Beige Book Report: Richmond
July 16, 2014
The Fifth District economy grew modestly since our last report. Manufacturing conditions improved on balance in recent weeks. While shipments increased at a slower pace, the volume of new orders rose slightly. Retail sales growth slowed since our last report. In contrast, revenues and customer demand increased at non-retail services firms. Tourism was at normal seasonal levels. Reports on consumer borrowing varied in recent weeks, while commercial lending improved. The District's housing market strengthened modestly. Commercial construction differed by category and location. In agriculture, crops damaged by late winter weather have been replanted. Natural gas production increased and coal production leveled off since our last report. Employment in the District increased modestly, with strong demand for skilled and semi-skilled labor and limited wage pressures. Prices of manufactured finished goods and raw materials rose more slowly, according to our latest survey. Service sector prices also increased at a slower pace while retail prices moved up slightly faster.
Manufacturing
Manufacturing conditions improved on balance in recent weeks. According to our latest survey, the volume of new orders rose slightly, shipments grew at a slower rate, and inventories of finished goods and raw materials remained constant. A food manufacturer in North Carolina stated that production has been at full capacity, and sales have risen in the past month. A pipe manufacturer in Maryland said both shipments and new orders increased. According to a valve manufacturer in West Virginia, new orders, shipments, and backlogs increased due to the robust energy industry. Another West Virginia contact stated that automotive manufacturing is doing well and the chemical industry is strong. In contrast, a producer of industrial equipment components reported a slowdown with fewer shipments and new orders. Additionally, a packaging materials company manager reported reduced shipments, although new orders rose slightly. Most producers were optimistic about future business conditions. Prices of raw materials and finished goods rose at a slower pace, according to our most recent survey.
Ports
Port officials reported robust growth in container traffic since our last report, with very good volumes moving through the District's three largest ports. Transfers of heavy machinery and autos remained strong. Both imports and exports increased, with forest products, grains, soybeans, and auto parts leading among exports. Key imports were auto parts, apparel and textiles. Imports of housing-related products, such as furniture and appliances, decelerated. Officials reported some diversions from the West Coast as shippers used East Coast ports to avoid potential labor issues during contract negotiations.
Retail
Retail sales growth slowed since our last report. A grocery contact in North Carolina said his revenue growth was seasonal and related to events such as graduation and Memorial Day. An executive at a South Carolina grocery chain reported an increase in prices, particularly for meat. According to the president of a Maryland chain discount store, sales at his business as well as at other nearby stores have fallen in the last few weeks. He remarked, "People are meeting their needs first, then their wants." A large auto dealer said that the massive vehicle recalls have recently begun to have a slight adverse effect on sales of used cars at his business. However, customer traffic remained up and new car sales were strong. Other car dealers also reported solid new car sales. Retail prices rose slightly faster.
Services
Revenues and customer demand increased in recent weeks at services firms, according to most sources. An accounting firm in Maryland was receiving more proposals for audit work. In addition, an executive at a national freight trucking firm reported a spike in demand for shipping as home improvement stores stocked up for Fourth of July sales. He also noted an increase in contracts for future shipping. In contrast, a North Carolina hospital official reported that the facility continued to prepare for Affordable Care Act changes, with little change in already soft volumes. Price growth slowed in the service sector.
Tourism contacts reported normal seasonal activity, with many late bookings as tourists looked for deals. According to a Washington, D.C. source, the inflow of tour buses was at typical summer volumes. In South Carolina, a hotel executive said occupancy was steady at a high level. A contact on the outer banks of North Carolina said that visitor traffic was up seasonally, but not above a year ago. New air-taxi service there is expected to increase tourism. A hurricane hitting the area on the Fourth of July holiday weekend had only a minor impact. A manager at a Virginia hotel chain reported that bookings were on pace with a year ago and room rates rose in July. Rates elsewhere were mostly unchanged.
Finance
Reports on consumer borrowing varied in recent weeks, while commercial lending improved. Growth in residential mortgage demand slowed across most of the District. However, a lender in North Carolina reported a slight acceleration in demand, and a West Virginia banker reported modest growth in the northern part of the state due to economic growth at natural gas sites. Refinance lending declined in Virginia and West Virginia, with a West Virginia lender stating that the Qualified Mortgage rules have complicated and slowed down the lending process. Demand for consumer loans edged up in North Carolina, Virginia, and West Virginia. Commercial and industrial loan demand was strong in North Carolina and Virginia. A banker in Richmond said lending had increased for apartments, condos, health care centers, and shopping centers. Small business lending was starting to bounce back in Charlotte, according to a banker there. Another North Carolina banker reported strict mortgage standards, but an easing of cost terms for well-qualified commercial and industrial borrowers. A loan officer in West Virginia echoed that mortgage standards remained tight, adding that regulatory scrutiny was intense. Credit quality strengthened according to contacts in North Carolina and West Virginia.
Real Estate
The District's housing market improved modestly since the last report. A Northern Virginia broker reported normal buyer traffic, but expects a seasonal slowdown in the next few weeks. A Realtor in South Carolina saw steady demand for mid-range homes. However, demand declined for entry level homes. Home prices rose across the board in Asheville, Charlotte, Columbia, and Raleigh. In Northern Virginia, Maryland, and Washington, D.C., larger price increases were reported for higher-end homes compared to other types of homes. Housing inventory varied according to contacts, with mild growth in Fairfax, Myrtle Beach, and Washington, D.C., while a broker in Charlotte reported a slight decline. Single family residential construction increased moderately since the last report in Raleigh and Charlotte; real estate contacts in Washington D.C. reported no change. In contrast, a Realtor in Myrtle Beach observed a decline in sales and construction. Multifamily new construction and leasing remained strong.
Realtors in Richmond, Virginia Beach, Raleigh, Columbia, and Charleston, South Carolina reported an uptick in commercial construction, while contacts in West Virginia and Washington, D.C. saw little change. A broker in Maryland said that medical construction had stopped. Grocery-anchored retail construction remained strong across the District. Commercial retail contacts reported solid leasing in Virginia Beach, Richmond, Columbia, and Charleston, South Carolina. Demand for retail space in Washington D.C. was flat. Industrial leasing demand weakened in West Virginia and Raleigh, but strengthened in Charleston, South Carolina. Office leasing was robust in Charlotte and Charleston, South Carolina. Most Realtors reported no change in vacancy rates, except in the Carolinas, where contacts in Charlotte, Raleigh, and Charleston noted a slight decrease across sub-markets. Reports on rents varied. Contacts said that commercial sales edged up in Raleigh, northern Virginia, Richmond, and Columbia. Commercial sale prices increased in Charleston, South Carolina and Virginia Beach.
Agriculture and Natural Resources
Replanting of crops due to extended winter weather was completed and wheat harvesting finished up in the Carolinas, according to an agriculture contact. Overall, fertilizer prices remained steady, while agricultural chemical prices and crop seed prices increased slightly. Some agribusiness owners reported lower commodity prices compared to last year. However, a sod company reported higher prices as planting and harvesting increased due to high demand and low inventory. Cotton prices stabilized, according to sources, while seafood prices rose.
Coal production leveled off since our last report, while prices rose due to lower inventories and falling year-over-year production. Natural gas output increased slightly in the past six weeks, while prices were unchanged.
Labor Markets
Employment increased at a moderate pace in recent weeks. A North Carolina staffing manager reported an increase in demand for manufacturing and warehouse semi-skilled workers, such as fork lift operators. Contacts noted growth in jobs across many sectors in the Asheville region and in the Research Triangle of North Carolina. In Virginia, skilled manufacturing and construction workers, welders, truck drivers, and engineers were in short supply. Although demand there increased for workers in construction, hospitality, and recreation, many jobs were only part time. In contrast, a contact at a staffing agency in Maryland said that demand weakened slightly in recent weeks. Reports on wages were also mixed, with little wage pressure in Maryland and Virginia, while wage increases were reported in Raleigh, Charlotte, and Asheville. According to our latest surveys, manufacturing employment rose at a slightly slower pace while average wage growth eased and the workweek lengthened. Employment in the service sector increased at a faster pace, and wages rose more quickly at non-retail service firms while wage growth slowed at retail establishments.