Beige Book Report: Richmond
April 16, 2014
The Fifth District economy expanded moderately since our last report. Manufacturing reports were mixed, ranging from lackluster to a pickup in production. Retail revenues also varied in recent weeks, with moderate growth on balance. Revenues remained generally flat in the non-retail service sector. Tourism increased, although persistent cold weather continued to lower forward bookings. Residential real estate markets improved; inventory was low in many areas although there were pockets of new construction. Construction of multifamily housing remained solid and construction of retail space increased. However, office and industrial building softened. Residential mortgage lending was sluggish and refinancing declined further. Commercial borrowing strengthened. Leasing of retail and industrial space picked up, while demand for office space weakened. In agriculture, prolonged winter weather delayed planting of row crops; prices of beef and pork rose. Natural gas production remained robust. Reports on labor markets were mixed, and average wages rose modestly. According to our latest survey, service sector prices edged up more quickly while retail prices advanced at a slower pace. In manufacturing, prices of raw materials and finished goods rose at a slower pace.
Manufacturing
Manufacturing reports were mixed in recent weeks. Winter weather continued to affect some regions and manufacturers reported that they were trying to make up lost production. A food manufacturer stated that the weather delayed shipments and also reduced some Mardi Gras orders, but production was unchanged overall. A producer of industrial equipment components reported a slowdown because capital goods orders had fallen. In contrast, a fixtures manufacturer remarked that his firm has been "busting at the seams" and he planned to expand. Another producer said he was keeping inventory low. Several manufacturers reported an increase in supplier delivery times. Manufacturers expected a pickup in orders during the weeks ahead. Prices of raw materials and finished goods rose at a slower pace, according to our survey.
Ports
Port officials reported that container volume continued to grow briskly, despite winter storm disruptions. Import growth exceeded export growth, with particular strength in housing-related durable goods, auto parts, and some seasonal products. Exports of grain and soybeans were especially robust and significant increases in exports of construction and building equipment destined for Europe moved through the Port of Virginia. Coal shipments declined. A South Carolina port official reported that a recently announced local automotive expansion will increase exports. Auto exports from the Port of Baltimore softened somewhat.
Retail
Reports on retail revenues varied in recent weeks, but generally pointed to moderate gains. A large auto dealer outside the Washington, D.C. beltway reported that business had increased dramatically, necessitating additional inventory purchases. He attributed the strength to improved consumer attitudes about the economy. A discount retailer in the Tidewater area of Virginia reported that average transaction amounts had increased, but the drawn out winter weather had reduced foot traffic, resulting in overall sales contraction. The manager of a discount store in Baltimore stated that sales revenues were unchanged despite recent price increases. However, an executive at a chain of hardware stores in central Virginia saw somewhat faster sales growth. Retail prices rose at a slower pace since our last report.
Services
Revenues remained generally flat in the service sector. A financial services executive remarked that clients were feeling more confident, but there has been no real change in their investment activity. A North Carolina hospital executive reported that demand for services was only slightly higher in recent weeks, and a CPA reported business was at typical seasonal levels. According to an executive at a national freight trucking firm, shipments have increased markedly in recent weeks, partly due to "catching up." Harsh winter weather kept many trucks from delivering goods and pre-loaded trucks could not leave warehouses because no one was present to release the freight. Service sector prices edged up more quickly.
Travel and tourism reports were generally positive. A Virginia hotel representative reported that government groups have started booking conferences again after nearly a year of decline. In Washington, D.C., tourist traffic for the Cherry Blossom Festival started in March and was described as robust, even though cold weather pushed the peak bloom time to the second week of April. An executive at a Virginia resort reported that his facility had the longest ski season in their history this winter with higher than typical occupancy. However, spring break bookings have shortened as schools make up winter class cancellations, and summer vacations are being booked for a week later than normal this year. A hotel manager in western North Carolina said bookings were "decent and growing." Most hoteliers reported that although they expect strong bookings this summer, they have not increased rates.
Finance
Recent trends continued as consumer borrowing remained depressed while commercial lending strengthened. Residential mortgage and refinance demand was sluggish, according to several bankers. A lender commented that the slower pace has led to bankers becoming more aggressive on rates to get business. New auto lending also weakened slightly in recent weeks. In contrast, demand for commercial real estate and new business lending remained robust. Credit quality of applicants has improved recently, while credit standards were unchanged.
Real Estate
Residential real estate improved, with some reports of strength. District home sales rose mildly and sale prices edged up. In some instances weather continued to slow buyer traffic, although Realtors reported a pickup as spring started. A Northern Virginia broker reported that activity remained strong and homes in his region were "getting snatched up" at or above asking price with multiple offers. Inventory was generally limited, although some contacts reported that new construction had boosted inventories a little. North Carolina Realtors reported conservative growth in single family residential building and a South Carolina contact stated that builders are starting to construct more pre-sold custom homes. A Maryland contractor stated that a townhome community located near the Washington, D.C. beltway was quickly selling units at a high price, while projects in other locations were slower to move.
Commercial construction contacts reported strong retail demand and softness in office and industrial building. A contact in South Carolina said free-standing retail was "hot," and an increase in retail construction was also noted in Virginia Beach. Construction of multifamily housing remained strong. Commercial leasing activity intensified for retail and industrial space, while demand for office space softened. Vacancy rates were unchanged on net, however. Rental rates varied across submarket, with some increases in the retail segment. A South Carolina Realtor reported that the industrial market was "incredibly active" with an increase in manufacturing inquiries and that the state's commercial retail market had ramped up. Broker reports on supply of Class A office space varied.
Agriculture and Natural Resources
Persistent cold temperatures and wet field conditions delayed planting of row crops and in some locations, limited days out in the fields. There were reports of slower small grain growth and some freeze damage to fruit trees. An agribusiness located in South Carolina reported that winter weather pushed back some of their harvesting timelines, although demand levels remained solid. Beef prices remained high and pork prices increased due to a virus currently being found in pigs. A contact reported that the spreading virus decreased the number of pigs available to farmers and reduced the number maturing to hogs.
The natural gas sector remained robust. A contact in West Virginia reported an increase in manufacturers seeking natural gas. Coal production declined at a slower rate in recent weeks. The severe winter increased coal demand and diminished stock piles at power generating plants, bringing levels below the five year average. Coal production is expected to be steady as inventories are replenished.
Labor Markets
Reports on labor markets were mixed. Skilled manufacturing workers and specialized information technology workers were in high demand. However, a contact at a financial services firm commented that his office was "skittish" about hiring. Firms reported that finding manufacturing employees with the requisite skills remained challenging. An employment contact said entry level laborers were "easily sourced." Temporary employment was generally unchanged, although some manufacturing contacts increased hiring to make up for weather-related lost production. According to our most recent surveys, manufacturing employment remained flat, the average workweek increased, and manufacturing wages grew at a slower rate. In the service sector, hiring declined slightly and average wages rose modestly.