Beige Book Report: Richmond
April 13, 2016
Fifth District economic conditions strengthened since the previous Beige Book report. Manufacturing activity increased moderately on balance. Retail sales increased briskly and revenues rose modestly at other services firms. Winter tourism ended on a high note. Residential mortgage demand was uneven, but rose slightly overall. In contrast, there was a broad-based increase in commercial loan demand. Residential and commercial real estate activity grew moderately. Agricultural activity increased. Production of natural gas was unchanged and coal edged down. Labor demand continued to rise modestly. According to our most recent surveys, employment grew moderately at manufacturing firms and rose robustly at retail and other service establishments. Average wage growth broadened at both manufacturing and service sector businesses. Prices of both raw materials and finished goods rose slowly, but at a faster pace than in the previous report. Retail and non-retail price increases slowed.
Manufacturing
Manufacturing activity increased moderately on balance since the previous report. Most firms reported solid growth in shipments and the volume of new orders, and producers reported positive expectations for the six months ahead. An automotive parts manufacturer in West Virginia said new orders had risen, and added that he purchased equipment for fabrication of new product types. A boat manufacturer stated that low gas prices are boosting sales, and that mid-size boat sales in particular increased in the past month. A corrugated box producer also reported an increase in the volume of new orders along with a decline in supplier prices. Food manufacturers increased production in recent weeks and they looked for the next six months to remain busy. In contrast, a plastic coatings plant manager said business volume varied across product lines in the past month, while furniture manufacturers generally saw a decline in new orders. In addition, machinery manufacturers indicated that sales and backlogs declined, especially for large equipment. Manufacturers of products for the oil and gas sector stated that their business conditions deteriorated further in recent weeks. According to our most recent survey, prices of both raw materials and finished goods rose at a faster, albeit slow, pace.
Ports
Port activity increased since our previous report. In fact, some ports indicated that import volume growth set records in February before moderating somewhat in March. Automobile imports remained strong and container shipments increased moderately. At one port, strong import growth was driven by consumer goods, such as furniture, toys, and apparel. Port officials said that exports had risen modestly, and one source noted an increase in inquiries regarding exporting. Outbound shipments of agricultural and forest products, including logs, lumber, wood pulp, and paper were stronger. Chinese regulations on logs and certain types of grains continued to limit exports of those products.
Retail
Retail sales increased briskly in the weeks since the previous report. Reports of a pickup came from several sources across the District, including those in grocery and pharmacy sectors. Building supply merchants also said sales were up. In addition, automobile and light truck sales remained robust. Retail prices rose at a slower pace since the previous report.
Services
Revenues rose modestly at services firms. Trucking firms reported stable to stronger growth in demand in recent weeks. Additionally, an executive at a healthcare organization reported being "inundated" as a result of a large, late-season increase in flu and norovirus cases. In contrast, an executive at a West Virginia CPA firm saw little change since our last report, and noted that the decline in coal production was reducing state revenues from severance taxes. Price increases moderated at services firms.
Tourism ended the winter months on a high note and most hoteliers said that the spring season was already looking good. Spring break and Easter coming in March this year brought increased bookings to several resorts. In some areas of the Carolinas, the opening of more local hotels was not expected to noticeably decrease sales at existing establishments because room demand had been rising briskly. General managers at resorts with softer bookings said their current slow sales were likely related to late-season snow and cold temperatures. However, all sources were optimistic about a strong summer season. Room rates were mostly unchanged. Restaurant sales reportedly grew more rapidly.
Finance
On balance, loan demand increased moderately since our previous report. Residential mortgage demand rose slightly overall, but varied across the District. For example, demand picked up in central and northern Virginia but remained low in southwestern Virginia and in West Virginia. There was a broad-based increase in commercial loan demand. In North Carolina, demand rose for commercial real estate and business loans, with the exception of the energy sector. In Virginia, one banker said the pipeline for commercial loans was stronger now than it had been for the last year and a half, and included lending for both new and expanding business activity as well as for some refinancing. Competition continued to intensify with reports of compression on net interest margins, along with an ongoing trend towards bank consolidation. Interest rates reportedly moved slightly lower, particularly for applicants with high credit scores. Overall, credit quality improved slightly in recent weeks while no changes to credit standards were reported.
Real Estate
Residential real estate activity grew moderately since the previous report. Real estate agents continued to report low levels of inventories. Days on the market varied across price range and region, although some contacts reported a slight decrease in average days on the market due to limited supply. A real estate agent in northern Virginia noted robust sales in recent weeks, with multiple offers on homes. He added that home prices rose slightly for most price ranges, although they were mostly unchanged for the $800,000-plus price range. Home sales in Richmond picked up in recent weeks, with stronger movement in the $250,000 to $375,000 range. A Greensboro, North Carolina broker stated that while residential sales activity generally increased, demand was softer in the $700,000 to $800,000 price range. A broker in Roanoke, Virginia reported the busiest first quarter in six years, with modest growth in residential construction. A residential builder in Charlotte, North Carolina said that backlogs increased 40 percent in the past month, and buyer traffic was strong. Home building activity was reported to be up in Asheville, North Carolina, where contacts noted that limited speculative building had driven home prices up slightly in the past month. Multi-family leasing remained strong across the District, while the pace of construction slowed in some regions.
On the commercial side, leasing activity increased moderately overall since the previous report. A commercial real estate agent in Richmond reported a robust retail leasing environment, with increased sales and solid upward movement in property prices. In contrast, a broker in Charleston, West Virginia reported a decrease in leasing and sales activity. Real estate agents continued to report a decline in office leasing activity, despite more concessions. Rental rates and vacancy rates varied across submarket and region; however more contacts reported elevated retail rates. Commercial construction grew moderately in Charlotte and Richmond and modestly in Washington, D.C. and Baltimore. A Realtor in Virginia Beach reported modest growth in the number of new retail, multi-family and mixed-use construction projects. In Columbia, South Carolina, an agent stated that retail and restaurant construction remained strong.
Agriculture and Natural Resources
Agricultural activity increased since the previous report as corn and spring vegetable planting began. Farmers in South Carolina reported that flooding last October delayed planting due to poor field conditions and some fields are still unusable. Several District farmers reported that they have made limited capital purchases in recent weeks and project little change for the next six months. According to agribusiness contacts, input prices varied since the previous report. Chemical prices grew modestly while fertilizer prices decreased slightly and seed prices remained elevated. Crop prices stabilized on balance.
Natural gas production was unchanged since the previous report, while coal production edged down. Prices of natural gas increased mildly in the past month, and coal prices were unchanged.
Labor
Since our previous report, the demand for labor continued to rise at a modest pace. A staffing service executive in North Carolina said that demand rose for permanent and temporary placements, specifically in the real estate, construction, automotive, and professional services industries. She added that temporary placements would be even stronger if more qualified workers were available. Throughout the District, employers also reported continued difficulties finding skilled workers. In particular, contacts said they had a hard time finding IT professionals, accountants, construction workers, skilled tradespeople, mechanics and technicians, customer service agents, and talent acquisition professionals. Upward wage pressure persisted but varied by location and occupation. According to our most recent surveys, employment increased moderately at manufacturing firms and rose robustly at retail and non-retail establishments. Average wage growth broadened at both manufacturing and service sector businesses and the average manufacturing workweek lengthened.