Federal Reserve Bank of Richmond
Summary of Economic Activity
Economic activity in the Fifth District grew at a modest rate since our previous report. Consumer spending picked up modestly, overall. Travel and tourism were steady, on balance, as business travel increased, and leisure travel softened. Residential real estate activity slowed slightly, and commercial real estate activity was little changed in recent weeks. Financial institutions saw an increase in loan demand, largely driven by refinancing activity. Port activity increased slightly, and ports worked to offload ships ahead of the expected worker strike, which ended quickly with little disruption to operations. Employment increased slightly and some firms raised wages to attract certain skilled workers that were hard to find. Prices increased at a modest to moderate pace. Hurricane Helene severely impacted parts of the Fifth District. While the full extent of the damage was still being assessed, it clearly had substantial negative impacts to residents and businesses with the tragic loss of life, physical assets, and economic activity in the affected areas.
Labor Markets
Employment in the Fifth District increased slightly in the most recent period. While many firms reported seeing improvements in the candidate pool and moderate wage growth, some continued to face challenges finding specific types of workers. To attract those hard-to-find workers, firms increased wages more robustly and used outside help. A chartered bus company, for example, reported improvement in driver availability but had to “dramatically” increase wages to attract skilled mechanics and a lighting manufacturer instituted a $2 per hour wage increase for production workers. Meanwhile, a chemical manufacturer reported a dry talent pool for applicants and was using outside agencies for help. Hurricane Helene impacted many businesses and workers, particularly in western North Carolina, leading to a spike in initial unemployment insurance claims in the state in the first week of October.
Prices
Price growth continued to ease slightly in recent weeks. On a year-over-year basis, prices grew at a modest to moderate rate. According to our most recent surveys, prices received by manufacturing firms grew modestly compared to last year. Service providers, on the other hand, reported moderate annual price growth. Several consumer facing businesses believed that customers wouldn’t accept any further price increases and that was keeping pressure on them to hold price levels constant for some time.
Manufacturing
Manufacturing activity in the Fifth District was flat to up slightly for some producers in the most recent reporting period. Several contacts relayed optimism about their prospects. A fuse panel manufacturer reported a strong backlog going into 2025 due to large recent orders. An industrial pump manufacturer reported an uptick in orders due to more certainty around the path of interest rates. Several contacts, however, mentioned uncertainty leading to delays on new orders. A textile manufacturer expected tepid demand because customers were buying cautiously until the new year due to the “usual nervous period” ahead of elections.
Ports and Transportation
Ports in the Fifth District reported a slight increase in containerized cargo volumes as they accommodated additional trucking traffic to offload ships in advance of the anticipated International Longshoreman Association worker strike on September 30th. The strike, which lasted three days and was suspended until January 15, 2025, affected 45,000 union workers at 36 ports across the East and Gulf coasts, including 6,000 workers at Fifth District ports. Port contacts said that the brevity of the strike had little impact on operations, and they expected the agreed upon wage increases to factored into future container rates.
Despite the increased activity out of ports, contacts reported flat demand in the trucking segment with a slight decrease in industrial equipment movement. Firms expected trucking demand to remain muted heading into the winter months. On pricing, firms noted that they have been disciplined about raising rates, but profitability was down because freight spot rates have fallen to a low level. As a result, contacts were not investing in replacing old equipment.
Retail, Travel, and Tourism
Consumer spending picked up modestly since our previous report. Retailers reported an increase in sales and shopper traffic in recent weeks. A few contacts said that transaction volumes were flat compared to last year, but revenues were up because prices were higher. An ice cream shop and a producer of prepared food for grocery stores said that same-store sales were steady, and their businesses were growing because they were expanding into new markets. An art dealer reported an increase in sales and foot traffic after experiencing a lull during the summer when customers were spending their time and money on travel rather than artwork for their homes. Consumer spending at restaurants also rebounded after a reported decline in late summer. Hotel and tourism contacts saw an increase in business travel but a slowdown in leisure travel. A hotel representative attributed some of the slowdown in leisure travel to the active hurricane season. Business and hotel contacts in western North Carolina were still assessing the damage and impacts of Hurricane Helene and were focused on helping the rescue and relief efforts needed in the area, but most expected the impacts to be felt for several months.
Real Estate and Construction
Residential real estate activity experienced a slight downtick in recent weeks, which many agents attributed to the typical fall slowdown and the hold for rate cuts. Despite this, online buyer traffic remained robust, with fewer casual viewers visiting properties in person. An agent in Virginia noted that housing inventory was on the rise, particularly with fixer-uppers and less-than-ideal homes entering the market. Agents across our District continued to mention the continuum of lawsuits and uncertainties with the recent National Association of Realtors policy changes.
Commercial real estate activity has leveled off in the past month. Agents noted a decrease in vacancies in prime A spaces but continued vacancy growth in lower-grade markets. In the industrial sector, there was caution around speculative building but an uptick in owner-user purchases. A few companies in North Carolina noted they were delaying major capital expenses until 2025. This delay was also seen in private construction, according to a residential and metal buildings construction company in Virginia, who noted fewer potential customers and clients finding it more difficultly to afford the work.
While the full extent of the damages from Hurricane Helene remains unclear, the storm caused severe destruction of both commercial properties and housing stock in western North Carolina and Virginia.
Banking and Finance
Financial institutions reported a modest increase in loan demand, primarily driven by recent interest rate cuts. Commercial real estate and first mortgage refinancings were noted as the main drivers of this increase in demand. One respondent noted that borrowers were reaching inflection points in their decision-making processes, which helped to drive this demand. Credit quality levels remained stable with no noted deterioration of borrower’s creditworthiness. Deposit levels remained stable amid heightened competition in the market for balances. Lenders continued to note a modest decline in the credit quality of borrowers, but delinquencies remained stable.
Nonfinancial Services
Nonfinancial services providers continued to report little change in demand for their services and revenues remained stable. A law firm noted that decreasing interest rates could have a positive impact on future merger, acquisition, and real estate deals and they were anticipating a modest increase in this work. Some firms believed that activity was being constrained by a hesitancy to make any new investments or business decisions until the uncertainty around the election and international conflicts is resolved.
For more information about District economic conditions visit: https://www.richmondfed.org/research/data_analysis.