Beige Book Report: Richmond
June 3, 2015
The Fifth District economy grew at a measured pace since the previous report. Growth in manufacturing shipments and new orders leveled off, although expectations for the months ahead remained positive. Retail sales were also little changed on balance; however, revenues strengthened at non-retail services firms and tourism picked up. Loan demand increased moderately. Residential real estatebuyer traffic was steady and commercial real estate activity increased modestly. Agricultural conditions improved and planting moved ahead. Energy production was soft. The demand for labor increased modestly.
According to our most recent surveys, manufacturing and service sector hiring improved slightly in recent weeks, while average wages rose. Manufacturing prices paid accelerated slightly, while prices of finished goods rose more slowly. Retail prices grew moderately faster, and prices were little changed at non-retail services firms. Energy prices were flat to lower.
Manufacturing
Manufacturing activity remained tepid overall since our last report. Growth in shipments and new orders leveled off, although expectations for the months ahead remained positive. A furniture manufacturer in southern Virginia reported no change in shipments, but his volume of new orders rose due to strong demand from the annual furniture market. A manufacturer of dental products in North Carolina reported a vast improvement in sales since our previous report, partly due to new customer growth. Additionally, a North Carolina textile company reported that production for auto-related business was very good in the last month. A business contact said manufacturing activity in West Virginia was mixed, noting that shipments had increased for some steel, plastics, and rubber manufacturers, but remained flat for a fabricated metal producer and a chemical manufacturer. On the other hand, a Maryland pipe manufacturer stated that business was soft in the past month, with slower growth in new orders and shipments. An executive at a fabricated metal product company in South Carolina reported that sales decreased in recent weeks. According to our most recent survey,prices of raw materials rose at a somewhat faster pace, while price growth of finished goods slowed slightly.
Ports
Port officials reported stronger import volumes in the weeks since our last report, although exports have weakened. Container traffic continued to grow at a brisk pace. According to one port official, core exports, such as automotive components, remained solid but are not growing overall, owing at least in part to the strong dollar. However new business has increased in agricultural exports such as soybean meal and wheat being shipped to developing nations. Imports of roll-on, roll-off cargo are up slightly year-over-year at another port. District ports continued to get some West Coast diversions and overflow from congested ports.
Retail
Retail sales were little changed on balance since the previous Beige Book, with scattered reports of strength. On the positive side, the manager of a West Virginia sporting goods store said he had a good spring and recent efforts to control inventory had reduced year-over-year levels. However, he continued to face online competition from his suppliers. Sales of cars and light trucks remained robust. According to a dealer in the Washington beltway area, his firm has increased inventory and is hiring staff to keep up with the increase in demand. Prices in the retail sector rose moderately faster since the prior report.
Services
Revenues strengthened at non-retail services firms in the weeks since the previous report. Executives at healthcare systems said that demand for services remained strong. Revenues increased for professional, scientific, and technical firms, such as engineering and architect services. A partner in an accounting firm reported that demand for services remained constant at solid levels. Trucking firm executives reported only a slight seasonal uptick in demand. Services prices increased at a relatively steady pace.
Tourism picked up since the prior report. An hotelier in western North Carolina said tourism in his region "has been booming;" bookings were strong and reservations for the end of this season were also slightly ahead of a year ago. On the outer banks of North Carolina, bookings were solid, with numerous events planned. Moreover, several new, year-round businesses have opened. The manager of a resort hotel in western Virginia reported current bookings were seasonally flat while late summer bookings were solidly up year-over-year. A few contacts reported increased competition from new hotels. Room rates and rental rates increased modestly at a few locations.
Finance
Loan demand increased moderately since our previous Beige Book. Residential mortgage demand rose across much of the District, although a West Virginia lender said demand was flat. A central Virginia banker noted that his increased activity stemmed from existing home sales and lot closings. Demand for residential refinance loans slowed in Virginia and West Virginia. Reports on commercial lending were mixed. Construction and development lending picked up according to executives in Maryland, Virginia, and South Carolina, particularly for government, education, and medical facilities as well as church expansions. Commercial and industrial lending, however, was reported as flat in South Carolina and West Virginia. Regulatory burdens, especially for commercial lending, were cited by several contacts as damping growth prospects. Credit quality was widely reported as stable, except in West Virginia where quality declined slightly. Credit standards were also largely unchanged, although a Virginia lender said that conventional mortgage guidelines had relaxed somewhat. Interest rates were reported to be marginally lower in Maryland and Virginia, while upward rate pressure was reported in West Virginia.
Real Estate
District housing market activity increased at a moderate pace since the previous report. Realtors reported steady buyer traffic and a slight improvement in housing inventories. Average sale prices increased slightly in some markets while days on the market varied. A broker in Richmond stated that the spring market has been strong in certain areas and there are more new construction transactions. Additionally, a residential builder in Maryland reported that activity in recent weeks had been very good, with a solid number of sales and increased prices. A Realtor in Fredericksburg, Virginia reported strong demand for single-family townhomes and a contact in Richmond reported increased condo sales. Multifamily leasing and construction activity remained steady throughout the District, with reports of higher rental rates.
Commercial real estate market activity increased modestly since the previous report. Several Realtors reported that rental rates firmed up since our previous report. Vacancy rates decreased modestly in Washington D.C., Richmond, Baltimore, Charlotte, Hampton Roads, and Charleston, South Carolina. However, vacancy rates were mostly unchanged in Charleston, West Virginia and in Virginia Beach. Sales of retail space improved in Virginia Beach, weakened in Baltimore, and were unchanged in Washington D.C., with most of the activity in smaller spaces. A broker in Richmond reported that sales activity increased. Additionally, a contact in Charlotte stated that sales and sale prices rose since our previous report. A commercial real estate contact in Baltimore said that the market there has picked up; he noted that sales of office buildings increased downtown and that the medical office sector remained strong. A broker in Hampton Roads reported that condo construction and commercial sales have increased.
Agriculture and Natural Resources
Since our previous Beige Book, agriculture contacts reported improved business conditions. Farmers in South Carolina, North Carolina, and Virginia said that the previously wet conditions from the late spring improved, and in some cases reversed to dry conditions. A nursery executive in Virginia stated that the late arrival of spring weather had a small negative effect on planting timelines, but his six-month outlook is positive. Planting started for corn and soybeans, while hay harvesting has begun. Softwood and hardwood forestry products grew on trend. Low crop prices persisted for cotton, wheat, and soybeans, while corn prices continued to decline.
Natural gas production was unchanged since our previous report and prices declined. Coal production decreased, although the pace of decline slowed in northern West Virginia. Coal prices were unchanged.
Labor Markets
Since our previous Beige Book, the demand for labor increased modestly. In particular, demand picked up for accountants, administrative professionals, IT workers, nurses, supervisors and managers, and skilled tradespeople. Typical seasonal hiring in leisure and hospitality has begun, according to a staffer in Maryland. On the outer banks of North Carolina, demand for these workers exceeds supply. A staffing agent in South Carolina said that employers were making hiring decisions more quickly and converting temporary workers to permanent with shorter tryout periods. Conversely, employment declined in West Virginia's coal and gas industries. Throughout the District, contacts reported problems finding employees with both hard and soft skills. For example, manufacturers in Virginia and South Carolina said it was difficult to find programmers and machinists, while employers in Virginia and West Virginia struggled to find employees with a good work ethic. Slight upward wage pressures continued throughout the District, specifically for those positions in highest demand. A Virginia resort manager said that tightening labor markets have put upward pressure on hotel workers' wages; he plans to raise wages again this summer. According to our most recent surveys, hiring in manufacturing and the overall service sector strengthened slightly, while average wages in both sectors rose moderately.