Beige Book Report: Richmond
July 15, 2015
Economic conditions in the Fifth District strengthened moderately since the last Beige Book. Manufacturing activity increased, with a pickup in the volume of new orders and order backlogs. Retail sales strengthened, while non-retail revenues rose somewhat faster. Tourism moved into peak season with growth slightly above last year's seasonal increase. In finance, residential loan demand increased modestly since our previous report. Commercial loan demand strengthened moderately. In real estate markets, residential home sales improved. Commercial real estate leasing and purchasing also increased. Energy production was little changed overall. Labor demand increased for various categories of workers, and average wages moved higher.
According to our most recent surveys, prices of manufacturing raw materials and finished goods rose at a slightly faster pace. Retail price growth slowed from the previous moderate pace, and non-retail price growth remained modest. Industry contacts reported that agricultural prices declined and energy prices were unchanged.
Manufacturing
Manufacturing activity increased moderately since our last report. Contacts reported a general pickup in the volume of new orders and an increase in order backlogs; shipments flattened, however. Some metals manufacturers (primary and fabricated) in North Carolina and South Carolina noted an uptick in demand resulting from strength in commercial construction and industrial infrastructure development. Several food manufacturers reported a strong peak season with higher production. However, a Virginia food manufacturer reported a decline in production due to higher egg prices. In addition, a Maryland machine manufacturer stated that sales and order backlogs decreased in recent weeks, and a North Carolina gasket manufacturer reported a broad-based slowdown in the volume of new orders. A West Virginia fabricated metal manufacturer reported that order volume flattened since the previous report. According to our most recent survey, prices of raw materials and finished goods rose at a slightly faster pace.
Ports
Activity at District ports picked up in recent weeks, with port officials reporting record volumes of loaded container shipments. In addition, very high volumes of light vehicles were moving through the ports. Growth in imports increasingly outpaced growth in exports, and retailers have notified ports that they expect a strong peak season this year. Outgoing shipments of empty containers have risen sharply at one port, partly as a result of operational incentives. New construction at port locations rose, notably for manufacturing.
Retail
Retail sales growth strengthened since the prior Beige Book, with grocers, building materials suppliers, and home and garden merchants reporting an acceleration in sales. A Virginia discount store manager said total receipts were up slightly despite a decline in customer traffic. Sales of cars and light trucks varied, with larger dealers continuing to describe robust growth in sales. However a large motorcycle dealer said the peak season has started but sales have declined by double digits. According to our most recent survey, retail prices rose at a slower pace in recent weeks.
Services
Non-retail services firms reported moderately faster growth in revenues since our last report. National trucking firms located in the Fifth District had slightly faster growth, although some of the strength was attributed to gains in market share. Professional, scientific, and technical firms reported continued revenue strength. Executives at healthcare systems described steady to stronger demand. A financial services executive in Virginia stated that business was "slowly inching up," while a West Virginia CPA firm had no change in customer demand. Services prices continued to rise at a modest pace.
The peak season for tourist activity began on a slightly stronger note this year. Contacts in North Carolina representing the mountainous areas and the Outer Banks, said that bookings were up compared to a year ago as the summer season got underway. A similar report was shared by an executive at a resort in Virginia, who also noted particular strength in online advance bookings. The Outer Banks executive added that tourists were spending more money in local shops and restaurants, even though higher food costs have pushed up menu prices. The improvement was not universal, however. A hotel executive near a military base reported that demand had softened. There were few reports of room rate changes.
Finance
Loan demand strengthened since our previous Beige Book. On the residential side, a banker in North Carolina said that lending improved, but noted that an above-average portion of activity was coming from investors, causing home prices to rise. A lender in Maryland reported that loan growth was "healthy," although net interest margins were shrinking. Commercial loan demand increased moderately across most of the District. Lenders in North Carolina and Virginia reported greater demand and growing pipelines for commercial loans, but added that regulations and excessive paperwork were delaying loan closings. A lender in West Virginia, however, said that demand for commercial loans was tepid. Reports on credit standards were mixed. The West Virginia lender reported some tightening for commercial loans. He added that guarantees and historical relationships had little influence on underwriting decisions. Conversely, lenders in Maryland, Virginia, and North Carolina said that competition for loans was leading to aggressive pricing, loan structures, and covenant-type lending. Credit quality was largely reported as stable with some slight declines in rural areas. Deposit growth increased in Maryland (particularly for small businesses) and West Virginia. Interest rates moved slightly higher, according to contacts in North Carolina and West Virginia.
Real Estate
District housing market activity continued to increase at a moderate pace since the previous report. Realtors reported steady buyer traffic in the past six weeks, but expect a typical seasonal slowdown heading into the summer vacation months. Average sale prices rose slightly in several markets, while days on the market varied. Housing inventories remained low across the District. A broker in Greensboro, North Carolina stated that sales were very strong and he expects continued strength through August, but that inventory remains low. Additionally, a business contact in Charlotte, North Carolina reported strong demand for new homes, with short supply. A Realtor in Baltimore reported an active market for homes below $500,000, noting that properties in excellent condition sell quickly. Residential construction reports were mixed. Multifamily leasing and construction activity remained strong, with continued increases in rental rates.
Commercial real estate activity increased modestly overall since the previous report, with a pickup in activity in the industrial sector and reports of slower growth in the office sector. Vacancy rates and rental rates varied across submarket and region. A business contact in Baltimore reported increased demand for industrial space since the previous report, and a Columbia, South Carolina broker reported a very active class B warehouse market. A Realtor in Columbia, South Carolina reported a surge of retailers looking for land sites, noting accelerating land prices and limited supply. A Greensboro, North Carolina source said the office market was soft, with an abundant supply of class B and class A space. In contrast, a Columbia, South Carolina Realtor reported a shortage of office space. Brokers in the District of Columbia and in Maryland reported a slight increase in the demand for office space, and said that that concessions had tightened up somewhat. A Richmond broker said that sales are "rolling in" and there are a lot of properties under contract right now. An hotelier in western North Carolina stated that there were several new hotels under construction and in the pipeline in the mountains of North Carolina. A Realtor in the District of Columbia reported softer commercial sales since the previous report. Commercial construction increased slightly in Richmond; Asheville, North Carolina; and in Columbia, South Carolina.
Agriculture and Natural Resources
Agriculture contacts reported modestly stronger business conditions since our last report. Growers said that seasonal planting of corn, soybeans, and cotton is nearly over. A farmer in western Virginia reported large yields of hay and higher hay prices. Sales of his other agricultural products declined, however. A nursery executive in Virginia Beach stated that sales flattened seasonally. A farmer in North Carolina reported he had replanted crops that had been damaged by dry weather. However some farmers had to destroy crops due to extremely low yields, with insufficient time to replant. Since the previous report, commodity prices remained low, with the exception of hay prices. Input prices increased slightly.
Natural gas production was unchanged overall since our previous report, while prices declined slightly. Coal production continued to decline and prices were unchanged.
Labor
Since our previous report, the demand for labor increased moderately for many skill sets, including entry level, semi-skilled, and highly skilled. Shortages were reported for warehouse workers, forklift operators, construction workers, health care technicians, engineers, chefs, managers, biotech and IT professionals, and especially cybersecurity specialists. A staffing agent in Virginia noted difficulty finding warehouse workers and laborers who could pass background checks and drug tests. Temporary workers were becoming permanent employees at a slightly faster rate. An executive at an online agency stated that many job seekers were already employed and looking for a better, higher paying job. Wage increases were reported for some hospitality workers, architects, health care technicians, and textile workers. However, several sources said that merit-based bonuses and other benefits, rather than wage increases, were being used to compensate employees. According to our most recent surveys, employment in the service sector expanded at a slightly slower pace while manufacturing employment grew marginally faster; average wages rose for both service sector and manufacturing employees.