Beige Book Report: Richmond
March 02, 2016
The Fifth District economy grew moderately, on balance, since the previous Beige Book report. On the downside, manufacturing activity decreased, with a slight decline in shipments and new orders. Further, revenues at services firms weakened. However, retail sales increased moderately, with continued strength in car and light truck sales. In addition, winter tourist destinations rebounded from a soft start when the weather finally turned cold. Consumer and commercial loan demand rose. Activity in residential real estate also increased slightly, while growth in commercial real estate activity was slow to moderate. Agribusiness and natural gas production were mostly unchanged, while coal mining declined. Labor demand increased modestly. According to our most recent surveys, the pace of hiring increased modestly at manufacturing businesses and slowed at services firms. Wage increases accelerated at manufacturing establishments and moderated in the service sector. Manufacturers' prices of both raw materials and finished goods rose at a slightly faster pace. Price growth accelerated moderately at services businesses, including retail. Commodity prices remained depressed and prices of natural gas and coal declined slightly since the previous report. The District was hit with a severe snow storm lasting four days in late January. Of 110 businesses responding to a survey question about the storm, 75 percent closed or reduced operations for one to four days, and 54 percent of that group indicated that they were affected for only one day.
Manufacturing
Manufacturing activity decreased on balance since the previous report. Producers reported a mild decline in shipments and the volume of new orders, with most contacts attributing the softness to seasonal factors or slower global demand. Additionally, many manufacturers reported delays in production and shipments from the late-January winter storm A few firms reported variation in demand across product markets, however overall revenues remained positive since the previous report. A plastics manufacturer reported modest demand for optical application products. However, he noted very strong demand for packaging and labeling materials. Similarly, a box manufacturer said that he had uneven sales in the past six weeks, but noted a modest increase in shipments and new orders. In contrast, an industrial refrigeration and heating manufacturer reported a decline in new orders, especially international orders. A chemical producer also said both exports and domestic business had declined in the weeks since the prior report. Manufacturers that supply products to the residential and commercial construction industry reported a slowdown, and a producer of railroad parts also noted weaker business conditions. According to our most recent survey, prices of both raw materials and finished goods rose at a slightly faster pace.
Ports
Year-over-year traffic volume varied at District ports in January, according to port officials, but February is expected to finish strong at all three major ports. Even though some containerized retail imports were below estimates previously provided by retailers, overall imports of loaded containers rose. Moreover, automobile imports remained robust in recent weeks, despite seasonal slowing. In contrast, falling commodity prices have reduced farmers' imports of machinery. Port officials continued to report soft exports, which were primarily attributed to the strong dollar and softness in the Chinese economy as well as Chinese restrictions on some U.S. exports. In addition, slow growth in trade has contributed to excess shipping capacity and weakening in shipping rates.
Retail
Retail sales strengthened moderately since the previous report. A severe snowstorm in late January closed many District retail stores for up to four days, but shopping continued online. Several small Virginia retailers reported some losses from those closures, although sales have improved since then. Auto sales remained strong. Most merchants reported that retail prices rose moderately in recent weeks. On the supply side, a large grocer noted that wholesale prices of meat and dairy had fallen.
Services
Revenues at services firms weakened since the last Beige Book. A financial services executive commented that there is "a general malaise" in confidence. An executive at a national trucking firm also commented on softness in business levels. However, he noted an increase in shipping contracts to lock down capacity for the second half of the year. Healthcare organizations reported little change in demand for services, although a late-January snowstorm delayed some elective procedures. Prices at services businesses increased at a moderate pace.
Warm weather slowed tourism at District ski resorts in January, but colder temperatures in February brought a significant increase in bookings. The general manager at one resort said despite the recovery in February bookings, a double-digit decline in January will result in overall lost revenues for the year. A manager at a ski resort stated that he could not recapture losses from early in the season, but that his winter weekend reservations were now sold out, and that sales of season passes had been strong. On the outer banks of North Carolina, a tourism executive reported that many large rental homes were being built and work had begun on a main bridge, bringing new jobs and increasing tourist reservations. Reservations were strong there for the long weekend in February and advance bookings are accumulating for Easter week. Rates for rentals and hotels were little changed.
Finance
Since our previous Beige Book report, loan demand increased modestly. Residential mortgage demand picked up slightly according to a central Virginia lender. A West Virginia banker described demand in the housing market as generally stable but with pockets of low demand and excess stock. Residential refinance lending rose slightly in Maryland and Virginia. Demand for commercial loans increased moderately over the last several weeks. A South Carolina banker noted that mergers and acquisitions were driving increased activity in commercial and industrial lending in his region. Conversely, a banker in Virginia attributed the increased demand to multi-family construction projects. Interest rates were stable on balance. Underwriting standards relaxed slightly, according to a Virginia banker. Credit quality was generally reported as steady-to-improving, except in parts of West Virginia where quality declined slightly. Competition among banks intensified somewhat in recent weeks.
Real Estate
Residential real estate activity grew modestly since the previous report. Some contacts stated that the January winter storm caused buyer traffic to decline. Real estate agents reported a slight increase in average sale prices, while average days on the market were unchanged since the previous report. Low levels of inventories persisted in most areas. A residential real estate contact in Asheville, North Carolina reported that sales and permits increased modestly. Additionally, a Baltimore, Maryland real estate contact said that sales rose modestly in the past six weeks. Home sales in the Roanoke region were reportedly steady, with stronger movement in the $200,000 to $350,000 range. A Virginia Beach real estate agent reported an uptick in new home sales in the past six weeks and additional new residential communities under construction. In contrast, a Washington D.C broker reported that residential sales activity decreased during and after the late January winter storm. He noted that demand was stronger in the $1.25 million to $1.5 million range. Multifamily leasing and construction remained strong across the District.
On the commercial side, leasing activity increased moderately in the retail market since the previous report, while activity in the office and industrial markets was tepid. Rental rates and vacancy rates varied across submarket and region, with a few reports of softening in office rental rates. A broker in Columbia, South Carolina reported a strong retail real estate market for sales and leasing, noting that new site development increased, and the demand for fast, casual restaurants was robust. Additionally, a Virginia Beach real estate contact stated that grocery remains the most active sector in retail leasing, primarily in the 30,000 to 40,000 square foot range. With respect to sales, District contacts stated that office sales activity remained sluggish and noted the continued trend of office tenants' downsizing. Real estate agents across the District reported that mixed-use developments remained attractive, drawing in specialty food stores, restaurants, and local retailers. Commercial construction grew moderately in Charlotte, Columbia, Richmond, Asheville, Roanoke and Virginia Beach.
Agriculture and Natural Resources
Underlying agribusiness conditions were unchanged since the previous report, even as contacts cited a typical seasonal slowdown. Farmers reported limited planting and harvesting in the past six weeks. Most sources stated that input prices were unchanged. However dairy farmers said that input prices continued to decrease. Commodity prices remained depressed.
Natural gas production was unchanged since the previous report, while coal production decreased mildly in the past six weeks. Prices of natural gas and coal declined slightly since the previous report.
Labor
The demand for labor rose modestly since our previous report. A staffing agent in Maryland said that demand was greatest for high-skill positions and that there were not enough of those workers available. He added that as the unemployment rate continued to decline, it was becoming more difficult to find entry level workers as well. Some uncertainty about the future of the economy was cited for driving up the increase in demand for temporary workers. In addition, extended warm weather at winter resorts delayed start dates of previously interviewed entry level workers who had been offered work and as a result, many of those workers were not available when they became needed. Throughout the District, employers reported shortages of available nurses, IT professionals, skilled blue collar workers, semi-skilled manufacturing workers, engineers, specialty health care workers, hospitality and food service workers, construction labor, and logistics and transportation employees. According to our most recent surveys, the pace of hiring increased modestly at manufacturing businesses and slowed at services firms. Wage increases accelerated slightly for manufacturers and moderated in the service sector. Additional sources also reported that wages were stable on balance, with a few scattered reports of increases to attract or retain top talent. The average workweek lengthened for manufacturing employees.