Fed Fifth District economy shrinks slightly
Customers push back on price growth in several industries
The economy in the Federal Reserve’s Fifth District (a multistate region including Virginia, North Carolina, South Carolina, West Virginia and Maryland) has contracted slightly since March, 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.
Here’s what the April 19 Beige Book edition revealed about the direction the economy is taking:
Manufacturing activity softened as manufacturers had fewer new orders, and customers began pushing back on price increases as supply chain pressures eased. Employers continued to struggle to find skilled workers.
Travel and tourism spending increased moderately in the region. The sector saw strong revenue growth, with hotels reporting increases in the number of rooms sold and higher room rates compared with last year. In February, Virginia hotel revenues were 14.9% higher than those recorded in February 2019.
Ports and trucking companies in the Fifth District reported declining freight volumes, especially in imports of retail goods and household items. Exports of loaded containers were stronger, though, particularly in auto and machine parts. Empty containers remained at ports slightly longer.
Because shipping carriers had excess availability, their spot rates fell to pre-pandemic levels or below, significantly under contract rates. Airfreight rates stabilized as airlines pulled back on freight capacity, according to the Fed.
Trucking companies saw a moderate decline in freight volumes and received some customer pushback on continued rate increases. Firms continued to add drivers but scaled back recruiting because of the lowered freight volumes. The supply of new tractors and trailers improved.
The Fifth District’s employment increased slightly compared with its March report, although respondents reported a continued lack of qualified workers. Wages increased modestly, partly because Virginia, Maryland and Washington, D.C., increased minimum wages.
Prices in the region continued to grow at a strong rate, the Fed reported. Manufacturers reported average price increases of about 5.5%, down from the 2022 peak, and service sector firms reported prices increases of about 6.5%, a near-peak rate.
Retail activity remained strong, although firms reported slightly lower sales and demand. Some retailers said they expected business to pick up soon, as their busy seasons started in April.
The typical spring housing market did not appear. Sales and pending sales in the Fifth District residential real estate market declined, and sales prices remained flat, although respondents began seeing new contracts at less than list price. Housing inventory has decreased year-over-year, and new listings have dramatically decreased. Although construction costs were down, builders did not buy new lots because of economic uncertainty.
Commercial real estate activity declined overall last month, particularly in the office market. Retail and industrial/flex space leasing, however, remained strong, and the industrial sector had higher rental rates. Sales slowed due to rising interest rates, and some banks stopped lending for new commercial construction projects or tightened underwriting standards.
Demand for all types of loans slowed modestly, but the commercial loan portfolio was the weakest. The region saw mixed demand from consumers, but demand for home equity and used auto loans increased some.
Deposit levels declined slightly, although some banks had an inflow of deposits following Silicon Valley Bank’s collapse. Financial institutions expected loan and deposit levels to decline moderately for the rest of the year, according to the Fed.