest rates and continued economic uncertainty. Deposit balances began to decline modestly, and competition for deposits remained high. Loan delinquency rates have started showing modest increases, mainly in unsecured personal and auto portfolios.

Overall, nonfinancial service providers in the region saw stable demand and revenues. Wages and the labor market stabilized some, becoming less challenging for nonfinancial firms.