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 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 Oct. 18 report.

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

Employment in the Fifth District rose moderately in the previous few weeks, although the labor market remained tight. To retain workers, one general contractor reported wage increases as large as 15% for its highest performers. Trucking firms reported that drivers were more readily available but that it remained difficult to hire skilled mechanics.

Year-over-year price growth remained elevated in the latest Beige Book reporting period but moderated slightly. Prices received by service providers increased a little more than 4% compared with last year, down from the peak of about 7%, according to Fed surveys. Prices received by manufacturers increased by just over 2% compared with last year.

Fifth District manufacturers’ reports were mixed. A textile manufacturer reported an increase in demand from clients who had worked through excess inventories that built up during the COVID-19 pandemic. A furniture manufacturer, however, reported the home furniture industry had been in an 18-month recession, and the manufacturer did not expect demand to increase soon. Several respondents reported they had invested in automation to increase productivity and manage costs.

Ports in the Fifth District reported that trade volumes were down in this reporting period. Imports were flat year-over-year but slightly up month-over-month, mainly from increased consumer goods coming in. Exports were down for the most part. Ports did not have issues with container congestion.

Trucking firms saw low underlying demand, particularly on the industrial side, as freight volumes for construction materials were down. Companies reported they had not had issues maintaining their fleets of trucks and trailers and that new equipment orders had no significant backlogs.

Consumer spending increased modestly in recent weeks, according to the Fed. Clothing and grocery stores reported increasing or steady sales and demand, but furniture and appliance stores reported decreases in purchases. Travel and tourism respondents reported steady to increasing activity.

Residential real estate sales volumes and buyer traffic decreased due to low inventory and higher mortgage rates. New listings were down, and days on the market increased slightly but stayed below historic averages. Although sellers often dropped sales prices or provided concessions for homes that had been on the market for more than 30 days, upward pressure on home prices, especially in more desirable neighborhoods, continued. Builders reported a high cost of materials, labor, trades and financing.

Commercial real estate sources reported slow market activity. The industrial and retail markets were fairly stable, reporting low vacancy rates and rising rental rates. Office building owners offered concessions, incentives or tenant improvement allowances to secure new leases, effectively lowering rental rates. Thanks to new construction coming to market, multifamily rents were flat or down.

In the financial sector, loan demand continued to slow, particularly in the commercial and consumer real estate segments. Sources attributed the softening to high interest rates and global and domestic political concerns. Many institutions increased deposit interest rates, focusing on money market accounts and certificates of deposit, to support deposit retention and growth.

Demand for services and revenues for nonfinancial service providers in the Fifth District remained stable. Wage and expense pressures began to moderate. One respondent expressed concern that demand could soften as student loan repayments restarted and consumers saw decreased discretionary income.