Fifth District economy little changed since August, Fed says
Demand for several sectors drops in face of inflation
The economy in the Federal Reserve’s Fifth District (a multistate region including Virginia, North Carolina, South Carolina, West Virginia and Maryland) has been largely unchanged since August, 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.
Manufacturing activity was little changed in the district since August, according to the Beige Book report. District ports had high activity levels, but trucking companies saw declines in demand. Retail spending rose moderately. Travel and tourism declined on balance. Residential and commercial real estate slowed, and loan demand softened.
Manufacturers were able to work through backlogs as new orders slowed, however. Respondents reported a continuing lack of qualified workers and other labor difficulties as employees switched back and forth between companies depending on pay. Manufacturers also reported some supply chain improvements, but some, especially those in retail, said they expected consumers to cut down on spending in the near future.
While ports in the Fifth District reported strong demand due to ship diversions from West Coast ports, where labor negotiations continue, trucking companies reported slowing demand. Imports outpaced exports at ports, and import volumes were led by heavy equipment and furniture. Inland constraints continued to lengthen the time that containers dwelled in ports.
The Fifth District labor market remained tight and employment grew steadily, according to the Fed. Survey respondents worried that labor shortages impacted customers’ experiences, and students returning to high school and college worsened the problem. Some firms reached their ceilings on wage increases to attract and retain workers, and one implemented productivity incentives that could pay out up to $36,000 a year.
Prices for goods in the Fifth District continued to rise, but at a slightly slower growth rate than in recent months. Manufacturers and service providers noted year-over-year price growth, with some input costs falling as freight and energy prices dropped.
Retailers reported modest growth in sales and revenue despite low foot traffic. Total retail sales rose, although big-ticket sales dropped. Some retailers reported that customers pulled back on nonessential goods like home décor and higher-end beauty products.
Leisure travel declined slightly, but business travel picked up. One hotelier reported that revenue remained strong because average room rates were higher than last year’s. Food service respondents reported mild declines in sales.
Housing market activity dropped as interest rates rose, and housing inventory for sales hit all-time lows. Pending and closed sales were down, and prices decreased modestly, although demand in some urban markets with strong job growth remained strong.
Residential construction sales decreased, and some builders offered incentives, price reductions and free upgrades to sell existing new home inventory.
Commercial real estate market activity slowed, but the industrial and multifamily segments continued to see strong demand for leasing, low vacancy rates and increasing rental rates. Demand for Class A office space, particularly in suburban markets, remained strong. New commercial real estate construction continued to experience supply chain disruptions and labor shortages.
Loan demand weakened across all commercial loan types as interest rates and concerns about cash flow rose. Demand for residential mortgages dropped. Deposit growth slowed, and some bankers noted inflation could be pressuring account holders.