Beige Book Report: Richmond
September 7, 2016
Economic growth in the Fifth District slowed since the previous Beige Book. Manufacturing activity was mixed. Retail sales softened on balance since our prior report and revenues rose modestly faster at other services firms. Tourism slowed somewhat after accounting for typical seasonal fluctuations. Residential loan demand increased marginally. Commercial loan demand continued to rise moderately.Residential real estate activity grew modestly, and commercial leasing increased moderately. Agricultural activity edged up. According to our most recent survey, prices of raw materials rose at a somewhat faster rate, and prices of finished goods rose at a somewhat slower pace. Retail price growth decelerated, while price growth at other services firms remained slight. Hotel room and vacation rental rates were mostly unchanged. Farm input prices were unchanged in recent weeks.
Labor demand increased modestly. According to our most recent surveys, manufacturing employment continued to rise. In the service sector, more retailers were hiring, while other firms indicated relatively steady labor demand. A wider range of manufacturing and service sector establishments reported wage increases.
Manufacturing
Indicators of manufacturing activity were mixed. On the one hand, participants in our most recent survey indicated that overall business conditions declined, while on the other hand, anecdotal reports were more positive since the previous Beige Book. Firms' expectations for the next six months were optimistic. Producers of machinery, building supplies, electronics, food, and plastics and rubber reported an increase in new orders. A manufacturer of engineering products said that shipments increased in recent weeks, and a manufacturer of polyurethane foam, nonwoven fabrics, and sporting goods reported that business has never been better. A producer of dental products reported steady business. However, business conditions were unchanged for a spark plug manufacturer and a producer of base materials for composite structures. Furniture manufacturers also reported no change in new orders. Manufacturers of chemicals and paper reported slower new order growth in the past six weeks. A machine parts manufacturer said recent weeks have been the worst in over a year, and a metals manufacturer said sales dropped in July and August. According to our most recent survey, prices of raw materials rose at a somewhat faster rate, and prices of finished goods rose at a somewhat slower pace.
Ports
Port activity strengthened overall since our previous report. One port official reported robust growth and said container volume was at a record high for this time of year, with the automotive segment leading both imports and exports. At another port, container imports rose modestly, and despite slowing global trade, export volumes ticked up. However, imports and exports of large machinery settled into the doldrums after improving in early summer.
Retail
Retail sales softened on balance since our prior report. Auto sales were mostly unchanged, with one dealer reporting a recent uptick. Dealerships were attempting to keep inventories tight as they received both current year vehicles and new models. Most other retailers reported flat to lower sales in recent weeks with the exception of home improvement stores. Retail price growth decelerated.
Services
Overall, services firms reported modestly faster revenue growth compared to the previous report. A wealth manager said that his office was experiencing good activity, while an executive at an accounting firm reported little change. In trucking, an executive at a national firm said demand had increased slightly, and that his firm had received bids from retail firms for additional seasonal shipping services during the next quarter that suggested stronger business. Demand for health care remained strong, particularly for outpatient care, according to an executive at one organization. That year-long trend is expected to continue into next year and has required additional hiring of nurses and medical technicians. In contrast, another healthcare organization reported slower demand in recent weeks, with hiring limited to replacing departing workers. Price growth remained slight.
Tourism
Tourism slowed somewhat since the July Beige Book, after accounting for normal seasonal variations. An executive at a hotel chain with beach locations said that demand was slightly below typical levels and advance bookings for fall have been flat to lower than in normal years. An hotelier at a mountain resort said his season-end bookings were close to a year ago. In contrast, two other hotels had booking rates ahead of last year's, and one of them had remained almost fully booked for the entire summer. Room and rental rates were mostly unchanged.
Finance
Since our previous report, lending activity increased slightly. Residential loan demand rose marginally, on balance. Bankers in the District of Columbia and South Carolina said that mortgage lending activity picked up. A contact in central Virginia, on the other hand, reported a slowdown in recent weeks due in part to a low inventory of houses available for purchase. A West Virginia banker reported flat mortgage demand. Refinancing volumes rose slightly, according to a lender in South Carolina. Commercial demand continued to rise moderately since our previous report. A Virginia banker said that construction lending accounted for the majority of new activity. Meanwhile, a contact in South Carolina noted growth in small business lending. Deposits rose moderately, according to a banker in West Virginia, due to a lack of low risk investment alternatives. Competition intensified in recent weeks, particularly for 10-year fixed rate commercial loans. Net interest margins continued to face downward pressure. Credit standards on new loans were unchanged on balance, while credit quality measures on existing loans declined slightly. A banker in Virginia reported slightly weaker credit applicants and a West Virginia banker reported some increases in loans past due.
Real Estate
Residential real estate sales grew modestly since the previous report. Real estate agents continued to report low levels of inventories. Days on the market varied across price range and region. A residential broker in Greensboro, North Carolina reported an increase in the number of sales, despite slightly slower buyer traffic, while a contact in Durham stated that average sale price rose. Demand in Roanoke, Virginia remained strong for the $250,000 plus range. Washington, D.C. brokers stated that sales decreased slightly since the previous report, but some homes were selling quickly above listing price. A contact in Spartanburg South Carolina stated that there is a shortage of affordable housing below $200,000. Residential construction contacts continued to report low new home inventories and lot shortages, resulting in difficulty meeting demand and, in some regions, higher new home prices. Multi-family construction reports were mixed, although leasing remained strong. Overall, builders and residential developers were optimistic about the future.
On the commercial side, leasing increased moderately overall, with strong retail and industrial construction. A commercial Realtor in Virginia Beach said that the retail leasing sector remained strong, and noted increased leasing inquiries in the office sector. A Richmond broker reported strong leasing across all submarkets, adding that landlords were more reluctant to renovate existing space. Sales of industrial property were also robust in Virginia. An industrial commercial contact in Charleston, South Carolina noted low inventory in the industrial sector while demand continued to increase. Baltimore commercial sales remained strong, and a Roanoke, Virginia contact stated that the retail leasing was robust. Additionally, a Washington D.C. Realtor reported increased leasing. Commercial real estate leasing in Charleston, West Virginia decreased since the previous report.
Agriculture and Natural Resources
Agricultural activity increased modestly since our previous Beige Book report. Farming contacts reported flat demand in the timber and forestry industries, but noted expansion in the poultry industry. Farm input prices were unchanged in recent weeks, while prices of grains, cotton, soybeans, and corn ended the reporting period at low levels.
Natural gas extraction and coal production were unchanged since the previous report. Prices of natural gas declined slightly in the past month, and coal prices remained low.
Labor
The demand for labor increased modestly for workers across all skill levels since our previous report. Executives reported difficulty finding engineers, construction workers, skilled tradespeople, warehouse and production workers, truck drivers, physicians, nurses, managers, and advanced technicians. Turnover rates increased, particularly in entry-level positions. One contact in North Carolina reported that manufacturing competitors were stealing workers and mechanics from each other. According to our most recent surveys, manufacturing employment continued to rise. In the service sector, more retailers were hiring and other firms indicated steady labor demand. Wage increases were reported more broadly at manufacturing and service sector establishments. A staffing service in Maryland said that some employers were raising starting wages to attract new entry level workers and to retain existing employees. An executive in North Carolina reported mid-year wage increases in the hospitality industry, particularly for housekeepers and lower wage workers. A few resort hotels reported increased hiring of foreign workers because they were unable to find employees locally.