Beige Book Report: Richmond
October 15, 2014
District economic conditions improved modestly since the previous report. Manufacturing advanced as shipments and new orders grew modestly, and inventories of finished goods and raw materials rose at a faster pace. Retail sales rose on pace with our last report, and the non-retail service sector expanded moderately. Tourism remained robust, and executives anticipate a strong holiday season. Business lending was unchanged on balance, and competition among bankers remained intense. Residential real estate activity increased in recent weeks, albeit at a somewhat slower pace, and reports on housing inventory were mixed. In agriculture, crop harvesting was on schedule, with price declines for some crops. In the energy sector, coal production and prices declined. More natural gas wells were brought online. On balance, District labor market reports indicated greater demand for workers. According to our latest surveys, manufacturing employment grew modestly and average wages rose slightly. Service-sector employment and wages increased at a moderate pace.
Manufacturing
Manufacturing activity increased in recent weeks, and expectations for the months ahead remained positive. Shipments and new orders grew modestly, and inventories of finished goods and raw materials rose at a faster pace relative to the previous report. A medical equipment manufacturer in North Carolina reported continued robust growth in new orders during the past six weeks and noted optimistic customer expectations for the months ahead. Additionally, a North Carolina electrical equipment manufacturer indicated that orders were up, and that his firm's increased capital spending had improved its shipment capability. A source said that in West Virginia, large manufacturing firms were hiring and investing, but that smaller manufacturers were not making capital investments. A Virginia food manufacturer reported that order volume was flat during the past month, but that he expected improvement during the holidays. However, an executive at a North Carolina textile manufacturer stated that revenues had slowed and retailers were holding back on new orders. Prices of raw materials and finished goods rose at a slightly faster pace since the last report.
Ports
District port officials reported that activity remained strong, suggesting that the peak import season, which had begun earlier than usual, was extended rather than just shifted forward. Loaded container traffic rose further for the major ports, primarily for imports; for other traffic as well, imports continued to outpace exports. Some of the softness in exports was attributed to rail and trucking issues, such as slowdowns from bottlenecks in rail service and truck driver shortages, which have delayed movement of inland cargo to the ports. Port contacts reported strong exports of autos, as well as of containerized grain and soybeans. Imports were led by commodities related to housing and retail, such as appliances, flooring, apparel, and footwear. According to one official, shipping lines have been consolidating and upgrading to larger ships.
Retail
Retail sales rose on pace with our last report. Big-ticket sales grew solidly, but somewhat more slowly relative to the previous report. Sales picked up for suppliers of retail and wholesale building materials. Wholesalers of heavy equipment also reported stronger sales. A car dealer near Washington, D.C. said he expects this year's sales to be about the same as the record sales of a year ago, with dealer incentives helping to move current-year models. According to a central Virginia retail representative, current strong sales of furniture, appliances, and electronics may signal that consumers have more cash, but early big-ticket sales may leave less for discretionary spending during the later weeks of the holiday season. In contrast, the manager at a discount store in the Hampton Roads area of Virginia said that there was almost no change in sales revenues during the past six weeks, but customers were already making holiday purchases using the store's lay-away program. A grocery store manager in southwestern Virginia commented that diminishing incomes for coal mining families, together with rising meat prices, have resulted in lower sales per purchase. Retail price increases slowed since the previous report.
Services
Firms in the non-retail service sector reported moderate growth in recent weeks. Technology firms, engineering companies, and a few smaller healthcare facilities reported stronger revenue growth. According to a North Carolina hospital source, it has been a good year for revenues, and that the hospital was able to make small price increases. In contrast, an executive at a large healthcare system said that cost reductions, including hiring restrictions, were continuing and that their projections were for reduced inpatient volumes. While executives at a couple of accounting firms in North Carolina reported a pick-up in business, a CPA at a Maryland accounting firm saw little change in requests for proposals. According to our most recent survey, non-retail price growth increased slightly.
The summer tourism season finished on a high note, meeting resort managers' expectations. Moreover, hoteliers in Baltimore and western North Carolina said that conventions and autumn leaf viewing were expected to support strong bookings throughout October. A source on North Carolina's Outer Banks reported a number of scheduled autumn events to draw tourists for several more weeks. In addition, many rentals were already booked for Thanksgiving, Christmas, and New Year's. Few rate changes were reported.
Finance
Reports on lending activity were mixed in recent weeks. Residential mortgage demand declined in West Virginia and southeastern Virginia but rose slightly in Maryland, North Carolina, and South Carolina. Refinance loan demand was mostly unchanged except in West Virginia and South Carolina, where demand declined. Business lending was unchanged on balance. A contact in Maryland remarked that small businesses were having difficulty getting credit while larger businesses had no problems. The level of lending in commercial and industrial real estate, which had been trending up, has flattened in the Carolinas and West Virginia. Bankers in several locations characterized competition as "fierce." A lender from South Carolina reported some easing of standards; however, a contact from Maryland cited a tightening of underwriting standards. There were no reports of changes to credit quality. Lastly, slight upward pressure on loan interest rates was reported in West Virginia.
Real Estate
District housing market activity grew at a somewhat slower pace since the previous report. Most brokers indicated that buyer traffic was steady, on a seasonally adjusted basis. Most Realtors reported a slight increase in home prices, although one South Carolina broker reported a small decrease in both single-family and condominium sale prices. A contact in the Hampton Roads region of Virginia stated that the number of condominium sales was only slightly higher; apartment rental activity remained steady. Inventory reports were mixed. Realtors in South Carolina, North Carolina, and Virginia saw seasonal declines in inventories, while District of Columbia and northern Virginia brokers reported steady or rising inventories. Days on the market varied by location. Average market times decreased for Realtors in Richmond, Charlotte, and Myrtle Beach, but contacts in the nation's capital and Greensboro reported no change; a northern Virginia Realtor noted a slight increase. Construction across the District increased slightly for custom homes. A South Carolina Realtor saw no new multifamily construction and a Virginia Beach broker stated that multifamily growth is slowing down because of overbuilding. In contrast, an agent in Asheville stated that multifamily construction has "ramped up."
Commercial real estate activity improved modestly over the past several weeks. A broker in Charlotte reported a gradual improvement in sales and leasing, with a moderately strong office market and modest activity in industrial and retail real estate. The office market in the Hampton Roads area of Virginia was mixed. A South Carolina source reported robust leasing in both office and retail, with a slower industrial market since the last report. Retail vacancy rates were lower in Baltimore and Virginia Beach, and unchanged in Charlotte and Richmond. Office vacancy rates varied across the District. A Charlotte broker reported increased industrial construction, along with a few speculative office projects. Multiple contacts noted rising commercial sales prices. Rental rates varied across regions and submarkets.
Agriculture and Natural Resources
Corn prices declined further over the past six weeks. Soybean prices also fell, while cotton prices were unchanged. A West Virginia farmer stated that grain prices declined after seven years of above-average prices. Farmers' input prices were unchanged in South Carolina and Virginia. A grower in South Carolina reported completion of corn harvesting and the start of peanut harvesting since the previous report. In West Virginia a farmer said that crop planting, reseeding, and harvesting were on schedule, and that his compost business had increased in the past six weeks.
Since the previous report, coal production and prices decreased in southern West Virginia and rose in the northern part of the state, according to a source. Natural gas production increased moderately; more West Virginia wells were brought online, and natural gas prices decreased slightly.
Labor Markets
On balance, demand for workers increased since the previous report. A textile and chemical manufacturer from Virginia reported new hiring, while a food producer transitioned several temporary employees into full-time positions. New hiring in tourism, manufacturing, and IT was noted in West Virginia; however, there were reports that WARN Act notices, indicating a planned mass layoff, had been issued in the coal industry. A central Virginia staffing agent noticed significantly stronger demand in recent weeks, especially for customer service, healthcare, and legal workers. A Maryland employment service provider said there were no notable changes in hiring, but suggested that the skills most in demand were for managers, supervisors, engineers, and IT professionals. Some transportation, banking and finance, hospitality, and retail industries continued to have difficulty finding workers. A few contacts reported wage pressures for drivers, construction workers, skilled engineers, managers, IT professionals, and bankers. According to our most recent surveys, manufacturing employment grew at a modest pace, the average workweek lengthened, and wages rose slightly; in the service sector, employment and wages increased at a moderate pace.