Fed says Fifth District economy sees moderate growth
Labor and supply chain shortages limit companies' abilities to meet demand
The Federal Reserve’s Fifth District (including Virginia, North Carolina, South Carolina, West Virginia and Maryland) saw modest growth in recent weeks, according to the latest edition of the Federal Reserve’s Beige Book, released Wednesday.
The Beige Book is published eight times per year and is based on anecdotal information gathered from the 12 Federal Reserve Banks about economic conditions in their districts.
The Fifth District saw slight slowdowns in manufacturing, travel and tourism and residential real estate sales. However, retail sales, demand for nonfinancial services and commercial real estate leasing rose modestly. Firms across sectors noted that demand outpaced their ability to meet it because of shortages in labor, finished goods, parts and raw materials. Ports and trucking companies continued to report large volumes but difficulties delivering shipments because of labor and equipment shortages.
Employment rose slightly, with employers are still reporting difficulties filling open positions. Many saw increased turnover, leading some to offer monetary and nonmonetary incentives, like flexible work arrangements. Average wages increased moderately as firms began to offer higher starting pay and increased wages, and many told the Fed that they continued to provide sign-on and stay-on bonuses.
Price growth did not change from its significantly elevated rate. On average, service sector firms saw slightly more than 4% growth in selling prices compared to last year, according to the Federal Reserve Bank of Richmond. Service firms reported strong increases in input costs, but those costs moderated in recent weeks. Manufacturers, however, reported a slight increase in selling prices but a sharp increase for input costs.
Manufacturers continued to see strong demand, but labor and materials shortages limited production. Many reported that they were unable to obtain packaging or had shipping delays on finished products. Some businesses also reported production slowdowns resulting from delays in obtaining parts to fix machinery.
Fifth District ports continued to have record-breaking volumes, with growth driven by imports of furniture, food and machinery and exports of agricultural products. Auto parts held steady, but finished auto imports dropped due to the microchip shortage. Rail delays, warehouse space constraints and shortages of chassis and drivers left imports sitting at ports. Trucking companies experienced high retail and industrial shipping volumes but were unable to meet demand because of driver shortages. Some also reported truck and trailer shortages because of delays in receiving new vehicles and repair parts.
Travel and tourism decreased in recent weeks, which the Federal Reserve Bank of Richmond attributes to the seasonal shift from leisure to business travel as well as businesses’ continued deviations from normal travel operations. Labor shortages continued to cause hotels to limit services and capacity. Restaurants also limited operating hours, and many reported difficulties with the availability of ingredients.
The average selling prices of listings in residential real estate rose, but sellers increasingly had to sell for under listing price. The average days on the market were low but increased as more homes came onto the market. Commercial real estate leasing increased modestly as more companies looked to lease office space, although many remained hesitant because they were uncertain of their space needs. Demand and rental rates for industrial leasing remained high.
Banks reported modest loan activity but moderate growth in residential mortgages. Firms noted a slight increase in commercial real estate and business loan demand but said that firms seem reluctant to make capital investments because of uncertainty about the delta variant and supply chain shortages.
The Beige Book is compiled from reports by bank and branch directors, as well as interviews with and online questionnaires completed by business contacts, economists, market experts and other sources. The next report, the final one of the year, will be released on Dec. 1.