Beige Book Report: Richmond
September 2, 2015
The Fifth District economy grew moderately since the previous Beige Book. In manufacturing, shipments and the volume of new orders rose. Retailers reported stronger sales, and non-retail services firms saw faster growth in revenues. Demand for residential mortgage loans rose, while other consumer loan demand increased slightly. Competition among commercial lenders intensified. Residential real estate activity grew at a modest pace and commercial real estate activity increased moderately. Agribusiness strengthened slightly. In District energy markets, natural gas production and prices were unchanged since our last report, while coal production and prices declined further. Labor demand continued to rise, with increasing conversions of temporary positions to permanent employment. According to our most recent surveys, employment and wages rose at a quicker pace in the manufacturing and service sectors since the prior Beige Book. Prices of raw materials rose at a slower pace, while finished goods prices accelerated slightly. The pace of retail and non-retail price increases moved up modestly.
Manufacturing
Manufacturing activity increased moderately since our last report. Producers reported modest growth in shipments and in the volume of new orders, with pockets of strong growth in some product lines. A textile manufacturer reported that automotive-related production was very strong. Additionally, a dental products manufacturer commented that sales were strong and the volume of work remained steady, and a boat builder said sales had increased, specifically in the higher end line. A cement board producer stated that shipments had risen and he expected continued strength through the end of the year. In contrast, a variety of other manufacturers reported unchanged, but stable business conditions. Finally, a pipe producer said demand had declined in recent weeks. According to our most recent survey, prices of raw materials rose at a slower pace than during the previous report period, while prices of finished goods accelerated slightly.
Ports
Traffic through District ports remained robust since the previous Beige Book. Port officials reported that growth in imports exceeded export growth. Exporters of manufacturing components said that the strong dollar has made business difficult. Additionally, exports of farm and construction machinery slowed. Agricultural and automobile related exports strengthened at one port, but weakened at others. Grocery exports were generally strong. On the import side, automobile volumes rose above year-ago levels and imports of containerized products continued to break records, including apparel, housewares, furniture, and flooring, as well as machinery and auto parts. Port officials said that large amounts of cargo continued to move between the ports and the Midwest, particularly by truck. Efforts to boost productivity have stabilized port congestion despite rising volumes.
Retail
Retail sales rose sharply since our last report. Sales of building supplies increased, and auto dealers reported flat to higher sales. A car dealer in the Capital region said slower deliveries of new cars had left his inventory a little low, while customer traffic was bolstered by the opening of several new businesses nearby. In addition, a retailer of specialty auto parts reported stronger sales and a gas station convenience store owner attributed his growth to increased auto travel this summer. According to our latest survey, retail prices rose at a slightly faster pace since the prior reporting period.
Services
Revenues strengthened at non-retail services firms in recent weeks. Financial services firms, advertising agencies, and travel consultants reported faster growth. In addition, regional airports reported greater growth in revenues and enplanements. Trucking firms in the District reported stable growth, and one executive said that shipments strengthened in the second half of August. An electronic logging mandate that is set to go into effect in the fall is expected to adversely affect smaller trucking firms, and bring additional business to the larger firms that already are in compliance. Shippers have notified trucking executives that demand is expected to be high through the end of the calendar year. The pace of price increases at services firms edged up since the previous Beige Book.
Tourism continued its solid growth since the last report. A tourism executive on the outer banks of North Carolina said this has been an excellent year with bookings above year-ago levels. Seafood festivals, music events, and windsurfing regattas are scheduled to boost demand after peak summer months. A North Carolina hotelier said that transient bookings at area hotels had declined slightly year-over-year, but were offset by more military-related stays. Hotel rates and rental rates changed little in recent weeks.
Finance
Since our previous Beige Book, loan demand increased slightly in the Fifth District. Residential mortgage demand picked up in central Virginia, particularly for lower-priced homes. A North Carolina banker said loan growth increased only marginally, but more activity stemmed from organic growth rather than taking away business from competitors. Reports on commercial loan demand were mixed. A mortgage lender in Virginia noted an increase in commercial development lending. A contact from Washington, D.C. reported continued strength in multi-family construction but fewer projects that rely on federal government spending. A West Virginia banker said that commercial real estate loan demand was stable but tepid, and added that a lack of comps was depressing appraisal values. Competition intensified, according to several contacts throughout the District. A Maryland lender said that competition for commercial lending now included private equity and alternative financing companies, while a lender in Virginia said competition had increased for deposits from credit unions. Credit standards were largely unchanged, although some tightening was reported in West Virginia. Credit quality improved, according to a South Carolina banker; in contrast, a lender in West Virginia noted a slight decline due to a downturn in the state's energy sector. The only interest rate change reported was a marginal increase for commercial and auto loans in West Virginia.
Real Estate
District housing market activity grew at a modest pace since the previous report. Average sale prices were stable to slightly higher, and days on the market varied across markets. Home inventories remained low on balance. A Realtor in Washington, D.C. reported increased inventory in higher-end homes. A broker in Richmond, Virginia reported strong demand in the $400,000 to $600,000 range, while a contact in Greensboro, North Carolina said that the market was strongest for lower-priced homes. According to one report, single family homes in Spartanburg, South Carolina were selling rapidly. Additionally, a Realtor in Woodsboro, Maryland said that residential sales increased, with a seller's market in the lower price ranges and some instances of multiple bids. However, a broker in northern Virginia reported less urgency from buyers, and some price reductions. A Charleston, West Virginia source also noted a slowdown in the residential market in recent weeks. Reports on residential single family construction were mixed. Multifamily leasing and construction activity remained strong.
Commercial real estate activity increased moderately since the previous report. Vacancy rates varied by submarket and region, with scattered accounts of higher rental rates. A contact in North Carolina said landlord build-out contributions had increased, and noted more demand from retail discounters. A Realtor in Virginia Beach reported a slight uptick in the retail market, noting that class B locations were becoming more attractive due to an increase in Class A rental rates. A broker in Virginia Beach said that market activity had increased across the spectrum, and that office space below 5,000 square feet remained active, while demand for larger spaces was somewhat rare. Tight inventory for industrial space was said to be pushing up rental rates in the Carolinas, while a Baltimore broker reported more industrial warehouse vacancies. The grocery segment remained very active throughout the District. A contact in Charlotte, North Carolina described increased commercial activity, with more sales and new construction of office buildings. New retail construction increased in Virginia, while office construction decreased.
Agriculture and Natural Resources
Modestly stronger conditions in agriculture were reported in recent weeks. Corn harvesting was underway, although a grower in North Carolina said that some crop yields were low due to dry weather conditions earlier in the season. Agribusiness contacts reported that sod sales increased since the last report. Commodity prices remained low, while corn prices declined further. Input prices remained unchanged.
Natural gas production was unchanged overall since our previous report, while coal production declined slightly. Natural gas prices remained unchanged since last report, and coal prices declined slightly.
Labor
The demand for labor rose moderately since our previous report. A staffing agent in Virginia noted that almost all skill sets are in demand at this time. Demand for employees increased throughout the District in retail, distribution centers, customer service, IT, accounting, and financial services. Shortages were cited for specialized IT workers, skilled trade subcontractors, and blue collar workers. Demand for manufacturing workers also rose but at a slower pace since our last report. Temporary workers were being converted to permanent at a faster rate in recent weeks. Maryland and Virginia employers reported difficulty recruiting workers who could pass drug tests and background checks. According to our most recent surveys, employment rose moderately for services other than retail, and increased modestly for manufacturing firms. Wage pressures were generally stable or increasing but varied by location and occupation. Some health care providers were using sign-on bonuses to attract talent. Wages rose robustly in the service sector. Manufacturing wages increased moderately and the average workweek lengthened.