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Tag: federal reserve bank

Ex-Richmond Fed examiner pleads guilty to insider trading

A former Federal Reserve Bank of Richmond examiner on Tuesday pleaded guilty to committing insider trading and making false statements about his trading to the Richmond Fed.

Robert Brian Thompson, 43, of Chesterfield County’s Moseley area, was an examiner and senior manager with supervisory duties for the Richmond Fed, where he worked from 2004 through about May 2024. Thompson used confidential information from about seven publicly traded financial institutions that are under the Richmond Fed’s supervision when executing trades from October 2020 to February 2024, according to a news release from the U.S. Attorney’s Office for the Eastern District of Virginia.

In total, he completed 69 trades through seven institutions, reaping approximately $771,678 in profits.

“This was a clear violation of our well-established and well-communicated policies on ethics and conflicts of interest,” Richmond Fed spokesman Jim Strader said in a statement. “We fully cooperated with the authorities who investigated this matter.”

From October 2023 through this January, Thompson allegedly used “material nonpublic information” to trade in stock and options of McLean-based Capital One Financial and New York Community Bancorp, according to court filings from the Securities and Exchange Commission, which filed a civil case against Thompson in early November.

From 2022 until about May, Thompson was the Fed’s deputy central point of contact for large and foreign banking organizations, managing a team that supervised and examined 18 U.S. banking firms with at least $100 billion in total assets.

In October 2023, Thompson received an email from a Federal Reserve colleague with a preview of Capital One’s third quarter 2023 earnings that showed earnings per share results exceeded analysts’ expectations, according to an SEC case filing.

On Oct. 26, Thompson allegedly purchased 7,500 Capital One shares for an average of $90.40 per share. After the market closed that day, Capital One announced its third quarter earnings. When the market closed the following day, Oct. 27, Capital One shares were trading at $97.74 a share.

The SEC alleges that Thompson sold his stock at an average of $100.98 per share, gaining more than $79,300 in profits.

Between Jan. 18 and Jan. 26, Thompson learned through conversations with other Fed staff members that NYCB would be announcing substantial, unexpected losses related to loans it acquired as part of its March 2023 acquisition of Signature Bank, according to the SEC.

On Jan. 29, Thompson purchased 1,600 out-of-the-money put option contracts that expired Feb. 16, which would earn a profit if NYCB’s stock price fell by the expiration date, for a total cost of almost $14,500, according to the SEC.

On Jan. 31, NYCB released its fiscal 2023 earnings results. By close, its shares were trading for $19.41, a 37% drop from its closing price the previous day.

On Feb. 1, Thompson sold his NYCB put options and gained more than $505,500 in profit, the SEC alleges.

According to court filings related to his plea deal, Thompson also made false statements on his 2020, 2021, 2022, 2023 and 2024 Form Ds, annual forms that require employees to disclose whether they have any assets, including any equity invested in any banks that are members of the Fed system and/or bank holding companies. A federal regulation also prohibits Federal Reserve employees from trading in bank securities altogether to avoid conflicts of interest.

A Federal Reserve Board of Governors spokesperson said in a statement: “There is no place at the Federal Reserve for the misuse of confidential information. We have robust safeguards in place to ensure that those who have access to supervisory information understand their responsibilities and obligations, including the outright prohibition on trading in bank stocks. We require regular training, as well as affirmations by our staff that each person understands and is committed to the highest standards of professional behavior.”

Thompson reported in those Form Ds that he had no equities in any publicly traded financial institutions and that he hadn’t engaged in any activity that would constitute conflicts of interest, violations of Richmond Fed policies or violations of law.

As of the date that Thompson filed his fiscal 2023 form, he allegedly held bank stock and options with a market value of more than $500,000, according to court filings in the SEC case.

Thompson is scheduled to be sentenced in U.S. District Court on March 19, 2025, and faces a maximum penalty of 20 years in prison for one count of insider trading and five years in prison for one count of making false statements.

Thompson’s attorneys did not immediately reply to a request for comment.

Fed’s Fifth District economy grows modestly

Map courtesy Federal Reserve Board

Economic activity in the Federal Reserve’s Fifth District (a multistate region including Virginia, North Carolina, South Carolina, West Virginia and Maryland) grew modestly from early September, according to the latest edition of the Fed’s Beige Book, released Wednesday.

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 October release is an update from the Fed’s Sept. 4 report.

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

Employment in the Fifth District increased slightly in the most recent reporting period. Although many businesses reported improvements in the labor pool and moderate wage growth, some firms reported continued challenges finding specific types of workers; they increased wages more and used outside help to attract those workers.

One example is a charter bus company that reported better driver availability but said it had to “dramatically” increase wages to attract skilled mechanics. A lighting manufacturer said it raised hourly wages by $2 for production workers.

Additionally, Hurricane Helene’s effects led to a spike in initial unemployment insurance claims in North Carolina in the first week of October.

Price growth in the region continued to ease slightly in recent weeks, according to the Fed. Prices grew at a “modest to moderate rate” year-over-year. The prices that manufacturing firms received grew modestly compared to the previous year, while service providers saw moderate annual price growth. Some consumer-facing businesses said they believed customers wouldn’t accept further price increases.

Manufacturing activity ranged from flat to slightly up for some producers. Some producers reported an increase in orders — a fuse panel manufacturer, for example, reported a backlog going into 2025 because of large recent orders. Nevertheless, some respondents reported delays on new orders because of uncertainty, like a textile manufacturer that reported it expected tepid demand as customers were being cautious ahead of elections.

Fifth District ports reported a slight increase in containerized cargo volumes while they allowed for additional trucking traffic to offload ships in advance of the anticipated International Longshoreman’s Association worker strike on Sept. 30. The strike lasted three days and was suspended until Jan. 15, 2025. The 45,000 union workers involved included 6,000 workers at Fifth District ports.

Port respondents said the three-day strike had little impact on operations because of its brevity. They also expected the resulting wage increases to affect future container rates.

Trucking demand remained flat, and companies expected it to stay muted going into winter. Trucking firms reported that profitability was down because freight spot rates fell.

Consumer spending in the region picked up modestly over the most recent reporting period. Retailers reported an increase in sales and shopper traffic. Some respondents said that revenues were up despite flat transaction volumes because prices were higher.

Hotel and tourism contacts said business travel increased, but leisure travel slowed. One hotel representative attributed the slowdown partly to the active hurricane season. Respondents in western North Carolina were still assessing Hurricane Helene’s damage and impacts, but most said they expected to feel the storm’s impacts for several months.

Fifth District residential real estate had a slight downtick in recent weeks, which many real estate agents attributed to a typical fall slowdown and the hold for rate cuts.

A Virginia agent said housing inventory was rising, particularly with fixer-uppers and less-than-ideal homes coming on the market. According to Virginia Realtors data, in September, Virginia had 19,764 active listings and 11,378 new listings, both year-over-year increases.

Contacts across the Fifth District also mentioned lawsuits and continued uncertainty related to the National Association of Realtors policy changes.

Commercial real estate activity leveled off in the past month, according to the Fed. Although vacancy continued to grow in lower-grade markets, vacancies decreased in prime A spaces. A residential and metal buildings construction company in Virginia said it had fewer potential customers and that clients were having more difficulty affording the company’s work.

Also, Hurricane Helene caused severe destruction of commercial and residential properties in western North Carolina and Virginia, but the extent of the damage isn’t yet clear, the Fed said.

Financial institutions saw a modest increase in loan demand, driven mainly by interest rate cuts. Commercial real estate and first mortgage refinancings were the main drivers of the increased demand. Deposit levels remained stable. Loan delinquency rates remained stable, although lenders reported a continued modest decline in borrowers’ credit quality.

Nonfinancial service providers continued to report little change in demand to the Fed, and their revenues remained stable. One law firm said they anticipated a modest increase in merger, acquisition and real estate deals because of decreasing interest rates. Some contacts reported they thought economic activity was constrained because clients were hesitant to make new investments or business decisions until uncertainty about the presidential election and international conflicts was resolved.

Barkin: Still a waiting game for interest rates’ effect on inflation

The U.S. economy has yet to feel the effects of current interest rates, but it eventually will, Federal Reserve Bank of Richmond President and CEO Tom Barkin predicted Thursday during an event held by the Risk Management Association’s Richmond chapter in the city’s East End.

“I’m optimistic that we’ve gotten rates at a restrictive level today, and that’ll take the edge off demand over time and bring inflation back to target,” said Barkin, who is a 2024 member of the Fed’s policy-making Federal Open Market Committee.

For now, although the economy is moving back to a better balance, Barkin said, the “data rollercoaster” from late 2023 to the most recent numbers shows that inflation isn’t yet stable. The Fed’s target inflation rate is 2%, measuring by the annual change in the Personal Consumption Expenditures price index, which is a U.S. Commerce Department measure of consumer spending on goods and services among households.

The economy finished 2023 relatively healthy, data showed.

“For the final seven months of the year, core PCE inflation on an annualized basis came in just under our 2% target,” Barkin said at the event, held at Triple Crossing Beer’s Fulton neighborhood location. Core PCE excludes food and energy costs. In December 2023, the core PCE was up 2.9% on a yearly basis. Headline inflation, which includes food and energy costs, stood at 2.6% annually.

In the fourth quarter of 2023, the country’s economic growth, as measured by changes in its gross domestic product, was 3.4%. The average unemployment rate for the year was 3.6%.

In early 2024, though, the data pivoted. For the first quarter of 2024, the PCE rose at a 3.4% annualized pace, and the core PCE prices rose at a 3.7% rate.

GDP increased at a 1.6% annualized rate in the first quarter, the U.S. Department of Commerce said in its “advance” estimate on April 25, although in its second estimate released May 30, the department revised the growth rate to 1.3%. The labor market remained strong, though, and the unemployment rate remained below 4%.

“We’ve been at or below 4% unemployment every month for the last 30 months. That’s the first time that’s happened since the late ’60s,” Barkin said.

In another data pivot, the May price index report showed some progress on inflation. The year-over-year increase in the Consumer Price Index — a Labor Department measure of the average change over time in prices that urban consumers paid for a basket of goods and services — at the end of April was 3.4%, but at the end of May, the index rose only 3.3%. The CPI did not show a monthly increase from April to May. The core CPI over the last 12 months rose 3.4%.

In terms of interest rates’ effects, “enough people and enough businesses either paid down their debt or refinanced their debt, that the aggregate interest burden has not actually gotten back to the levels you would expect, given the rapid increase in interest rates. And that suggests to me that the full impact of higher rates is still to come,” Barkin said.

People and companies were able to pay down or refinance debt because of low rates in 2021 and stimulus money, both for consumers and in Paycheck Protection Program loans, Barkin told reporters. The aggregate interest burden will change as people buy houses at higher rates.

Barkin said he does have some concerns about consumer demand supporting price increases: “On inflation, I do hear price-setters increasingly convinced that the era of significant pricing power is behind them, but I do think that the experience of the last couple years has just given people more urge to use price as a lever. … [Businesses] are simply more confident using pricing as a lever, and I anticipate that will be the case until customers or competitors send a strong message that they have no chance.”

In its June 12 meeting, the Fed’s Federal Open Market Committee voted to hold its benchmark interest rate at 5.25% to 5.5% and signaled it expected to make only one cut this year. The FOMC next meets July 30-31.

“My personal view is about, let’s get more conviction before moving — whether that move be a ‘one-time and we’ll see’ cut or multiple cuts — I feel the need for clarity [on inflation] before any of those situations,” Barkin told reporters.

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.

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.

Fed’s Fifth District economy sees mild expansion

Economic activity in the Federal Reserve’s Fifth District (a multistate region including Virginia, North Carolina, South Carolina, West Virginia and Maryland) expanded mildly 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 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. Wednesday’s release is an update from the Fed’s Nov. 29, 2023 report.

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

Employment in the Fifth District grew moderately in the past few weeks, although the tight labor market continued to put upward pressure on wages. Some respondents reported operational changes as a result, like a specialized software company that expects to cut investment plans this year because salaries increased by 15% of the firm’s total revenue and the company needs to continue hiring workers to meet customer demand.

Price growth continued to slow slightly, according to the Fed, but year-over-year inflation remained “somewhat elevated.” Service providers saw a 3.8% increase in prices received, down half a percentage point from the previous reporting period. Manufacturers reported a 2.8% increase in prices received, up slightly from the previous report.

Manufacturing activity in the region slowed in recent weeks. While contacts in some industries tied to consumers’ discretionary spending reported declines, like a wine producer who reported a 30% drop in sales, some contacts saw unexpected increases in demand. An automobile fabric manufacturer reported an uptick in new orders, notable because its customers historically have pulled back on spending each December.

Fifth District ports’ trade volumes were down in recent weeks. Imports were lower year-over-year as wholesalers continued to work on reducing high inventory levels. Loaded exports, though, were up. Spot shipping rates to the East Coast increased because carriers had issues at the Panama Canal and the Red Sea. Container dwell times fluctuated.

Freight volumes for trucking firms were slightly lower than in the prior report, and firms did not see a seasonal uptick. In the full truckload segment, food, medical, automotive and retail shipments provided the greatest demand. Trucking companies did not experience significant backlogs on new equipment orders but occasionally had issues receiving some parts.

Retailers in the Fifth District reported steady to slightly increasing demand and revenues. Travel and tourism respondents reported steady to increasing sales, hotel occupancy rates and passenger air travel.

Residential real estate activity declined modestly due to an expected seasonal slowdown. Home prices increased moderately, while days on the market increased slightly but remained below historic averages. Construction costs had moderated, builders reported, but shortages of some building materials and specialty subcontractor labor continued.

Commercial real estate market activity was flat in the previous few weeks. The retail segment remained strong, particularly among fast casual restaurant chains. Class A office space tightened as firms upgraded their space and moved away from central business districts. Construction projects were largely limited to the industrial and multifamily sectors.

In the financial sector, loan demand continued to soften modestly. The biggest slowdown in demand was in residential mortgage lending. Deposit balances remained flat, and institutions continued to see competition for available funds.

Overall revenues and demand for services for nonfinancial service providers in the Fifth District remained stable. Competition put pressure on pricing and maintaining current clients. Firms reported wages and workforce availability were continuing challenges.

Economy healthy but more work is needed, Barkin says

The U.S. economy is showing signs of health, but bringing down inflation remains necessary, Federal Reserve Bank of Richmond President and CEO Tom Barkin said Thursday during the 2024 Financial Forecast event co-hosted in Richmond by the Virginia Bankers Association and the Virginia Chamber of Commerce.

Economic conditions have improved but haven’t quite settled back to baseline levels, Barkin said, using a mathematical analogy: The economy’s health is nearing the bottom of a parabola but hasn’t quite finished its path back to pre-pandemic levels.

The U.S. unemployment rate was 3.7% in December 2023, according to the Bureau of Labor Statistics. That’s historically low, Barkin said. The inflation rate was 2.6% in November, as measured by the Personal Consumption Expenditures price index, a measure of consumer spending on goods and services among households. The Fed’s target rate is 2%.

“Contrary to most predictions, the economy remains healthy … and that’s despite a number of shocks,” Barkin said.

He sees potential for a soft landing in which inflation is controlled but the economy remains healthy. There are still several “flight risks,” however, in the path down.

The first Barkin sees is that the U.S. economy could “run out of legroom.” Although credit and interest have tightened, they haven’t made the economy soft, and the risk that people and companies could pull back on borrowing remains.

Also, economists can’t predict external shocks to the economic system, like a cyber shutdown, and where those shocks would hit and how hard. Some unforeseen events could bring down inflation but have greater costs to the system

Inflation could also level off above the Federal Reserve’s 2% target. Most drops in inflation have resulted from a reversal of pandemic-era price increases, and a goods deflationary cycle could end, Barkin said, while shelter and service prices remain high.

Additionally, a landing could be delayed, he said. Consumer spending is currently high, but strong demand isn’t a solution to inflation.

As measured by the Labor Department’s consumer-price index, inflation rose in December 2023, with the cost of living up 3.4% from the previous year.

“Overall, we’re still seeing, on a year-term basis, a long-term basis, a moderation in the overall levels of inflation, but there’s still this disconnect between goods and services and shelter,” Barkin told reporters, adding a caveat that “you can’t take too much [meaning] out of any one month.”

During its December 2023 meeting, the Fed’s policy-making Federal Open Market Committee reaffirmed its commitment to raising interest rates if necessary but held its benchmark rate in a 5.25% to 5.5% range.

The FOMC will meet Jan. 30-31 and March 19-20. Barkin is a member of the FOMC for 2024.

As to whether he’d support an interest rate cut in March, Barkin said, “Let’s see where the data comes in. … I don’t prejudge meetings. I definitely don’t prejudge the meeting after the next meeting.”

The U.S. isn’t yet in the clear. Fiscal conditions are ever-evolving, and “you gotta respond to conditions, so buckle up,” Barkin said in his address. “As you know, that’s the proper safety protocol, even if you’re on a plane expecting a soft landing.”

Communities must rally to solve housing issues, Barkin says

Homeownership is becoming increasingly unattainable for too many workers, and communities are going to need to make innovative decisions to create more affordable housing if they want to attract talent, Federal Reserve Bank of Richmond President and CEO Tom Barkin said Wednesday during the Virginia Governor’s Housing Conference in Hampton.

Barkin said the nation’s housing crunch is affecting the largest cities to the most remote of towns, impacting availability of talent, and encouraged communities to rally together “to see housing as integral to economic growth. Regional leaders need to speak with one voice.”

Though some areas saw increased housing demand and higher home prices before the pandemic, demand increased and supply dwindled across many more communities over the past three years, he noted. Low interest rates and spending more time at home in 2020, as well as remote work allowing some people to move to less expensive places, caused people to reevaluate their living situations. With buying becoming harder, it became cheaper to rent, but the rental market is taking a hit on the supply side too, Barkin said. 

In a question-and-answer session with Virginia Commerce and Trade Secretary Caren Merrick, Barkin discussed the Fed’s role in addressing inflation and interest rates — the goal is to use interest rates to bring down inflation.

“The objective isn’t interest rates,” Barkin said. “The objective is to control inflation … everybody hates inflation, we do something about inflation. We’re the only agency asked to do something about it. We have one tool: interest rates.”

Virginia numbers

In Hampton Roads, the number of monthly active listings increased for the seventh straight month in October, according to the Real Estate Information Network. But the number of settled and pending sales are down month-over-month and year-over-year. The median sales price is down slightly from September, decreasing from $333,000 to $330,140.

In Northern Virginia, home sales declined 5.6% in October as compared to October 2022, and prices increased 3.1%, according to data from Northern Virginia Association of Realtors. The month’s supply of inventory was up but still down from the five-year average. Median sales prices increased but at a slower clip.

“The combination of mortgage rates and selling prices continues to challenge some would-be buyers,” Jon McAchran of Virginia Beach-based AtCoastal Realty and president of REIN’s board of directors, said in a news release. “However, homes are still selling, as shown by the median days on market, which is the same as it was last year at this time.”

Virginia isn’t faring as well as its neighbors, however, when it comes to building single-family homes.

“Everyone is struggling with this issue, but we can learn from each other,” Barkin said. “For those of you with a competitive spirit, both South and North Carolina have issued more permits for private, single-family homes than Virginia in each month since 2016.”

While encouraging communities to work together to solve housing availability, communities must also recognize they are competing for developers, Barkin said, suggesting they explore ideas including developing financial incentives and streamlining municipal processes like permitting and timelines. He added that communities also need to “work” the biggest barrier and incentive for developers: land availability.

In 2022, Barkin noted, finished lot costs made up nearly 20% of the average sales price of a new single-family home, and minimizing that cost can go a long way. Communities can rezone under-leveraged land to spark higher-density development and invest in buildable homesites. Another idea: transforming older, unused structures into apartments. Barkin referred to the Dan River Falls project in Danville, where developers are turning an old textile mill into retail space and 150 apartments. 

“Once you start thinking of the possibilities, it is impossible to stop, and I know Virginia has efforts underway to look at all state-owned land that could be used for housing,” he said.

Barkin cited another alarming stat: In 2022, construction costs were 60.8% of the average sales price for a new single-family home in the U.S., up from 55.6% in 2017, according to a February report for the National Association of Home Builders. Those costs may stay high, and communities should consider efforts to bring down housing costs, whether it’s building smaller or different types of homes, for example, he said.

Finally, Barkin said Virginia localities need to look to unconventional partners to lower homebuilding costs, working with foundations and employers such as Amazon.com, as well as colleges and universities, which can build more dorms to free up other housing. 

“We all know housing availability is limiting communities,” Barkin said. “The key is more supply. To create that supply, communities need to own the problem, compete for developers, innovate in offering affordable land and lowering costs and engage with nontraditional partners … this is a math problem — but one where potential solutions are beginning to multiply.”

 

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.

Fed 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 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 July 12 report.

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

Employment in the Fifth District increased slightly over the most recent reporting period but not as quickly as it did in prior reports, according to the Fed, and some firms reported that the labor market continued to be tight. Service providers noted that the labor pool improved, though, helping to slow wage growth.

Price growth eased in recent weeks but remained high. Price growth for manufacturers dropped to an annual rate slightly over 3%, according to Fed surveys. For service providers, annual price growth remained at about 5%.

Manufacturing slowed, and hiring for the sector remained difficult, according to respondents.

Import volume in Fifth District ports dropped back to pre-pandemic levels, largely because of a decrease in consumer goods. Imports were lower year-over-year but flat month-over-month, ports reported. Exports rose slightly, mainly for agricultural products, wood pulp, resins and vehicles. Container dwell times dropped to normal levels, according to the Fed.

Trucking firms reported steady demand and moderate increases in contract rates. Labor, parts and new equipment costs were high, however.

Consumer spending grew modestly, according to respondents. Auto sales remained steady, and retail and food service companies saw steady or modest sales growth. Furniture stores reported declining sales, likely because of slower real estate markets.

Travel and tourism rose because of summer travel. In the Fifth District, revenue grew because of room nights sold, but average room rates were down compared to last year. That wasn’t the case for Virginia from January through July — hotel revenues rose compared with 2019 because of high room rates, but hotel rooms sold dropped.

The residential real estate market remained tight across the district and saw a seasonal slowdown. Respondents reported increased sales prices because of low inventory. Virginia has reflected the larger trend, with home sales slowing because of the low inventory and increased prices.

Fifth District commercial real estate activity slowed, although retail and industrial leasing saw rising rents. Companies continued to downsize offices. Office rental rates were flat, but landlords offered additional incentives to tenants. Multifamily rents began to soften as more units came onto the market.

In the financial sector, consumer and commercial loan demand remained stable at pre-pandemic levels. For banks, deposit levels continued to shrink.