Beige Book Report: Richmond
January 13, 2016
Economic conditions strengthened modestly since the previous Beige Book report. Manufacturing expanded, with a mild increase in shipments and new orders. Revenues grew modestly faster at services firms, while retail sales softened ahead of the holidays. Sales of light vehicles remained robust in recent weeks. Tourism slowed seasonally overall. Residential and commercial loan demand was stable on balance. Commercial real estate activity increased moderately while residential real estate activity slowed seasonally. Agribusiness remained soft since the previous report. In energy markets, natural gas production increased and coal extraction continued to decrease. Labor demand strengthened moderately. Wages increased moderately in manufacturing and rose at a modest pace in the service sector. Prices of inputs and finished manufactured goods rose at a slightly faster pace in recent weeks. Retail prices rose more rapidly, while price increases slowed at other services firms.
Manufacturing
Manufacturing grew modestly since the previous report. Overall, producers reported a mild increase in shipments and the volume of new orders. Two North Carolina furniture manufacturers reported strong sales. Food producers and manufacturers of beverage and tobacco products also reported an increase in shipments compared to last year at this time. An automotive manufacturer in South Carolina reported strong demand for new orders in recent weeks and expected increased sales in the next six months. Additionally, an engine and transmission manufacturer in Charleston, West Virginia reported increased demand. A few Charleston, West Virginia plastics manufacturers reported steady business, and chemical production was unchanged. A couple of West Virginia metal manufacturers reported mixed conditions. In the Baltimore region, most large manufacturers reported stable new orders. In contrast, a manufacturer of industrial equipment located in South Carolina saw a slight decline in agricultural equipment orders. In addition, a paper manufacturer and a producer of heating and cooling parts reported a slowdown in business in recent weeks, and an electrical controls manufacturer reduced production because of the company's exposure to declining gas exploration. According to our most recent survey, prices of raw materials rose at a modest pace, and prices of finished goods rose at a slightly faster pace.
Ports
District port officials noted that vehicle imports remained strong since our last report. While containerized imports continued to grow, the peak season was short and muted, with volumes only slightly above a year ago. With the exception of a slight increase in containerized exports and auto exports at one port, overall District exports softened, which contacts attributed to a strong dollar. In addition, the extreme mid-autumn rain and flooding in South Carolina reduced the volume of some exported agricultural commodities such as logs and soybeans from that region. Officials noted that global freight rates continued to drop dramatically during recent weeks, but that upcoming consolidations among shipping lines are likely to adjust capacity.
Retail
District retailers reported that sales softened in recent weeks, particularly for apparel. Black Friday sales results were mixed, and small specialty shops continued to note lower sales due to competition from larger, online retailers. Even large department stores reported declines as a result of increased online shopping and unseasonably warm weather. Sales of light vehicles remained strong, according to most sources. A large dealership in the Carolinas reported that sales were very strong, and continued low fuel prices helped boost sales of SUV's and light trucks. Despite a few reports of early holiday discounting, retail price increases accelerated in recent weeks according to most retailers.
Services
Revenues grew modestly faster at services firms since our previous report. Healthcare organizations reported flat to stronger demand for services relative to the previous report. A healthcare executive added that consumers often schedule elective procedures ahead of the holidays so that deductibles are taken in the current year. In contrast, at another healthcare organization, admissions have decreased, particularly with cases involving requirements around patients needing observation. An executive at a national trucking firm reported that demand remained steady at moderate levels across the industry. He noted that businesses seemed to be working down their inventories and that seasonal softening in demand was expected for the weeks ahead. Prices at services firms rose at a slower pace in recent weeks.
Tourism slowed to typical seasonal levels. High-end restaurant sales were reported to have increased, however. A Richmond restaurant reported a seasonal increase in booked parties and events, and also noted that food prices had risen, especially for produce. On the outer banks of North Carolina, holiday visitors took advantage of seasonally lower room prices. Inland hotels in North Carolina and South Carolina reported increased bookings and higher room rates. Unseasonably warm temperatures delayed snow skiing, with some related hotel cancellations. However, time-share bookings at ski resorts were strong, which an executive attributed in part to the availability of numerous other tourist activities.
Finance
Loan demand was stable on balance since our previous Beige Book report. Contacts mostly indicated that residential mortgage demand was steady; however, some softening was noted in central Virginia and parts of West Virginia. In contrast, residential refinance lending picked up slightly. A banker in Virginia attributed a recent increase in inquiries due to expectations of higher interest rates. Commercial lending demand was generally unchanged. A South Carolina banker reported steady loan demand due to strong commercial expansion and acquisition activity. Conversely, commercial and industrial loan demand declined in West Virginia, particularly in the southern coalfield region of the state. Underwriting standards were generally unchanged except in central Virginia, where standards were relaxed slightly. According to bankers in Maryland and South Carolina, credit quality improved while bankers in Virginia and West Virginia reported no change. Competition among banks remained high with one banker noting that a large portion of his commercial activity was taking existing borrowers away from other lenders.
Real Estate
Residential real estate activity slowed seasonally in recent weeks, while average sale prices increased slightly. Average days on the market were unchanged and low levels of inventories persisted. Most contacts reported steady residential sales with some pockets of strength. For example, a Realtor in Charlotte noted little change in existing home sales, but an increase in new home sales since the previous report. Additionally, another Charlotte residential real estate contact said sales increased in the $300,000 to $400,000 range. A Chesapeake, Virginia contact stated that home sales remained steady and that prices rose to pre-recession levels. In contrast, a Charleston, West Virginia broker reported a sluggish residential real estate market and a Maryland source reported a slower high-end market. Single-family home construction was generally modest with limited speculative building, although a contact reported that larger builders were securing lots in the Chesapeake, Virginia market in competition with the smaller regional builders. A Charleston, South Carolina builder reported strong new home sales and increased home closings since the previous report. Multifamily leasing and construction generally remained strong across the District.
Commercial real estate activity increased moderately District-wide, and construction reportedly grew modestly in Charleston, South Carolina, Washington, D.C., Charlotte, and the Virginia Beach area. Rental rates rose slightly, while vacancy rates varied by submarket and region. A broker in Charleston, South Carolina reported a strong commercial real estate market, with speculative industrial building and higher rental rates in the office market due to limited supply. Brokers in Washington, D.C., Baltimore, and Richmond continued to report steady to strong leasing activity, with faster growth in sales since the previous report. A Washington, D.C. real estate contact stated that office vacancies were high in the suburbs, and the new office construction pipeline was slow. He also said that most leasing activity remained in the 10,000 square feet range, continuing the trend toward smaller office space.
Agriculture and Natural Resources
Agribusiness remained soft since the previous report. Farmers in Virginia, North Carolina, and South Carolina continued to report delayed harvesting from the wet weather this fall, and more South Carolina contacts reported poor crop quality as a result of flooding. Some South Carolina farmers reported ruined cotton crops. Moreover, continued rain following the floods in South Carolina left other establishments unable to harvest lumber or soybeans for animal feed. A South Carolina sod farmer said he had only one week of good harvest days during the past month. In contrast, a Maryland contact reported that farming was stable across the state, with continued strength in the poultry sector. Prices received for cotton decreased and farm input prices were unchanged since the previous report.
Natural gas production increased in recent weeks, although contacts continued to report oversupply. Coal extraction continued to decrease; a contact said "The bottom has dropped out of the coal market." Natural gas prices declined, and coal prices were unchanged.
Labor
The demand for labor in the Fifth District continued to strengthen moderately since our previous report. Demand generally rose for customer service professionals, warehouse and distribution center workers and temporary employees. Sources reported difficulty finding nurses, mechanics, accountants, IT workers, administrative professionals, engineers, hospitality workers, truck drivers and skilled tradespeople. Temp-to-hire placements increased in South Carolina, according to one staffing firm, and the time to convert to full time shortened further. According to our most recent surveys, employment increased robustly for services firms, moderately for manufacturing firms, and rose slightly for retail establishments. Wages increased moderately in manufacturing and rose at a modest pace in the service sector overall, despite a slight slowdown in retail wage growth.