September 3, 2014
The Fifth District economy strengthened further in recent weeks. Manufacturing advanced moderately as shipments and new orders accelerated, and executives were upbeat about further improvement in business conditions. Retail sales grew moderately, although shoppers remained conservative in their spending. At non-retail services firms, the pace of revenue growth was modest. Tourism strengthened, with an increase in group bookings. Lending volumes rose, with stronger demand for mortgage loans, and competition among lenders was stiff. Commercial real estate lending increased in several states, although there were few reports of new construction. There were some reports of upward pressure on interest rates. Residential real estate sales improved modestly, although inventory and prices were little changed. Commercial real estate activity generally strengthened, with mixed reports on vacancy rates. Rental rates were little changed in most locations, while commercial real estate sales prices varied across the District. In agriculture, some crop prices decreased, while input prices were unchanged. Planting and harvesting continued on schedule. In energy markets, coal production was unchanged and prices declined. Demand for both temporary and permanent employees rose slightly in recent weeks. Wage growth slowed in the manufacturing and service sectors, according to our most recent surveys. Prices of manufactured finished goods and raw materials grew at a slower rate, and prices in the service sector, including retail, moved up more rapidly.
Manufacturing
Manufacturing activity improved moderately in recent weeks. According to our latest survey, shipments and new orders grew at a faster rate and inventories of finished goods and raw materials rose at about the same pace as in our last report. Several North Carolina manufacturers reported steady order volumes in recent weeks, while two Virginia producers stated that shipments and new orders increased slightly. A manufacturer of electrical products located in South Carolina reported that sales had recently increased and he was upbeat about the future. Additionally, an executive at a pipe manufacturing facility in Maryland said that orders and shipments were up slightly from the previous month. Several manufacturers reported greater optimism about future business conditions. According to most contacts prices of raw materials and finished goods rose at a slower pace. In contrast, an executive at a Carolinas packaging corporation stated that input prices decreased, and output prices remained stable.
Ports
Port activity strengthened further since our last report. Volume and traffic through District ports were considerably greater year over year, with double-digit gains in imports. Some of the increase was attributed to diversions from the West Coast during labor negotiations. In addition, the peak import season appears to have shifted earlier this year. Consumer goods such as apparel, auto parts, and plastic products were import leaders. Furniture imports were flat according to one source. A port official noted that ship capacity has become very tight, driving up prices for smaller importers. Export leaders were soybeans, grains, corn, lumber, forest products, and auto parts, and for one port, cars.
Retail
Retail sales grew moderately faster in recent weeks despite generally restrained spending by consumers. A representative of retailers in central Virginia commented that consumers seemed to be thinking, "It's nice, but is it necessary?" The manager of a discount store at the Virginia shore reported flat sales in recent weeks, and a West Virginia grocer said his market was soft. Further, a building supply executive said that consumers were less optimistic than a month ago. In contrast, a South Carolina chain grocer stated that sales had increased and that he was remodeling some of his stores. Most auto dealers reported stronger sales growth in recent weeks, although a couple reported a slightly slower pace. A West Virginia dealer attributed his softer sales to layoffs of coal workers in his area. Retail prices increased more rapidly since our last report.
Services
Revenues at non-retail services firms rose modestly in the last four weeks. An executive at a financial services firm in central Virginia commented that his clients were "somewhat sanguine about prospects," and an accountant at a business-to-business firm reported more new contracts. In contrast, a CFO at a healthcare organization said that demand for elective services remained soft, and resources have been managed to match the volume. In trucking, an executive reported that business was steady at typical levels, with some upward movement in contract and spot market pricing. He said that his firm was seeing a continued shift toward more "dedicated" agreements, in which customers were locking in rates for future shipping. Prices in the service sector rose slightly faster compared to a few weeks ago.
District tourism strengthened during July and August, particularly group bookings for business and reunion events. A Baltimore hotelier said autumn sporting events were driving advance bookings. In Virginia Beach, transient bookings softened, while group reservations increased for family retreats, association events, and some military events. Hotel bookings were also strong at resorts in the mountainous areas of the District, where a contact reported a very strong start to his fiscal year, owing in part to well-attended local events. Some room rate increases were reported.
Finance
Reports on loan volumes were mostly positive in recent weeks. Demand for residential mortgages strengthened somewhat. Firms in South Carolina and West Virginia reported increased mortgage demand, and a North Carolina lender stated that loan activity had improved. In contrast, a banker in central Virginia reported a slight decrease in mortgage demand over the last few weeks. Refinance lending was unchanged in Virginia and increased slightly in West Virginia. Demand for auto loans strengthened in West Virginia. Financial contacts in Maryland, North Carolina, and South Carolina reported that commercial lending was up. Additionally, loan volumes increased in Virginia, where demand was buoyed by some new construction projects in Northern Virginia and Richmond.
According to several bankers, competition for loans remained stiff. For example, a West Virginia banker characterized business lending in the state as originating more from a "take away game" than from new loans. Additionally, an auto dealer in Maryland remarked that competition was strong for consumer credit, especially for buyers with high credit scores. Another Maryland banker said that used car financing tightened slightly but was still available and affordable. Some slight upward pressure on interest rates was reported in Virginia and West Virginia. Lastly, credit standards were largely unchanged with the exception of Virginia, where some terms were relaxed.
Real Estate
District housing markets improved modestly since our last report, particularly in August. A Charlotte agent stated that closed sales and pending sales were up year over year, while a Northern Virginia Realtor reported above-average buyer traffic. A broker in Washington D.C. said that summer sales had picked up slightly from the slump caused by an unusually harsh winter. District-wide, home prices were generally flat and average days on the market appeared little changed in recent weeks, with higher-end homes continuing to sell more quickly than homes at other price points. Existing home inventories were mostly flat, although there were scattered reports of more homes coming onto the market. A Northern Virginia broker reported an increase in absorption of single-family inventories. Contacts indicated that they saw no change in the level of multi-family construction.
Commercial real estate activity strengthened moderately over the past several weeks. Commercial brokers in many areas of Virginia and South Carolina reported steady leasing activity, while Realtors in Charlotte and Charleston, West Virginia said leasing slowed; a contact in Roanoke indicated no change. Vacancy rates decreased according to Realtors in Richmond and Charleston, South Carolina, while contacts in Virginia Beach, Raleigh, Charlotte, and Roanoke stated that vacancy rates were unchanged. Realtors in parts of Virginia, West Virginia, and North Carolina reported that rents stabilized, and landlords were staying close to list prices on rentals, with fewer concessions and incentives. A slight uptick in rents was reported in Charleston, South Carolina. Comments on the supply of Class A office space were mixed. Brokers in Virginia Beach, Raleigh, and Charlotte reported an increase in commercial sales; however commercial sales prices varied across the District. The amount of construction anchored by grocery stores and restaurants increased in Richmond and Virginia Beach, and a source reported additional distribution center construction in Charlotte.
Agriculture and Natural Resources
Prices received by farmers dropped for some crops since our last report. For example, cotton prices decreased in the last six weeks and corn prices fell year over year. However, farmers reported no change in input prices in recent weeks. A Virginia producer reported completion of summer soybean planting and barley harvesting, while corn harvesting has begun in South Carolina. A sod farmer commented that he expects high demand and tight supply to end soon.
Coal production was unchanged since our last report, and exports of metallurgical and steam coal weakened. In addition, coal prices declined modestly in the past six weeks.
Labor Markets
The demand for workers rose slightly in recent weeks. In Maryland, contacts from the manufacturing, financial services, technology, and construction industries indicated increases in hiring, including some previously outsourced positions. A source in the District of Columbia stated that job growth continued, but at a slightly slower pace than in prior weeks. A community developer in North Carolina reported some staff growth and a high volume of applications for open positions. A South Carolina staffing firm representative noted an increase in hiring, including for temporary and temp-to-permanent jobs. However, some hardware merchants reported cutbacks in employee hours. A manufacturer in North Carolina said finding skilled labor remained a problem; however, an in-house training program was almost complete. Finally, some call centers in North Carolina had difficulty filling open positions. Wage reports were little changed on balance. According to our most recent surveys, manufacturing employment eased slightly and the average workweek lengthened; employment in the service sector strengthened. Average wage growth in the manufacturing and service sectors slowed, particularly wage growth in the retail sector.