Beige Book Report: Richmond
June 4, 2014
Fifth District economic activity expanded moderately in recent weeks, and contacts reported an optimistic outlook. Conditions varied among manufacturers, however. Shipments increased mildly, while new orders grew at a slower rate and backlogs leveled off. Retail sales grew moderately. Non-retail service sector revenues increased at a measured pace since our last report, and several executives were upbeat about future prospects. Tourist destinations experienced normal strong bookings while transitioning to warm-season activities; room rates were generally unchanged. In residential real estate markets, there were reports of increased buyer traffic and improving sales of low to mid-priced homes. Commercial real estate activity grew moderately since our last report. Most contacts reported steady multifamily leasing, although they expressed some growing concern about over-supply. In agriculture, fertilizer prices remained stable, while chemical and farm equipment prices rose slightly. Coal production fell below year-ago levels, while natural gas production increased. Labor market conditions improved slightly. According to our most recent surveys, employment in the service sector ticked higher and wages increased at a slightly faster pace. Manufacturing employment and the average work week also picked up, and wages advanced more quickly. Prices of raw materials and finished goods rose somewhat more quickly, and prices in the service sector, including retail, also advanced at a faster pace.
Manufacturing
Manufacturing conditions varied by industry. Shipments rose mildly, while new orders grew at a slower rate and backlogs leveled off. In addition, finished goods and raw materials inventories increased slightly. A manufacturer of airflow measurement devices attributed his stronger orders to new product offerings and a recent rise in construction-related demand. A furniture manufacturer stated that orders and backlogs had increased. A few food manufacturers noted seasonal improvements in sales and production. However, declining sales were reported by producers of plastics, rubber, sealing devices, machinery, and textiles. A process engineering parts producer also indicated that demand decreased in the past few weeks. Further, a textile manufacturer said that sales declined in all categories in the last month. Manufacturers were generally optimistic about growth over the next six months, however. Prices of raw materials and finished goods rose at a faster pace, according to our survey.
Ports
Port traffic grew briskly since our last report. Diversions from the West Coast are expected to increase as shippers look to avoid interruptions during union contract negotiations there. Container traffic and auto parts traffic were robust. The Port of Virginia, which handles the largest share of grains on the East Coast, reported continued strength in containerized grains moving through the port. Imports and exports of autos remained strong at the Port of Baltimore, and container shipments bounced back after a weaker first quarter. Modest growth in imports of construction equipment is expected there. In contrast, agricultural equipment exports have slowed and are expected to flatten or decline in the months ahead.
Retail
Retail sales grew moderately since our last report. An executive at a chain of hardware stores in central Virginia reported that sales and customer traffic had risen, and he was able to pass price increases through to customers. The manager at a West Virginia sporting goods store said sales increased and customer traffic had picked up. In the Hampton Roads area of Virginia, a big box discounter indicated that sales were stable, although foot traffic had declined. A central Virginia retail representative noted that e-commerce has led to store downsizing, and product distribution is becoming key. Smaller stores have also become more focused on brand perception and customer service. Car dealerships near the D.C. beltway had slower sales, leaving excess inventory on the lot. Elsewhere in the District, auto sales remained strong. A transportation contact expects equipment purchases by trucking firms to rise soon as aging fleets are replaced and e-commerce expands. Retail prices moved up slightly faster in recent weeks.
Services
Service sector revenues increased at a modest pace since our last report, with several executives reporting a positive outlook. An executive at an accounting services firm stated that more bid work was becoming available. According to a financial services professional, account balances were up and "things are in pretty good shape." An executive at a national freight trucking firm said that business returned to normal levels as the weather improved. Hospital executives reported a recent decline in elective procedures; at a North Carolina facility, admissions fell in part because of Medicare changes. Prices in the service sector rose somewhat more quickly.
Tourism in the District was at robust seasonal levels, while room rates were generally unchanged. Mountain resort managers reported solid bookings as they converted to spring and summer activities. An executive on the Outer Banks of North Carolina said Memorial Day weekend was heavily booked. A hotel manager in Baltimore remarked that tourist and convention business was strong, and a West Virginia resort executive expects "good growth" this summer. A contact in Washington, D.C. said that the number of tourists had increased in recent weeks, and the re-opening of the Washington Monument in mid May was well-attended. An hotelier at a tourist destination in Virginia stated that competition had increased and he was advertising more strategically to keep his visitor counts up. Managers at West Virginia gaming facilities reportedly feared losing business because gambling has expanded in neighboring states.
Finance
Overall, consumer lending declined at a slower pace since our last report, while commercial lending grew modestly. Although residential mortgage bankers reported slightly weaker lending, a West Virginia banker said that lower rates may boost lending moving forward. According to bankers in Virginia and West Virginia, mortgage refinancing was significantly lower because the refinancing cycle is largely complete. These bankers also noted that loan volumes for home equity and lines of credit were also down slightly in both states. Interest rates were widely reported to be flat or lower. Credit quality was mostly stable with a few reports of improvement in West Virginia. Commercial lending grew across most of the District. A lender in Virginia noted a significant pickup in residential real estate, and modest growth in industrial and business expansion lending. In contrast, bankers in Maryland and West Virginia reported softening demand for commercial loans, and a lender in North Carolina expressed concern that there could be a bubble in multi-family construction in that market.
Real Estate
There was slight improvement in the District's housing market since our last report, with increased buyer traffic and mild strengthening in sales for low to mid-priced homes. Home sales rose slightly in the Charlotte, Fairfax, Greensboro, Fredericksburg, and Richmond metro areas. In contrast, a broker in Myrtle Beach and another in Washington, D.C. reported flat sales. Most contacts said that home prices increased mildly. Housing inventory increased, but remained at low levels throughout the District. The absorption rate improved in the past few weeks. While buyers were generally described as cautious and conservative, brokers reported that multiple offers and sales above asking price had become more common. A Charleston, South Carolina Realtor stated that the market for mid-range homes was tight and the average "days on the market" was in single digits. New single family construction increased in South Carolina, North Carolina, and Virginia. A Washington, D.C. Realtor said that new home prices were rising faster than prices for existing homes.
Commercial real estate activity grew moderately over the past several weeks. Rental rates were mostly stable, but some modest increases were also noted. Vacancy rates ranged from stable to slightly lower, with some pickup in absorption. A Charlotte, North Carolina Realtor said that office vacancy rates were low, while market fundamentals continued to recover and search activity increased. A commercial Realtor in Washington, D.C. reported that retail tenant allowances increased in the form of build-out dollars. The new development pipeline grew in Richmond, Virginia, with announcements of grocery-anchored projects, and mixed use construction plans moved forward in Washington, D.C. Multifamily housing construction remained strong throughout the District, and most contacts reported steady multifamily leasing activity, although there was some growing concern of over-supply.
Agriculture and Natural Resources
Agriculture contacts reported that fertilizer prices remained stable, chemical prices rose slightly, and farm equipment prices edged up. A South Carolina farmer said that delayed planting increased field days but did not affect his crop plans. Wholesale agribusiness executives reported that sales were at normal seasonal volumes.
Energy contacts stated that coal production fell below year-ago levels, and they expected a further decline in production over the next six months. Some plants closed, and coal prices rose slightly. Output of steam and metallurgical coal for export also declined year-over-year. Natural gas production rose steadily, with stable prices.
Labor Markets
Over the last several weeks, labor market conditions improved slightly. Demand increased for workers in manufacturing, distribution and warehousing, construction, and information technology. Employers continued to report difficulty filling highly skilled and upper level management positions. A Maryland staffing agent stated that those challenges were putting upward pressure on wages, while outside of those positions, wages were stable. A trucking firm reported recent wage increases for non-drivers and expected drivers' wages to also increase in the near future. In the energy sector, the number of coal workers declined, while the number of natural gas employees increased modestly. According to our recent surveys, employment in the overall service sector edged up, while wages increased at a slightly faster pace. In the retail subsector, growth in employment and wages strengthened. Manufacturing employment and the average work week also picked up, and wages advanced more quickly.