Beige Book Report: Richmond
March 01, 2017
Summary of Economic Activity
Economic activity in the Fifth District grew moderately since the previous Beige Book report. Labor demand continued to increase and there were more reports of employees being converted from temporary to permanent workers. Prices rose somewhat more rapidly at services firms, while increases in manufacturing prices received were modest. Manufacturing input price growth moderated slightly. Manufacturing strengthened, and producers anticipated continued improvement during 2017. Retail sales rose on balance. Tourism grew at a normal seasonal pace. Residential real estate activity increased slightly, while commercial leasing rose moderately. In banking and finance, commercial loan demand rose and residential mortgage demand softened to typical seasonal levels. At non-financial services firms, revenues continued to rise at a modest pace. Energy markets strengthened modestly and agricultural conditions were largely unchanged at seasonal levels.
Employment and Wages
Labor demand remained moderate, although hiring increased at a slightly slower pace since the previous Beige Book because of usual seasonal slowing at the beginning of the year. District contacts reported modest increases in wages in recent weeks. Recruiters continued to report tight labor markets, with strong demand, particularly for higher-level skilled workers. Staffing firms reported that the volume of worker conversion from temporary to permanent increased modestly. Tourism and hotel contacts were planning typical levels of seasonal hiring but were experiencing shortages of applicants; some businesses were offering higher wages or incentives to fill those positions.
Prices
Services firms' prices rose at a moderately faster pace in recent weeks while retail prices grew more robustly, according to our most recent surveys. Manufacturers reported modest growth in prices received and a slight slowdown in average input price growth. Home prices inched up, on balance. Residential home builders reported a modest increase in lot prices in some areas. Grain, livestock, and poultry prices rose marginally but remained below historical averages. Beef prices, however, continued to decline slightly. Coal prices remained at the slightly elevated levels previously reported, while natural gas prices edged lower in recent weeks.
Manufacturing
Manufacturers reported increased shipments, along with stronger growth in new orders and greater capacity utilization since the prior Beige Book. Food producers and metals fabricators were among those indicating greater strength. A steel producer reported double-digit growth in quotes. Additionally, an executive from a paper products company said demand had increased for pulp and specialty products. A producer of aerospace products expected his output to double in 2017. Surveyed manufacturers anticipated stronger business conditions during the next six months.
Ports and Transportation
Port officials reported record strength in container volume since the previous Beige Book. At one port, volume was described as "off the charts," and another had its best month ever for loaded containers. Imports of furniture, building supplies, and auto parts were strong. Auto imports remained at high levels, but exports of used cars to oil producing regions softened, which was attributed to falling oil prices in those destinations. Exports of construction and agricultural equipment remained weak.
Executives at trucking firms in the District said that demand for freight hauling services was somewhat softer in recent weeks, but one contact noted that expectations were for an improvement in the second half of the year. A railroad industry source commented that capacity had begun to tighten in freight transportation.
Retail, Travel, and Tourism
Retail sales rose on balance, particularly for building supply and home and garden establishments, as well as hardware stores. In contrast, sales at convenience and grocery stores were lower. Auto sales remained strong. Low fuel prices continued to spur sales of pick-up trucks and reduce demand for compact cars. A large auto dealer said that unit sales were down but gross profit per unit was up.
Tourism grew at a normal seasonal pace in recent weeks. A Virginia ski resort reported strong weekend bookings and few cancellations, even during warm weather, because of available alternate activities. A contact on the outer banks of North Carolina said tourism was little changed at usual off-season levels. According to sources at coastal locations, advance bookings were at typical levels for this time of year.
Real Estate and Construction
Residential real estate sales increased modestly since the previous report. Contacts reported good levels of buyer traffic in recent weeks; however some sources said snow storms reduced buyer traffic in affected areas. Brokers reported that inventories generally remained at low levels, although a few contacts noted slight increases for some price ranges. Nonetheless, new listings sold quickly. Residential builders reported that home starts and closings increased to moderate levels.
Commercial leasing increased moderately in recent weeks and was stronger than a year ago according to contacts. Rents rose moderately while vacancy rates edged down. Real estate agents said that industrial and retail leasing remained robust, and available space was limited. Meanwhile, office leasing increased modestly. Overall, commercial construction remained steady at modest levels, although a large general contractor reported the largest backlog in his firm's history. Multi-family and mixed used developments continued to dominate new commercial construction projects.
Banking and Finance
Since our previous beige book, loan demand grew moderately. Overall, bankers said that consumer and commercial demand was increasing at a healthy rate with the exception of some small rural areas throughout the District and in coal regions of West Virginia. In the District on the whole, residential mortgage demand softened slightly to a typical seasonal level. Commercial loan demand grew at a moderately faster pace. Demand for small business loans and lines of credit continued to rise at a modest pace. Credit quality was unchanged on balance but varied by region; a West Virginia banker said credit quality remained at an acceptable level while a South Carolina lender said quality was at an all-time high. Interest rates rose slightly in recent weeks. A lender in Virginia noted a sense of urgency from business to borrow before interest rates increase further. Competition among banks remained fierce. The trend in mergers and acquisitions continued. Bankers expressed optimism that regulatory changes under the new administration would be more favorable.
Non-Financial Services
Revenues at services firms increased at a modest pace. Entertainment venues, accountant services, and trades associated with home-building reported increases. Healthcare organizations reported robust demand since the previous Beige Book. An executive at a large healthcare organization said capital projects were being considered to handle the growth. One hospital reported the opening of many new physician practices associated with the facility.
Agriculture and Natural Resources
Energy markets strengthened modestly in recent weeks. Coal production picked up marginally as the pricing and regulatory environment improved for them. Natural gas production was unchanged. A utility executive in Maryland reported a modest increase in energy demand from commercial customers but a slight decline in residential connections. Agriculture conditions were largely unchanged at typical seasonal levels. Demand for poultry rose moderately. Some expansions were reported at poultry farms in North Carolina.