Beige Book Report: Richmond
March 4, 2015
On balance, the Fifth District economy grew at a slower pace since the previous Beige Book. District manufacturing activity weakened, with shipments and new orders flattening. Retail sales growth slowed. Revenues in the non-retail service sector grew more rapidly, and tourism was at normal seasonal levels. In finance, both consumer and commercial lending increased since the previous report. Residential real estate activity expanded moderately; activity in commercial real estate markets increased at a modest pace. Agribusinesses experienced seasonal slowing. Coal production was unchanged. Production of natural gas was also unchanged, although levels were above those of a year ago. Natural gas prices declined in recent weeks. Demand for labor generally rose.
According to our most recent surveys, manufacturing employment grew modestly and average wages in the sector increased more quickly since the previous Beige Book. In the service sector, hiring was little changed and average wages rose more rapidly. Service sector prices and manufacturers' prices paid and prices received climbed more slowly in recent weeks.
Manufacturing
District manufacturing growth stalled since the previous report, with shipments and new orders flattening since the start of the year. Inventories of raw materials and finished goods rose moderately, but more slowly than in the previous report. A producer of dental equipment commented that lower patient counts had resulted in reduced sales of his products per doctor. Also, a manufacturer of sealing devices said that his company was seeing a general drop in sales. A producer of packaging materials reported a slight decline in production at his plant, and an auto parts manufacturer reported slower revenue growth. In contrast, product demand had risen for a producer of heavy equipment parts, and business was good for a food processor. Manufacturers were upbeat about business prospects for the months ahead. An executive at an electrical instruments firm in Virginia said that shipments and new orders were unchanged, but that his company had recently increased capital spending. A North Carolina textile manufacturer reported plans to increase capacity this year. An executive whose firm fabricates heavy construction products used for infrastructure said shipments were up recently. He stated that the company had increased capital spending over the past year and that he was expecting solid business growth again this year. A wood products manufacturer also reported stronger sales. Manufacturers' prices paid and prices received rose at a slower pace in recent weeks, according to contacts.
Ports
District port activity remained strong since the previous Beige Book. Port officials continued to report high volumes of container traffic, particularly for grain exports and imports of retail products. Exports of petroleum products rose sharply at one port. Auto imports softened slightly since our last report, but imports of "roll-on/roll-off" equipment rose. Dockworker contract issues at West Coast ports have resulted in increased inquiries and some ship diversions to East Coast ports.
Retail
Retail activity slowed in the weeks since our previous report. Sales of cars and light trucks were generally flat, according to dealers in Virginia, North Carolina, and South Carolina. A dealer in the eastern panhandle of West Virginia reported slightly slower sales. Grocery and convenience stores reported a decline in food sales in in the past month. According to the manager at a Virginia chain of discount stores, holiday and post-holiday sales were softer than expected, but still higher than a year ago. Several small retailers in the Richmond area also reported good year-over-year growth in revenues. Retail price inflation slowed since our last report. A wholesaler of residential building materials reported supply price increases, which he expects to be able to pass through to his customers.
Services
Revenues at non-retail service firms strengthened since the previous Beige Book. Executives at telecommunications, accounting, and travel firms reported faster revenue growth in recent weeks. In addition, District hospital executives reported an uptick in demand, partly from flu outbreaks. Services prices rose at a slower pace since our previous report.
Tourism was generally at normal seasonal levels in recent weeks, with most contacts indicating a typical slowdown in activity for this time of year. However, a Charleston, South Carolina contact reported strong tourist activity. A contact on the outer banks of North Carolina said the weekend of Presidents' Day and Valentine's Day brought solid hotel bookings and rentals, with tourists attracted by off-season specials and several planned events for visitors. Hotel managers are expecting a greater-than-seasonal pick-up in the months ahead. A Maryland hotelier reported an increase in group and conference bookings for the six months ahead, and a Virginia hotel manager expects summer business to be very strong. A resort manager in West Virginia reported strong growth in current bookings and in sales of passes for the remainder of this season and next winter. Hotels and resorts reported no change in rates.
Finance
Loan demand increased slightly since the previous Beige Book. Residential mortgage demand rose in Virginia and West Virginia, especially for refinancing. According to a Virginia banker, consumer lending increased as customers financed home improvement projects, cars, and luxury goods like boats. Commercial and industrial lending increased in Maryland, South Carolina, and Richmond, Virginia. In West Virginia, a banker reported that commercial lending rose in some sectors but was not robust overall. Two community bankers, one in North Carolina and one in Virginia, said that commercial loan demand softened in recent weeks. Deposits increased, according to bankers in North Carolina, Virginia, and West Virginia. Throughout the District, mortgage interest rates were reported to be slightly lower. Several contacts also reported relaxed credit standards. An executive in Maryland said that large banks were easing underwriting standards, and a Virginia banker noted that increased competition has led to some lowering of underwriting standards among community banks as well. A number of contacts throughout the District said credit quality was unchanged, despite an apparent easing in standards.
Real Estate
Residential real estate activity increased moderately in recent weeks. Realtors in Virginia and North Carolina reported increased sales, especially for higher end homes in North Carolina. Buyer traffic picked up in several locations, which a Virginia Realtor attributed to lower interest rates. In contrast, a West Virginia contact said first-time home buyers are hesitant because closing costs and fees have gone up. Average days on the market varied by location and sales prices were generally reported as flat to rising slightly. Inventories decreased in Washington, D.C., Northern Virginia, and Charlotte, North Carolina. In Northern Virginia, custom home builders were looking for building lots. A North Carolina Realtor said that land availability was an issue.
Since our last Beige Book, activity in commercial real estate markets increased at a modest pace. Realtors in Maryland, North Carolina, South Carolina, and Virginia reported a moderate increase in retail leasing, especially for smaller spaces and grocery stores. Office space leasing was unchanged according to contacts in North Carolina and Virginia. However office leasing picked up Charleston, West Virginia, and a real estate contact in the Wilmington, North Carolina area said that class A and class B office space was being absorbed at a faster pace. He also said that the market for industrial space had improved. A South Carolina Realtor reported that the office sector slowed slightly in Charleston due to lack of available space and the industrial market is growing even though much of the inventory is functionally obsolete. Office and industrial vacancy rates declined in other areas of South Carolina, but were unchanged elsewhere. Several contacts throughout the District reported new construction projects, especially for supermarkets, groceries and grocery-anchored shopping centers, medical centers, and apartment buildings.
Agriculture and Natural Resources
Since our previous Beige Book, agribusiness contacts reported typical seasonal slowdowns, but business conditions were slightly stronger than at this time last year. Additionally, a farmer in Virginia said that the spring outlook was "really good." Contacts in South Carolina and Virginia reported planting and harvesting of sod, shrubs, and trees, although adverse weather conditions reduced the number of days available to do so. Input prices were reported as mostly stable in recent weeks, while sod prices rose slightly. A farmer in South Carolina expressed concern over low commodity prices and difficulty navigating recent insurance legislation.
Coal production was unchanged overall since our previous report. In central West Virginia, production decreased marginally year over year; however, production rose slightly in the northern part of the state. Coal prices declined since the prior Beige Book. Production of natural gas was unchanged, but levels were above those of a year ago. Natural gas prices continued to decline modestly in recent weeks.
Labor Markets
Reports on labor demand were mostly positive since our previous Beige Book. Contacts across the District reported the recent hiring of engineers, salespeople, production workers, marketers, and retail workers. Demand for employees rose in construction, hospitality, manufacturing, IT, grocery, transportation, and management. An executive said that demand had recently increased for part-time workers but was basically flat for full time employees. Throughout the District, several industries reported continued difficulty finding both unskilled and skilled labor. An office staffing executive in Charleston, South Carolina remarked that a shortage of quality candidates was leading to multiple job offers and some upward wage pressure. Similarly, the shortage of truck drivers was pushing up wages, according to one report. According to our most recent surveys, manufacturing employment growth has been modest and average wages in the sector have risen more quickly since the previous Beige Book. In the service sector, hiring was little changed, although average wages rose more rapidly.