Beige Book Report: Richmond
September 11, 1996
Overview
District economic activity continued to expand in recent
weeks, although growth has moderated in some sectors. Manufacturing
rebounded sharply from July; commercial real estate activity
continued to gain strength; and state tax revenues grew more
quickly. Activity at ports and in the service sector was steady.
Retail sales growth and housing activity weakened, and lending
continued to slow somewhat. Reports of labor market tightness and
upward pressures on wages were widespread, but only scattered
reports of price pressures were received. In agriculture, weather-
related diseases damaged some crops, but most yields were still
expected to be excellent.
Retail Trade
Several District retailers reported that activity
expanded more slowly in August. They said that overall sales growth
was sluggish, with little improvement in shopper traffic, although
big ticket sales were steady. One large chain of home improvement
stores, however, reported much stronger sales in August than in
July. Employment grew only modestly; one West Virginia retailer
commented that "finding quality employees continues to be
difficult." Wage growth continued to be strong. Contacts noted that
their inventory levels increased. Retail prices rose more slowly
during the last several weeks; respondents, however, expected prices
to rise more during the next six months than they had expected in
July. Compared to July, contacts lowered their expectations of
demand for their products over the next six months.
Services
Service producers contacted by mail reported a steady pace
of activity in August. Revenues and employment grew at the same rate
in recent weeks as in July, although wage growth was more modest.
Contacts said their prices rose more slowly in August, and
respondents expected smaller increases in prices and in the demand
for their product over the next six months.
Manufacturing
Manufacturing activity grew at a substantially faster
pace in August. Respondents to a mail survey of District
manufacturers reported stronger growth in shipments, particularly of
industrial machinery and equipment. New orders increased sharply,
especially at printing firms, and order backlogs rose. Manufacturing
employment edged up slightly amid widespread complaints of labor
shortages. Manufacturers, however, indicated that their inventories
remained above desired levels. Contacts reported that finished goods
prices decreased slightly and that raw materials prices increased
slightly in August from July. Respondents' six-month outlook was for
lower finished goods prices and somewhat higher raw materials
prices.
Tourism
Tourist activity generally softened in late August. Except
at mountain resorts, most District contacts reported that hotel room
occupancy rates were below July levels, possibly due to the early
opening of schools in neighboring states. Many contacts from coastal
areas said that their August revenues were below average. One
respondent from the Outer Banks told us that tourists' concerns
about Hurricane Edouard had led to a drop off in inquiries for the
Labor Day weekend. In addition, fall bookings throughout the
District were down slightly compared to a year ago.
Port Activity
Representatives at District ports indicated that July
import levels were higher than in June but that export levels were
lower; both import and export levels were lower than a year ago.
Most representatives continued to anticipate that exports and
imports would increase during the next six months.
Temporary Employment
The demand for contingent workers grew faster
in August, according to a survey of Fifth District temporary
employment agencies. Clerical and light-industrial workers were
particularly in demand. Respondents characterized labor markets as
generally tight and several expected their local markets to tighten
further as students returned to school. One respondent from Roanoke,
Va., said that labor shortages in her area were becoming desperate.
Several contacts noted that wage levels increased during August,
especially for skilled labor.
Finance
Overall lending activity in the District slowed slightly
during August. Contacts at financial institutions suggested that
consumers had adopted a "wait-and-see" attitude toward further
borrowing. Several mortgage lenders reported that the short-lived
dip in interest rates in late July and early August was accompanied
by a temporary increase in mortgage demand, but that as rates rose,
demand eased. Some contacts noted declines in commercial lending at
their institutions. Two respondents reported that they had recently
tightened their lending standards while several others indicated
that a future tightening of standards was likely.
Residential Real Estate
According to a telephone survey of District
real estate agents and homebuilders, residential real estate
activity declined slightly in late July and August. Housing starts,
permits, and customer traffic were somewhat lower. Respondents
indicated that home sales were steady and that sales prices
increased slightly. Subcontractor wages rose slightly and some
materials prices increased sharply; one West Virginia homebuilder
said that lumber prices had "skyrocketed."
Commercial Real Estate
Commercial real estate activity picked up in
August, according to a telephone survey of commercial real estate
brokers. Leasing activity continued to escalate; one Richmond agent
characterized the market there as "red-hot," and a South Carolina
respondent remarked, "We don't know how much better it could get."
Vacancy rates declined and rental rates continued to climb. The
availability of prime office space continued to tighten, and a
number of contacts reported shortages in their areas. Respondents
throughout the District reported an increase in new construction,
including speculative projects, although contacts in Northern
Virginia and the District of Columbia noted that local rent levels
were not high enough to spur much new construction.
State Revenues
State tax collections generally increased faster in
July than in June. Withholding tax collections rose in most
jurisdictions, but were slightly lower in West Virginia. Sales tax
collections and real estate recordation tax receipts increased.
Corporate tax collections increased only slightly; a North Carolina
contact blamed flat corporate profitability for the small increase
in corporate collections.
Agriculture
Drier weather in late August allowed farmers to catch
up on field work and slowed the spread of moisture-related crop
disease, according to agriculture analysts. Disease damage was
expected to reduce tobacco and peanut yields, but analysts
anticipated that the production of those crops would be sharply
higher than a year ago. Bumper crops of corn and soybeans were also
expected. Hay harvesting activity picked up as drier weather allowed
cutting and curing activities to resume.