Federal Reserve Bank of Richmond
Summary of Economic Activity
The Fifth District economy grew slightly since our previous report. On balance, consumer spending was flat to up slightly this period. Reports from retailers were mixed as some shops and restaurants reported declines while others, namely furniture and hardware stores, reported increased sales. Spending on travel, on the other hand, picked up as hotel occupancy increased and future bookings were strong. Port activity declined slightly, and the collapse of the Francis Scott Key Bridge led to the shutting down of traffic coming in and out of the Baltimore harbor and main port terminal and the diversion of shipments to other East Coast ports.
Labor Markets
Employment in the Fifth District grew at a modest pace in the most recent reporting period. Contacts continued to report difficulty finding workers but mentioned some improvement. A sandwich shop reported that it was still very difficult to find labor, but the applicant pool was increasing, and they were experiencing less attrition. An office equipment wholesaler reported that "good" workers were hard to find, but when they were found, they were hired regardless of there being an open position. There was still difficulty finding workers in the trades. An HVAC company, for example, could not find skilled or trainable workers and was not optimistic about this changing due to a lack of a reliable training sources. Wage growth remained moderate.
Prices
Prices continued to grow at a moderate annual rate this reporting cycle. According to our most recent surveys, growth in prices received by service providing firms was little changed as growth has remained around four percent for several months. Growth in prices received by manufacturers remained between two and three percent. Some contacts noted that the higher cost of borrowing as well as higher energy costs have led to increased operating costs. Increasing labor costs, however, were the most cited factor leading to price growth remaining elevated.
Manufacturing
Fifth District manufacturing activity declined modestly in the most recent period. A precision sheet metal manufacturer reported that new orders barely reached a level where they didn't have to cut hours. Several contacts mentioned interest rates negatively affecting their business. For example, a cabinet manufacturer reported that clients could no longer wait for interest rates to drop, so they were cancelling projects. A pump and commercial equipment producer reported a slowdown in sales because their customers delayed capital expenditures until interest rates decline. Other contacts mentioned increased cost pressure from non-production services such as legal, medical, and other insurance services.
Ports and Transportation
Total loaded container volumes at Fifth District ports were down slightly this period. Import volumes increased mainly due to retail restock of consumer goods. Spot rates for Asia to East Coast decreased slightly this period but remained elevated compared to last year. Both imports and exports of rolling stock were down this period. Airfreight volumes remained flat and shipping rates continue to be low due to overcapacity. The March 26th collapse of the Francis Scott Key Bridge led to the temporary closure of the main Baltimore port terminal with an uncertain timeline to reopen the shipping channel. Ships that were due to come into the port were diverted to other East Coast ports. Businesses we talked to said they can manage a short-term disruption but if the effort to reopen the channel takes longer, they then expressed greater concerns about lead times and increased costs.
Trucking demand continued to increase slightly because of retail restocking but still reflected lower seasonal volumes. In the truckload segment, industry oversaturation pushed rates down, while in the less-than-truckload segment, firms were able to negotiate flat to slight increases in contract rates due to decreased capacity. Driver turnover remained at the industry average and several respondents relied on in-house training programs to augment the labor pipeline. However, positions requiring some specialized skills, such as mechanics, were still difficult to fill. There were no significant backlogs on new equipment and parts availability improved.
Retail, Travel, and Tourism
Retail spending was little changed in recent weeks. Several retail and restaurant contacts noted that customer traffic was unseasonably low. One shop owner located in a pedestrian market said that rainy weather, particularly on the weekends, hurt their sales. A furniture store and a hardware store, on the other hand, saw an increase in sales and foot traffic and attributed it to the start of the spring season when the housing market starts to pick up and people start working in and on their yards. Hotel contacts reported only a slight increase in occupancy in recent weeks but expected things to pick up soon as they were seeing strong future bookings for the next several months. An airport reported increased passenger traffic in recent months, particularly for leisure travel.
Real Estate and Construction
In residential real estate, respondents noted that so far it hasn't been a robust spring market; however, there remained pent up demand in the housing sector. Total closed sales dropped month-over-month. Days on market increased slightly but was still below the historic average; housing inventory remained tight. Listing prices were flat, but many homes were still selling above asking price. Single family homes for first time home buyers remained in short supply. Construction cost increases continued to moderate in the Fifth District. Demand for home improvement projects declined considerably from this time last year.
In the Fifth District, overall market activity in commercial real estate improved slightly this period. Retail and industrial/flex space leasing remained robust with higher rental rates and low vacancy rates. In the office sector, there was greater leasing activity related to firms looking for more efficient space and moving to suburban locations. However, an increasing number of commercial office buildings were unable to qualify for refinancing this period. Commercial real estate sales slowed, and capital markets activity was negligeable, which resulted in declining commercial real estate values. Commercial contractors cited a lack of qualified candidates to fill positions as well as rising material and labor costs.
Banking and Finance
Most financial institutions reported that they are observing a slight increase in loan demand within their business and commercial real estate loan portfolios. One banker noted that this slight increase was due to "pent up" demand and businesses were only borrowing for immediate business needs. Deposit levels continued to decline modestly with competition high for any available deposits in the marketplace. Institutions that were once reluctant to have deposit specials began offering these promotions to maintain their balances. Loan delinquency rates remained stable from the last report with no changes noted in customer credit quality.
Nonfinancial Services
Nonfinancial service providers continued to report that demand for their services as well as revenues remained stable. An engineering firm stated that they were issuing an average number of proposals for work, but less were being accepted because clients were hesitant to move on any new projects. A law firm noted that clients' anticipation of lower interest rates later in the year was slowing any new real estate transactions, or other transactions impacted by interest rates, by their clients. Wages and workforce issues were less of a challenge with both continuing to show modest stabilization.
For more information about District economic conditions visit: https://www.richmondfed.org/research/data_analysis.