Beige Book Report: Richmond
December 2, 2015
Fifth District economic conditions strengthened modestly since our previous report. Manufacturing grew marginally, on balance. Retail sales were mixed, and other services firms reported little change in activity. Tourism increased robustly in recent weeks. Household and business loan demand increased modestly, and residential and commercial real estate markets continued to improve. Labor demand also strengthened. District agribusiness softened, and severe flooding in South Carolina during early October resulted in delayed harvesting and reduced crop yields. According to our most recent survey, prices of raw materials rose more rapidly in recent weeks, and prices of finished goods increased at a modest pace. Retail price increases slowed, while prices at other services firms rose at a moderately faster rate. Average manufacturing wages edged up. Service sector wages rose at a modest pace, with particularly strong growth in retail wages.
Manufacturing
On balance, manufacturing grew modestly since the previous report. Producers reported mild growth in shipments and the volume of new orders. Food manufacturers located in Virginia noted an improvement in overall conditions with increased new orders. They reported a slight decrease in egg prices, but noted that other prices remained elevated. A South Carolina box manufacturer said that shipments and new orders were up, despite early October flooding that slowed production for a week. Contacts in Maryland and Asheville, North Carolina reported mixed manufacturing conditions, with growth occurring primarily in larger firms. In contrast, overall demand and new orders declined for a Virginia furniture manufacturer and a North Carolina textile company. Executives in fabricated metal, transportation, chemical, and textile producing industries reported softer global demand, resulting in falling exports. According to our most recent survey, prices of raw materials rose more rapidly in recent weeks, and prices of finished goods increased at a modest pace.
Ports
Port activity increased since the previous Beige Book, with much of the growth attributed to stronger imports. In fact, imported container volumes continued to exceed last year's records at major ports in the District. Inbound shipments of light vehicles remained strong. In addition, import volumes rose for salt and aluminum. Imports of agricultural equipment softened, however. While imports of commodity containers dropped slightly in recent weeks at one port, the volume of retail containers at that port rose. Although exports of metallurgical coal rose since the last report, exports overall continued to weaken, which port officials primarily attributed to the stronger dollar. One official commented that, outside of weather-related issues earlier in 2015, the drop in exports in the last few weeks was the biggest decline this year.
Retail
Recent reports on retail sales results were mixed. Strength in light vehicle sales persisted, according to dealers, and a North Carolina building supply executive said that sales had grown more quickly in recent weeks. However, a Maryland supplier of construction materials commented that business was sluggish, and a South Carolina wholesaler of plumbing and HVAC supplies reported a decline in sales. A coastal South Carolina building supply merchant reported a drop in business as a result of the extreme flooding there. He said it would take some time for insurance companies to assess damage to homes and businesses but that his sales would pick up once people start rebuilding. Retail prices rose more slowly since the last report.
Services
Services-providing firms reported little change in activity since the previous Beige Book, with the exception of faster growth in telecommunications. Additionally, according to several District healthcare organizations, demand for services was mostly unchanged and at typical levels for this time of year. Prices at services firms rose at a moderately faster rate.
Tourism increased robustly in recent weeks. An hotelier in the mountains of North Carolina commented that autumn bookings were at record levels and expectations are that the hotel will be sold out during the holidays. Several new hotels are being built in various areas of the state, and a Charlotte executive noted that occupancy at existing hotels has been at record levels. Additionally, a source in the Virginia Beach area said that hotel bookings have been strong and that several new hotels are planned for that region. An executive on the outer banks of North Carolina said that the record floods in South Carolina did not affect local tourism. Tourist activity in the nation's capital was little changed, on balance, despite several Veterans' Day events. Districtwide, contacts reported little or no change in room rates or rental prices.
Finance
Since our previous Beige Book, lending activity picked up modestly in the District. Residential mortgage demand was generally reported as steady to increasing. A banker in Maryland, however, said that most of the demand came from refinancing loans and that the pipeline of mortgage activity has softened slightly. A banker in West Virginia said that retail loan demand was steady, particularly for home equity lines of credit and auto loans. Demand for commercial real estate loans also rose modestly in recent weeks throughout the District. A Maryland banker reported an increase in merger and acquisition activity but said that private equity was playing a major role in financing. According to a banker in Baltimore, highly-qualified borrowers still have access to credit but may be paying marginally higher rates. Credit quality remained high in West Virginia. Banking contacts in Maryland reported that there were more lenders than borrowers, leading to intense competition. Several contacts across the District mentioned that increased competition had led to some loosening of standards.
Real Estate
Residential real estate activity grew at a moderate pace since the previous report, and average sale prices increased slightly. Days on the market decreased across the District, while inventories remained low and in some cases declined. A broker in Washington, D.C. reported an increase in home sales, especially for homes priced around $800,000, with a continuing trend of multiple bidders pushing sales prices above list. A contact in Hampton Roads, Virginia reported growth in home sales including more sales in new construction. Additionally, a Baltimore builder saw pockets of increased activity, with the million-plus range growing in some areas. A Realtor in Charlotte stated that sales increased modestly, inventory levels decreased, and prices continued to gain traction. In Richmond, new homes sales continued to do very well, although buyer traffic was said to be slow for this time of the year. A Raleigh, North Carolina source stated that buyer traffic decreased and inventory was sluggish. Single family home construction was reported as modest across the District. Multifamily leasing and construction remained strong, although some contacts reported that the pace of growth had moderated in recent weeks.
Commercial real estate activity increased moderately. Rental rates rose slightly, while vacancy rates varied by submarket and region. Brokers in Charlotte stated that leasing activity was steady for all sizes of space. One broker noted healthy industrial activity and higher rental rates. A real estate agent in Columbia, South Carolina reported strong market activity especially post-flood. Retail leasing activity and land sales were very strong. The industrial market was active with increased interest in the Columbia and Charleston areas, while office leasing was slow. A Baltimore broker reported strong demand for grocery space, with continued new construction. A contact in Raleigh commented that larger medical and office space users were undertaking new construction and expanding existing spaces. Real estate activity increased in Richmond, with higher rental rates for new construction. Commercial real estate remained sluggish in Charleston, West Virginia. Commercial construction increased in Richmond, Charlotte and Charleston, South Carolina and was unchanged in other locations.
Agriculture and Natural Resources
Agribusiness softened since the last report. South Carolina farmers said conditions deteriorated due to the flooding in early October and recent wet weather, resulting in delayed harvesting of soybeans, peanuts, cotton, and vegetables, as well as lower crop yields. One farmer stated that the wet weather had caused him catastrophic crop losses. He said the ground was too wet to harvest and they were in salvage mode with crops not yet harvested. Additionally, a sod grower in South Carolina reported late harvesting and a drop in sales since the last report. A firm in North Carolina also reported delayed harvesting and lower yields. Virginia growers reported good hay quality and production but expressed concerns that recent rains may have damaged some crops still in the ground. Prices received for cotton and cattle decreased slightly since the last report, and some farmers reported a slight increase in input prices.
Natural gas production increased since our previous report, but sources said additional drilling is on hold due to oversupply. Appalachian coal production was unchanged in the north, and decreased slightly in the south since the previous report. Natural gas prices continued to decline, while coal prices remained stable.
Labor
Labor markets strengthened moderately across most of the District since our previous report. A staffing agent in Maryland noted a stronger-than-usual seasonal pick-up in demand across all sectors. Sources reported greater demand for high-end IT talent, skilled tradespeople, managers and supervisors, and construction workers. Several contacts reported that builders were struggling to find framers and welders to fill open positions. Similar difficulties were reported for accountants, manufacturers, IT consultants, engineers, truck drivers, mechanics, and bankers. An executive said that IT companies only wanted people with five or more years of experience, leading to multiple offers for qualified candidates. Wage pressures varied by region and occupation. For example, a South Carolina executive saw wage pressures for construction and hospitality workers, while a Maryland source cited increased wage pressure for construction workers, project managers, drivers, and HVAC technicians. According to our most recent surveys, employment softened at manufacturing firms but rose modestly at services firms. Average wage growth edged up slightly at manufacturing firms and rose at a modest pace in the service sector, with particularly strong growth in retail wages.