Beige Book Report: Richmond
May 31, 2017
Summary of Economic Activity
The Fifth District economy expanded at a modest pace since the prior reporting period, with broad-based improvement across industry sectors. Manufacturers continued to see strong new orders and increased output. Shipments through District ports rose modestly, and reports on land and air freight were more positive. Retail sales growth picked up, on balance, as did tourism-related spending. Housing market activity continued to increase, although supply-side constraints limited growth. Lending picked up moderately, mostly due to more strength in business loan demand. Non-financial services firms reported moderately higher revenues. Coal production increased, in large part due to supply disruptions in Australia, while agricultural conditions improved slightly. The District's labor markets remained tight, and businesses continued to report modest wage increases. Prices were reportedly stable to rising moderately.
Employment and Wages
Labor demand strengthened moderately in recent weeks amidst continued reports of worker shortages. Employment agencies reported a modest increase in new job openings across all sectors, while executives in the services and retail industries noted increases in hiring. Generally, contacts reported labor shortages for computer scientists, computer engineers, data scientists, welders, and technicians. Also, more manufacturers had difficulty finding quality workers for technical roles. Wages increased modestly for firms in most industries, and employment agencies said that clients had started to increase wages for positions that remained unfilled.
Prices
Prices were generally stable to rising modestly. Manufacturers' final goods prices continued to grow at a modest rate, according to our most recent surveys; however, increases in input goods prices outpaced those in final goods. Specifically, prices recently rose for stainless steel and corrugated paper. Services firms indicated that price growth remained modest, overall, with the retail sector reporting a slightly faster pace of growth than the non-retail sector. Commercial real estate rents were stable to increasing slightly. Residential real estate prices generally continued to rise modestly, with most of the growth coming from low to mid-priced homes. Beef and chicken prices were up slightly while energy prices were largely unchanged.
Manufacturing
Manufacturing firms continued to report strong growth in new orders and shipments. Producers of machinery, plastics and rubber, metal, corrugated packaging, and food manufacturing noted stronger business conditions in recent weeks. Overall, global supplier delivery times were unchanged, while some firms reported shorter domestic lead times. Expectations for the next six months were generally optimistic, with firms anticipating moderate increases in new orders and shipments.
Ports and Transportation
The volume of shipments through District ports was generally robust and increased moderately, with contacts at some facilities indicating that shipments set new record highs again in March and April. Moreover, port executives indicated that both imports and exports continued to rise, although the pace of exports growth slowed somewhat, on balance. Imports of consumer goods were particularly robust, despite the struggles reported by national brick and mortar retailers; and light vehicle exports continued to increase at a healthy pace. Trucking firms reported seasonal increases in shipments, with modest gains compared to a year earlier. A rail operator said that volumes rose in recent weeks due in part to more coal shipments to the ports. And a regional airport executive said that air freight was up strongly due to healthy manufacturing activity in his region.
Retail, Travel, and Tourism
Retail activity increased more quickly in April based on respondents' assessment of sales and shopper traffic. The manager of a home goods store said that sales picked up in April as this Easter's results exceeded those of a year earlier. An auto dealer in North Carolina noted a dramatic upturn in business, while a dealer in West Virginia saw a significant fall off in April following unusually strong sales in March.
An adventure camp facility in western Virginia reported that bookings increased at a better-than-seasonal pace from March to April. Demand for hotel rooms remained strong in western North Carolina and the upstate region of South Carolina. In the outer banks of North Carolina, summer bookings were running ahead of previous years.
Real Estate and Construction
Residential real estate sales increased moderately since the previous report. Sources reported stable levels of buyer traffic for new and existing single family homes, and expected steady buyer demand extending into early summer. Inventories remained low with the quick absorption of new homes, and average days on the market decreased modestly. Brokers reported that demand for condos increased at a steady pace; however limited inventory left sales unchanged. Homebuilders reported a reduction in buyer incentives, while sales in highly desirable communities rose modestly. The lack of subcontractors continued to push back construction timelines and limit new home starts.
On balance, commercial real estate leasing rose moderately. Retail leasing and sales remained strong, while office and industrial activity slowed modestly as inventory remained limited. Land sales for new construction were steady, with continued robust pipelines. Contacts noted increased remodeling activity of grocery-anchored developments across the District. Rental rates increased moderately in most industrial, retail, and office markets. Retail development remained steady, while agents reported limited office and industrial construction. Multifamily building continued at moderate levels; however a few lenders noted that fewer new developments were being approved for financing.
Banking and Finance
Lending improved moderately since our previous report. Demand for residential mortgages was little changed on balance; however, demand picked up moderately in the District of Columbia. Residential refinance activity was stable to increasing modestly. Commercial real estate demand continued to expand at a moderate to robust pace although some contacts expressed concerns that multifamily was nearing a saturation point. A lender in Washington, D.C. also mentioned some worries of overbuilding in the hospitality segment. Business lending increased modestly. Deposits by both consumers and businesses rose moderately, according to a banker in North Carolina, as deposit rates moved slightly higher. Credit quality was stable and credit standards were generally unchanged; however, a West Virginia banker noted slight tightening in certain commercial real estate categories, such as hospitality and retail.
Non-Financial Services
On balance, services firms indicated moderate revenue growth in our most recent survey. Telecommunication, administrative, and hospital services were the most consistently positive sectors. A contact in South Carolina saw a surge in demand for customer service and general office administration services. Strong reports also came from arts, entertainment, and amusement firms. A civil engineering company had an increase in new projects; however, revenue was down slightly as competition drove down bid prices. Meanwhile, a marketing executive in Virginia noted a moderate decline in demand in recent weeks.
Agriculture and Natural Resources
Energy markets improved modestly in recent weeks. Coal production rose as supply constraints due to severe weather phenomena in Australia led to stronger global demand for domestically produced coal (both steam and metallurgical). Coal mining firms anticipate making capital investments in the near future if production and prices hold up. Agriculture conditions also improved slightly, particularly for beef and dairy farmers. In South Carolina, cotton and peanut planting was slightly behind schedule due to rain.