Beige Book Report: Richmond
October 14, 2015
Information gathered since the last Beige Book indicates that Fifth District economic growth moderated in recent weeks. Manufacturing activity was tepid, with mild growth in shipments and the volume of new orders. Retail sales growth slowed and activity at non-retail services firms varied. Consumer loan demand leveled off, while demand for commercial loans rose modestly. Real estate activity, both residential and commercial, grew at a moderate pace. Agribusiness revenue growth was modest and recent severe flooding damaged some crops. The demand for labor increased moderately. According to our most recent surveys, manufacturing employment rose slightly. In contrast, hiring slowed at non-retail service firms and declined at retail establishments. Average wage growth softened in the service sector, while manufacturing wages rose moderately and the average workweek shortened. Price increases slowed.
Manufacturing
Manufacturing reports were mixed since the last report. On balance, producers noted mild growth in shipments and the volume of new orders. Furniture manufacturers reported increased sales. A door manufacturer in North Carolina reported that demand was steady, but not strong. A manufacturer in North Carolina reported differing conditions across business segments. He stated that the textile business was very weak, except in non-wovens and crafts. Another textile manufacturer and a chemical producer said their firms' exports had weakened significantly in recent weeks. A Virginia food manufacturer reported steady, but overall unchanged business conditions. According to our most recent survey, prices of raw materials and prices of finished goods rose, although at a slower pace than during the previous report.
Ports
Exports softened year-over-year in recent weeks and imports strengthened, which port authorities attributed to the strong dollar. Inbound loaded container traffic grew rapidly since our last report, and departing vessels filled unused export space by removing stored empty containers from the ports. Apparel and footwear, appliances, furniture, and resins were among the strongest containerized imports. European demand for exports of farm and construction equipment declined. Additionally, Chinese restrictions reduced some grain and soybean exports. Exports of forest products, chemicals, and used cars slowed since our last report, while exports and imports of new vehicles rose.
Retail
Retail sales grew at a slower pace since the previous Beige Book. Department store managers reported stronger sales while grocery sales flattened. Sales growth improved according to several car and truck dealerships, but slowed unexpectedly at a large dealership near Washington, D.C. Sellers of construction materials reported sales growth. Retail prices rose modestly since the last report, and one retailer noted that prices had fallen on some items in his spring order.
Services
Activity at non-retail services firms was mixed in recent weeks. An executive at a national trucking firm headquartered in the District reported that demand was a little softer because their customers' inventory levels were high, but he expects a seasonal pick-up to begin in the next few weeks. Architects, construction site preparation specialists, and other construction-related firms reported better revenue growth. Demand for healthcare services was unchanged, remaining at high levels according to hospital administrators. Healthcare organizations reported higher supplier prices for pharmacy items. Prices received by services providers rose more slowly since the previous report.
Tourism strengthened moderately in recent weeks. Hotels and restaurants in Virginia, West Virginia, and the Carolinas reported an increase in bookings since our last report. An executive on the outer banks of North Carolina reported that bookings were stronger year-over-year at hotels and rental properties, and that the outlook is for a busy Thanksgiving weekend. However, at a hotel located near a military base, an executive reported flat to slightly slower bookings as a result of fewer government stays. Room rates and rental rates were reported to be unchanged, except in Charleston and Greenville, South Carolina, where hotel rates rose.
Finance
Loan demand improved slightly, on balance, since our previous Beige Book. According to a lender in Virginia, residential mortgage demand slowed slightly over the last few weeks, but was on par with the same time period last year. A South Carolina banker characterized mortgage demand as slow but steady. However, commercial loan demand rose modestly. A lender in South Carolina reported an increase in demand for commercial and industrial real estate loans, particularly in the Charleston area. A North Carolina lender echoed that overall commercial real estate demand had risen, but added that increased competition from other banks made loan growth difficult to achieve. Several bankers in other areas also said that competition remained high, putting downward pressure on margins. Credit standards loosened slightly, according to contacts in Maryland, Virginia, and South Carolina. A Maryland lender added that the loosening also applied to land developers. Credit quality was reported as unchanged at strong levels in Virginia, North Carolina, and South Carolina. The Virginia banker noted that delinquency rates improved in the last few weeks. There were no reports of changes to interest rates since our last report.
Real Estate
Residential real estate activity grew at a moderate pace since the previous report. Average sale prices increased slowly, and new construction prices were reportedly rising faster than resale prices. Days on the market varied. Home inventories remained low. A source indicated that the residential real estate market in the Frederick County region of Maryland was generally strong, with steady buyer traffic and an increase since the previous report in transactions on homes below $400,000. A Richmond real estate agent said that buyer traffic was very good, although inventory remains low for the market overall. A broker in northern Virginia reported increased demand in higher-end homes, along with higher closing prices. Single-family construction increased modestly since the previous report, with multiple reports of a slight uptick in speculative building. A contact in the Hendersonville, North Carolina area stated that custom home building is booming, particularly for high-end homes. Multifamily leasing and construction activity remained strong.
Commercial real estate activity increased moderately since the previous report. Rental rates rose slightly, while vacancy rates varied by submarket and region. A Realtor in Richmond, Virginia reported strong demand across all segments. A broker in Raleigh, North Carolina stated that office space is doing very well, with new businesses coming into the area. Office space tightened in Charlotte and speculative office construction rose. Short-term leasing of warehouse space spiked in the area of Columbia, South Carolina following record flooding there, with much of the space going to emergency assistance organizations that were bringing in supplies. A Realtor in Columbia, South Carolina described strong commercial development, particularly apartment construction. Another South Carolina agent reported solid retail, industrial, and office markets. He said rental rates increased in the office sector and flattened in the industrial sector. A real estate contact in Washington, D.C. reported "an explosion" of new restaurants and grocery stores. In contrast, Baltimore activity was reported to be flat. Commercial construction increased in Richmond, Charlotte, and Columbia, South Carolina, and was unchanged in other locations, according to sources.
Agriculture and Natural Resources
Agribusiness reported modest revenue growth in recent weeks. Corn harvesting was completed. However, farmers reported that dry conditions earlier in the season had result in low, and in some cases zero, corn crop yields. Cotton and peanut harvesting is underway. In early October, extended rainfall in South Carolina resulted in severe flooding in some areas. One peanut farmer said he expects much of his crop to be affected by mold as result of the flooding, and a sod farmer reported that he will have to replant a recently sown crop. Cotton prices were reported as decreasing since the last report. Farmers' input prices were unchanged.
Natural gas production was flat overall since our previous report. Appalachian coal production remained stable in in the north, but continued to decline in the south. Coal prices were unchanged.
Labor
Since the last Beige Book, the demand for labor has increased moderately, especially for customer service workers, skilled tradespeople, technicians, healthcare practitioners, government employees, engineers, IT professionals, truck drivers, and manufacturing workers. However a couple of executives at healthcare systems said they were only filling vacated positions and were managing for productivity improvement with existing staffing. A few staffing services agents noted more direct hiring. A contact in South Carolina said that temp to perm hiring picked up, and employees were being converted at a quicker pace. Difficulties finding qualified workers remained a challenge districtwide, and some employers were willing to hire workers who lacked the requisite skills, but had a strong work ethic and were capable of learning. A Virginia staffing agent described conditions as ‘a candidate's market' for qualified job-seekers. Reports on wages were varied. Wage pressures increased for workers in high demand, such as drivers, housekeepers, food servers, manufacturers, and construction workers. According to our most recent surveys, employment increased mildly in manufacturing, slowed at non-retail service firms, and declined at retail establishments. Wage increases slowed in the service sector, while manufacturing wages rose moderately and the average workweek shortened.