Beige Book Report: Richmond
January 14, 2015
The Fifth District economy expanded modestly since our previous report. Manufacturing activity improved with somewhat higher shipments and new orders. Retail sales grew moderately, while non-retail services revenues were little changed. Tourism was at or above normal seasonal levels. In the finance sector, loan demand rose slightly. Real estate activity increased at a mild pace. District agribusiness contacts reported a seasonal slowing, although business conditions are better than last year at this time. Coal production remained at low levels. Natural gas production increased moderately in recent weeks and prices decreased slightly. Labor demand rose since our previous report, led by growth in the Carolinas. According to our most recent surveys, manufacturing employment grew at a slightly faster pace while average wage growth slowed somewhat. In the service sector, the rate of hiring moderated from the strong pace of a month earlier and wages generally rose modestly. Price increases in raw materials and finished goods slowed in recent weeks. Retail prices also grew at a slower pace. In contrast, prices in the non-retail service sector rose slightly faster.
Manufacturing
Manufacturing activity advanced, but responses were more uneven than in the previous report. Shipments and new orders grew modestly, and expectations for the months ahead remained optimistic. Inventories of finished goods rose at a faster pace, and growth in inventories of raw materials slowed. A source in West Virginia reported that some smaller manufacturers that supply materials to the natural gas industry were seeing strong growth. A plastic resin and synthetic fiber manufacturer in South Carolina stated that his company was experiencing solid growth in sales across the company's various lines including aerospace, utilities, industrial materials, medical equipment, and telecommunications. On the other hand, a flooring manufacturer in West Virginia reported that production slowed in the fourth quarter and sales were below a year ago. Manufacturers of primary metals, transportation equipment, electrical equipment, and machinery reported a slight slowdown in business since the previous report, but they expected better conditions in the months ahead. Prices of raw materials and finished goods rose at a slightly slower pace in recent weeks.
Ports
Officials at the District's major ports reported strong growth in the volume of container traffic since the previous Beige Book. The volume of imported loaded containers exceeded the exported volume. According to one port official, imports of appliances, apparel, and footwear increased more quickly. Auto imports remained solid at another port, and imports of auto parts remained strong at all ports. Containerized grains and soybeans, as well as dry animal proteins and dried distiller grains (from production of ethanol), continued to lead exports. Exports of auto parts and plastic resins grew more rapidly in recent weeks. Previously reported railroad issues have eased somewhat. Port officials expressed concern that the strong dollar was affecting demand for U.S. exports.
Retail
Retail sales grew moderately since our previous report. The manager at a Virginia discount chain store said that holiday sales of electronics were strong, but that people were "still very conservative" in purchasing other goods. Another discounter commented that holiday business was slightly slower than typical. The manager at a store offering a lay-away plan reported that the program did well this year but that an unusually large amount of goods were returned to stock because customers were unable to complete sales. In West Virginia, a sporting goods store manager commented that online shopping had eroded his in-store sales. A central Virginia retail representative reported that advertising encouraging consumers to buy from local small retailers had boosted November sales revenues, but that many had a decline in sales in December. A wholesale foods executive commented that lower fuel prices reduced costs, helping to offset the effect of rising protein prices. Dealers stated that sales of autos and light trucks remained strong since the last report. Retail prices grew at a slower pace in recent weeks.
Services
Services firms' revenues were little changed since the previous Beige Book. Professional, scientific, and technical firms reported that demand was unchanged from previously reported levels; hospitals also reported flat demand. Trucking executives reported a normal seasonal surge in demand and continuing difficulty finding drivers. Prices in the service sector rose slightly faster.
Tourism was at or above normal seasonal levels in the weeks since our prior report. A Baltimore hotel manager said that advance bookings were at expected levels, while an executive at a resort in the North Carolina mountains reported that the entire fourth quarter was very strong and advance bookings for 2015 were ahead of last year's pace. In Virginia and South Carolina, bookings were up, and a South Carolina hotelier commented that people were spending more frequently on holiday parties. A contact on the outer banks of North Carolina stated that advance bookings were at typical levels, and current tourist activity was "humming along." Rental rates and hotel rates were generally unchanged.
Finance
Loan demand rose slightly since our most recent report. Residential mortgage demand was mostly unchanged in the District, although there was some increased demand in Virginia and North Carolina. A lender in Virginia said that the favorable rate environment had raised residential mortgage demand and generated some growth in refinance lending. Commercial and industrial lending was higher in the Carolinas, Virginia, and West Virginia. Lenders in North Carolina and Virginia said that pipelines are growing and that most activity is new and not taking away from other banks. Commercial lenders in South Carolina and Virginia noted an uptick in construction lending for multi-family projects. Demand for credit and capital investments also rose in South Carolina, while mergers and acquisitions picked up in West Virginia. In contrast, a lender in Maryland said that banks had a lot of money to lend but not enough demand. Competition remained strong among lenders, pulling rates slightly lower and tightening margins for banks. There were some reports of lower credit standards. Credit quality improved slightly according to contacts in Virginia and was unchanged elsewhere in the District.
Real Estate
District housing market activity continued to increase at a modest pace since the previous report. However, Realtors in some locations reported slower buyer traffic and a slight decrease in housing inventories. Average sale prices and average days on the market varied. A Maryland contact reported gradual improvement in home sales state-wide, and higher average home prices. A broker in Richmond stated that cash buyers remained very active; he also reported some recent higher-end home sales aided by lower interest rates. Single-family housing construction increased slightly in the Carolinas and Virginia since the previous report. A South Carolina residential builder stated that the high-end market is bouncing back, and that new home prices increased slightly. Multifamily construction and leasing remained active throughout the District.
Activity in commercial real estate markets increased modestly since the previous report. District Realtors reported slight increases in the amount of retail leasing activity, but slower leasing activity in the office sector. Growth in rental rates varied by region and submarket. Commercial sales increased and prices rose slightly. Sales of retail space improved in Richmond, Virginia Beach, and Washington. A broker in Virginia Beach commented that the retail sector continued to firm up, with retail rental rate growth and strengthening retail construction. A Charleston, West Virginia contact stated that office vacancy rates remained high and market activity was unchanged since the previous report. On the other hand, a Columbia, South Carolina broker said that the office sector has been "unreal" and noted an increase in rental rates. A Virginia condominium developer reported an increase in new construction. Additionally, a Realtor in Charlotte said that previously announced office construction projects "are coming out of the ground" and there is a lot of business relocation activity.
Agriculture and Natural Resources
District agribusiness contacts reported seasonal slowing since our previous Beige Book, although business conditions are better than last year at this time. Several farmers stated that planting and harvesting were finished for the year, although harvesting completion dates were later than usual. Farmers in South Carolina and Virginia reported no change in input prices in the past six weeks and said that output prices were generally unchanged.
Coal production remained at the same low level overall as in our previous report. A contact stated that West Virginia coal production levels are down slightly year-over-year, except in the northern part of the state, where production increased modestly in the last six weeks. Coal prices are unchanged since our last report. Natural gas production increased moderately in recent weeks, and prices decreased slightly.
Labor Markets
Labor demand rose since our previous report, led by growth in the Carolinas. Reports from Asheville and Raleigh, North Carolina were particularly strong, with new hiring focused in software, professional and business services, manufacturing, and hospitality. Modest increases in labor demand were reported in Maryland and West Virginia, mainly for cybersecurity experts in Maryland and for workers in manufacturing and natural gas in West Virginia. Demand for labor in Virginia was little changed outside of seasonal increases. Contacts throughout the District continued to cite difficulties finding skilled workers in manufacturing, health care, IT, truck driving, and hospitality (especially in the culinary field). On balance, wage pressures were minimal, with a few industry-specific exceptions. According to our most recent surveys, manufacturing employment grew at a slightly faster pace while average wage growth slowed somewhat. In the service sector, the rate of hiring moderated from the strong pace of a month earlier. Average wages in the service sector generally rose modestly.