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.