Beige Book Report: Richmond
March 18, 1998
The Fifth District economy expanded at a somewhat faster clip in recent weeks despite weather-related slowdowns in some sectors. Consumers continued to spend freely, with retail sales growth out pacing that of a year ago. In addition, manufacturers reported that orders and shipments rebounded sharply from an early winter slumber. Real estate activity, both in the residential and commercial sectors, picked up considerably, although residential builders noted that excessive rainfall reduced housing starts somewhat. Unusually wet weather also kept tourists away from coastal resorts and farmers out of their fields. In the service sector, growth remained healthy, even though the overall pace was held back by a reduction in utilities' sales. Shortages of both skilled and entry-level workers worsened, and reports of higher wages were more widespread. Prices, especially in the service sector, increased at a somewhat faster rate.
Retail
Since the beginning of the year, the retail sector has hardly missed
a beat. January sales held up better than in past years, and most
merchants told us they were pleasantly surprised by the strength of
consumer spending in February. Mild temperatures hurt winter apparel
sales, but got spring clothing off to a fast start. Consumers'
purchases of durable goods strengthened. Sales of both new and used
automobiles exceeded dealers' expectations, and furniture retailers
reported that their businesses were finally benefiting from buoyant
housing markets. While maintaining sales growth remained a priority,
many merchants told us that their biggest concern was finding and
retaining workers. One said that the lack of available workers "was
keeping [him] awake at night." Reports of wage increases were more
prominent than in our last report. Retailers indicated that prices
generally increased at a faster rate in recent weeks. Restauranteurs
and general merchandisers reported the largest price increases;
apparel retailers, however, continued to report widespread price
discounting.
Services
District service producers experienced healthy growth in recent
weeks. Businesses associated with real estate--including mortgage
insurance companies, real estate brokers, and appraisers--noted
particularly strong revenue growth, as did both passenger and
freight airlines. Electric utilities and natural gas suppliers, on
the other hand, reported decreased revenues as unseasonably mild
temperatures reduced energy demand. Service sector employment growth
slowed amid widespread complaints of shortages of qualified workers.
Service contacts reported faster price growth since our last report;
the pick-up was most evident in the business services, finance, real
estate, and lodging sectors.
Manufacturing
Since our last report, District manufacturers witnessed a resurgence
in activity. Overall shipments and new orders rebounded sharply,
even though producers of transportation equipment and industrial
machinery reported disappointing growth. Most manufacturers
continued to indicate that their sales had not been impacted by the
financial crisis in Asia. An exception was a textile producer who
suggested that a recent "flood" of Asian imports had hurt his
industry. While a Virginia port representative stated that Asian
difficulties had "hindered textile exports," contacts at other ports
noted little impact on either exports or imports. Manufacturers
continued to add employees, but many expressed growing concern over
the quality of their job applicants. Wages grew somewhat faster than
in our last report.
Finance
Lending activity increased in January and February. Mortgage
lending--both new originations and refinancings--was particularly
brisk; a Charlottesville, Virginia banker said that "January was
pandemonium" in her office because interest rates were so low.
Commercial lending also rose, boosted in part by increased business
merger and acquisition activity. Banks' credit standards changed
little since our last report.
Real Estate
Low interest rates and higher consumer confidence sparked real
estate sales in recent weeks, but wet weather hampered homebuilding
activity. A Virginia contact reported "booming" home sales while a
South Carolina realtor said that it was the "best January and
February ever" in his area. A number of realtors attributed higher
sales to an influx of new businesses coming to their areas. Frequent
rains across most of the District, however, thwarted contractors'
efforts to keep apace of demand. Nevertheless, builders reported
that the rains didn't diminish their optimism or affect the number
of building permits being sought.
Commercial real estate activity picked up dramatically, with one contact noting that "floods of tenants were looking for space." The continued strength surprised some contractors who had "expected the market to hit saturation by now." Projects underway in the District included small office buildings and larger industrial warehouses as well as retail establishments, a growing portion of which were speculative buildings.
Tourism
Contacts reported that the unseasonably warm, wet weather of recent
weeks had a mixed impact on District tourist activity. Despite mild
temperatures which hindered snowmaking, attendance at ski resorts
was near all-time highs. One contact said that the addition of a
snow tubing park had increased his resort's customer base by
appealing to those who do not ski. The warmer temperatures, however,
caused ardent skiers to travel further in search of natural snow,
benefiting West Virginia ski resorts. Frequent rains dashed hopes of
a second year of record-breaking winter tourist activity at coastal
resorts.
Labor Markets
Employers continued to experience difficulties finding qualified
workers to fill vacant positions. A number of temporary agencies
said that their greatest challenge was finding "trainable" people
for entry-level production and customer service positions. One
contact said that, increasingly, businesses were hiring two or more
college students on a part-time basis to fill each full-time
vacancy. While overall wage increases remained modest, workers with
highly sought skills were "calling the shots" in their wage
negotiations.
Agriculture
Near-record rainfall in many areas had mixed impacts on small grain
crops. Wet and muddy fields barred farmers from applying fertilizer
to the winter wheat and barley crops and from starting their pre-
planting tillage. Standing water in low-lying fields was common, and
one agricultural analyst said that flooded fields could reduce
winter wheat yields in his area by as much as 20 percent. Elsewhere,
the rains and milder-than-normal temperatures apparently benefited
small grain crops. Analysts said that fruit trees budded early,
increasing the risk of spring frost damage to peach and apple crops.