The Fed’s Fifth District economy is growing modestly

Strong consumer spending is driving growth

Published

November 30, 2023

from

Katherine Schulte

Map courtesy of the Federal Reserve Board

According to the latest edition of the Federal Reserve’s Beige Book, released Wednesday, the economy in the Federal Reserve’s Fifth District (a multistate region that includes Virginia, North Carolina, South Carolina, West Virginia and Maryland) is in grown slightly in the last few weeks.

The Beige Book is published eight times a year and is based on anecdotal information about economic conditions collected from the country’s 12 Federal Reserve Banks. It is compiled from reports from bank and branch managers as well as information from business contacts, economists, market experts and other sources. Wednesday’s release is an update to the Fed’s Oct. 18 report.

Here’s what the latest edition of the Beige Book reveals about the direction the economy is taking:

Employment in the Fifth District has increased moderately in recent weeks, although the labor market remains tight. To retain workers, a general contractor reported pay increases of up to 15% for its top-performing employees. Trucking companies reported that drivers were becoming more readily available, but it remained difficult to hire qualified mechanics.

Year-on-year price growth remained elevated in the latest Beige Book reporting period, but moderated slightly. Fed surveys show prices received by service providers rose just over 4% from a year ago, down from a peak of about 7%. The prices achieved by manufacturers increased by just over 2% compared to the previous year.

Reports from Fifth District manufacturers were mixed. A textile manufacturer reported a surge in demand from customers clearing excess inventory during the COVID-19 pandemic. However, one furniture manufacturer reported that the home furniture industry has been in recession for 18 months and the manufacturer does not expect demand to increase anytime soon. Several respondents said they have invested in automation to increase productivity and reduce costs.

Ports in the Fifth District reported that trade volumes declined during the reporting period. Imports remained flat year-on-year but increased slightly from the previous month, mainly due to the increase in imports of consumer goods. Exports largely fell. The ports had no problems with container overloads.

Trucking companies experienced weak underlying demand, particularly in the industrial sector, as freight volumes for construction materials declined. Companies reported that they had not experienced any problems maintaining their truck and trailer fleets and that there were no significant backlogs in new equipment orders.

According to the Fed, consumer spending has increased slightly in recent weeks. Clothing and grocery stores reported increasing or flat sales and demand, but furniture and appliance stores reported declines in purchases. Respondents from the travel and tourism industry reported steady to increasing activity.

Home sales volume and buyer traffic declined due to low inventory and higher mortgage rates. New listings fell and days on market increased slightly, but remained below the historical average. Although sellers often reduced sales prices or granted concessions on homes that had been on the market longer than 30 days, upward pressure on home prices, particularly in more desirable neighborhoods, continued. Builders reported high material, labor, craftsmanship and financing costs.

Commercial real estate sources reported slow market activity. The industrial and retail markets were relatively stable and recorded low vacancy rates and rising rental prices. Office building owners offered concessions, incentives, or tenant improvement grants to secure new leases, effectively reducing rental rates. Thanks to the market launch of new buildings, rents for apartment buildings remained stable or even declined.

Demand for credit continued to weaken in the financial sector, particularly in the commercial and consumer real estate segments. Sources attributed the slowdown to high interest rates and global and domestic political concerns. Many institutions increased deposit rates, focusing on money market accounts and certificates of deposit, to support deposit retention and deposit growth.

Demand for services and sales for non-financial service providers in the Fifth District remained stable. Wage and cost pressure eased. One respondent expressed concern that demand could weaken as student loan repayments resume and consumers experience lower discretionary income.