December 3, 2014
The Fifth District economy strengthened moderately since the previous report. Manufacturing activity increased at a slightly slower pace, as shipments and new orders grew modestly. Inventories of finished goods and raw materials rose more quickly in recent weeks. Retail sales rose moderately faster. Revenues at non-retail services firms also grew more rapidly. District tourism advanced on pace with the prior report. Residential mortgage demand increased in several locations as housing markets improved modestly. Commercial leasing varied by location; increases in retail rental rates were widespread. In agriculture, several farmers reported completion of crop harvests. Crop prices were lower than a year ago, but prices for poultry, cattle, and swine were higher. Coal production was unchanged since our previous report. Natural gas production increased moderately. Hiring was generally steady--and in some cases a little stronger--across the District. Average wages rose more quickly on net in the manufacturing and services sectors in recent weeks. Growth slowed in manufacturing prices paid and prices received. Service sector price growth remained constant.
Manufacturing
Manufacturing activity increased at a slightly slower pace in recent weeks. Shipments and new orders grew modestly, and expectations for the months ahead remained positive. Inventories of finished goods and raw materials rose at a faster pace compared to the previous report. A South Carolina packaging materials manufacturer reported a great month, with increased new orders and shipments. He also said that he had expanded his facility. A machinery manufacturer in North Carolina stated that business improved, with more new customers. An engineered plastics producer in North Carolina reported steady demand and new purchases of equipment. In contrast, an auto parts manufacturer in South Carolina said that demand growth varied across business segments. A Virginia components producer reported no change in new orders and shipments, although the company has increased capital expenditures in anticipation of improved business prospects. A North Carolina dental products manufacturer said new orders slowed recently and demand was below a year ago. Prices of raw materials and finished goods rose at a slightly slower pace since the preceding report.
Ports
Port activity increased in recent weeks, especially on the import side. Container traffic remained very strong. Exports of empty containers rose, a signal of the peak season, since the containers will be filled and returned. Exports of filled containers also increased robustly, primarily those loaded with grain, soybeans, animal feed products, and waste paper. Coal exports declined since the previous report. Imported container counts exceeded exports, led by increases in consumer products such as appliances, holiday décor, and apparel. Imports of construction machinery, machine and auto parts, and agricultural products also rose. Delays in rail transportation of goods to ports remained an issue.
Retail
Retail sales rose moderately faster since our previous report, with slightly stronger big-ticket sales. An executive at a large chain department store reported a modest decline in same-store sales coupled with double-digit growth in online sales. He stated that his company's recent capital expenditures have been devoted to improving its internet site and credit card security. A car dealer in the Baltimore region said new car sales were strong in October, and trade-ins increased his stock of used and rental cars. He also stated that manufacturers have sent out recall notices and replacement parts are ready, but that many consumers are not bringing their recalled cars in for repair. An executive at another large auto dealership reported a high number of recall fixes along with increased used car sales. A hardware chain executive said he has built up inventory in anticipation of another harsh winter. Grocery managers reported faster price growth; other retail prices continued to rise moderately.
Services
Non-retail services firms' revenues rose more quickly in recent weeks. Several trucking contacts reported faster revenue growth; one said that rail delays have resulted in some additional cargo being moved by trucks. An executive at another large trucking firm stated that current strength at his business is being driven by seasonal demand. At other services firms, a finance executive reported that his clients were feeling more comfortable with asset market investments, and a partner at a CPA firm reported some new business. Service-sector prices continued to rise modestly since our previous report.
Tourism and business travel remained on pace with our prior report, with particular strength in the Charlotte and Research Triangle regions of North Carolina and North Charleston, South Carolina. A source on the North Carolina outer banks reported that Thanksgiving week bookings are solid, and a Charleston, South Carolina restaurant executive said the local hospitality industry is thriving. Occupancy and room rates continued to rise in the Carolinas. A western Virginia ski resort manager reported that the recent sharp temperature drop allowed early snow-making, bringing a spike in bookings. He added that group bookings had nearly filled rooms for the Christmas season.
Finance
Lending conditions have improved somewhat since our previous report. Residential mortgage demand increased in Maryland, central South Carolina, and West Virginia, but was was little changed in Virginia and southeastern South Carolina. In North Carolina, reports varied: One lender said mortgage lending declined but another said loan demand was strong, especially for new construction. In Maryland and West Virginia, contacts reported that increased competition had led to aggressive mortgage terms and lower loan yields for banks. Deposits increased in North Carolina and Virginia. In addition, auto and consumer credit borrowing rose in North Carolina. A South Carolina contact said first-time homebuyers were finding it difficult to get financing as a result of the qualified mortgage rule. No changes to credit standards or credit quality were reported. Business lending rose in North Carolina, particularly for commercial real estate and business mergers and acquisitions. Commercial real estate lending also rose in Maryland and South Carolina. Mortgage interest rates declined slightly according to bankers in Virginia and West Virginia and were unchanged elsewhere in the District.
Real Estate
District housing market activity increased modestly on balance since the previous report. Realtors continued to report steady levels of buyer traffic with slight increases in sale prices. Most brokers reported low levels of housing inventories, although contacts in Northern Virginia and the District of Columbia had slight increases. Average days on the market decreased in central Virginia and in the District of Columbia, but increased slightly in the Carolinas and Northern Virginia. A Northern Virginia Realtor reported greater movement in the $200,000 to $900,000 price range, but had fewer buyers for homes priced above $1 million, and said condo sales were stagnant. A contact in South Carolina reported tepid condo sales and steady demand for single-family homes priced below $250,000. Realtors reported no change in new home construction. Multifamily leasing was strong in Charlotte and Baltimore.
Commercial real estate activity increased moderately in recent weeks. Brokers reported that commercial sale prices increased slightly, and that sales activity was strong in Richmond, Baltimore, and Charlotte. Multiple Virginia contacts reported an increase in retail construction. Brokers in Baltimore and Richmond said medical construction increased recently. A contact in Columbia, South Carolina reported a strong market for leasing of manufacturing plants and storage and distribution warehouses. A Realtor in Charleston, West Virginia said available Class A and Class B office space had increased in an already sluggish office market. In contrast, a Richmond broker described less availability of Class A office space. There were several reports of rising retail rental rates; growth in other rental rates varied by region and submarket.
Agriculture and Natural Resources
District agribusiness conditions were reported as stable. A grower in South Carolina completed peanut harvesting, and one in West Virginia finished wheat and cover crop harvesting. Dry weather in eastern Virginia delayed tree harvests. A North Carolina contact reported higher year-over-year orders for Christmas trees from big-box stores. Soybean harvesting was half-completed in South Carolina and in West Virginia, where yields were above average. Demand for wood pellets increased. Farmers reported lower crop prices and higher poultry, cattle, and swine prices than a year ago. Input prices rose since the previous report. Some growers planned fewer equipment purchases relative to a year ago.
Coal production remained at the same levels as in our preceding report and prices were unchanged. Natural gas production increased moderately in recent weeks, and prices decreased slightly.
Labor Markets
Demand for workers picked up in the Carolinas but was little changed in Maryland and Virginia since the previous report. A staffing agency in North Carolina reported increased hiring of permanent workers across a broad base of industries. A South Carolina staffing agent reported increased direct hiring across a diverse set of industries, including engineering, manufacturing, financial services, and environmental sciences. In the Carolinas, temp hiring increased, and more clients converted temporary positions to permanent, reducing the pool of talented temporary workers. Contacts reported difficulty finding IT professionals, managers, and engineers, as well as manufacturing, transportation, and warehouse workers. Wages were stable except for a few occupations, such as computer programmers and truckers. However, a recruiting agency director in North Carolina said some sign-on bonuses and relocation assistance packages were being offered more frequently. According to our most recent surveys, manufacturing employment grew at a slightly slower rate while average wage growth increased marginally relative to the previous survey period; in the service sector, employment grew more rapidly and wages increased at a faster pace.