Beige Book Report: Richmond
July 12, 2017
Summary of Economic Activity
The Fifth District economy expanded modestly, and at a somewhat faster pace since the last report. Labor demand remained firm but hiring was constrained by worker shortages. Prices rose slightly, on balance. Manufacturers' shipments increased but new orders softened due to a typical seasonal slowdown. The volume of freight moving through district ports was robust and continued to increase, while trucking firms reported renewed momentum in shipments. Retail sales increased and reports on tourism and travel spending were mostly upbeat. Home sales were up, despite labor shortages in homebuilding and low existing home inventories. On balance, commercial construction and real estate leasing picked up moderately. Loan demand increased, and while overall credit quality was said to be good, some lenders expressed concern over lenient terms for auto loans and leases. Non-financial services firms saw modest increases in revenues.
Employment and Wages
Labor demand strengthened moderately in recent weeks, and firms increased their focus on retaining and recruiting qualified employees. Employment agencies reported a moderate seasonal increase in new job openings across all sectors, but only a slight increase in applicants. Wage increases remained modest for most firms. Several transportation industry executives, however, noted recent moderate wage increases and stronger wage pressures compared to the previous report. Employment agencies said that entry-level salary offers increased at a higher rate across all job categories, since the previous report.
Prices
In general, prices were little changed to up modestly since our previous report. According to our most recent manufacturing survey, input prices increased slightly, and a little faster than final goods prices. Meanwhile, our services survey showed slight price increases overall, with the pace of growth in retail goods outpacing that in non-retail services. However, transportation executives noted that spot freight prices were rising, in some cases significantly. Most agriculture and energy prices varied slightly, with the notable exception of a moderate increase in metallurgical coal prices.
Manufacturing
Manufacturing firms reported modest increases in shipments, while new order volumes slowed somewhat due to a typical summer slowdown. Machinery manufacturers and producers of primary and fabricated metal noted improved business conditions in recent weeks. Additionally, textile mills indicated higher production. A few firms reported increased productivity resulting from recent new equipment purchases, and they expected further efficiency gains once employees were trained on operating the equipment. Most firms expect orders to increase in the next six months.
Ports and Transportation
Since our last report, freight volumes through district ports were very strong and continued to increase modestly, on balance. Moreover, the gains were reported to be evident in imports and exports, and were widespread across shipping categories. Meanwhile, momentum appeared to be building in truck transportation as executives in the industry reported stronger than seasonal increases in shipments during the second quarter. In addition to being more robust, growth had also become less volatile, with sequential increases in shipments in the March through June timeframe, following a prolonged period during which freight was "up one month, down the next." While trucking firms expect some seasonal slowing in the third quarter, most executives indicated that conditions feel better than they have in a very long time.
Retail, Travel, and Tourism
Retail sales increased in recent weeks, with somewhat mixed results across segments. Hardware and home improvement stores reported strong sales, including for big-ticket and seasonal items. A home furnishings store attributed an increase in sales to more people buying and building homes. Auto sales were mixed, with a dealer in central Virginia reporting a pickup in new car sales in June, while a dealer in western North Carolina saw a decline over the month. Clothing and shoe sales were said to be flat to down in recent weeks, despite a good Father's Day weekend.
Tourism in coastal North Carolina was stronger in recent weeks relative to the same time last year, prompting higher retail sales and restaurant spending. Rental rates remained flat, but included more offers of extra amenities. In western North Carolina, growth in tourist activity had slowed relative to the fast-paced growth of prior years, but room rates were holding steady as hotel supply continued to grow. An outdoor recreation facility in western Virginia experienced increased bookings from both leisure and business groups. In Washington, DC, conference activity remained at normal seasonal levels, while average daily rates on hotels increased.
Real Estate and Construction
Residential real estate sales increased modestly since the previous report. Generally, real estate agents reported that buyer traffic was down due to a typical seasonal slowdown. Inventories remained low, and Realtors were working harder to attract sellers into the market. Average days on the market decreased modestly. Brokers reported that demand for lower to mid-range homes remained strong, with multiple offers and rising selling prices. Residential developers also noted that homes in the $200,000 price range were in high demand. Homebuilders continued to report that new home starts were constrained by labor shortages.
On balance, commercial real estate leasing and construction rose moderately. Industrial leasing transactions and speculative construction picked up, while retail leasing and sales remained strong. Office leasing was still constrained in most locations, with some agents reporting rising demand for Class A space. Rental rates increased modestly in most industrial, retail, and office markets. Retail and mixed-use construction remained strong. Multifamily construction continued at a moderate pace, although a few contacts noted fewer announced new projects in urban areas with previous high levels of multifamily development. Lastly, residential and commercial real estate prices continued to rise at a modest pace, overall.
Banking and Finance
On balance, loan demand continued to grow at a moderate pace. Residential mortgage demand remained solid while refinance and home equity lending softened slightly. On the commercial side, loan demand continued to grow moderately; however, multifamily lending slowed slightly and a rising number of retail establishments were reportedly seeking to lease rather than purchase. Auto lending remained robust, but some bankers expressed concerns over an industry-wide trend towards negative equity financing and extended purchase and lease terms. Competition among banks intensified slightly, according to a contact in North Carolina, as credit unions have begun competing for commercial deals in some markets. Credit standards were generally unchanged and credit quality remained strong. Short term interest rates rose slightly but long term rates remained stable.
Non-Financial Services
Services firms generally reported modest revenue growth, according to our most recent survey. Specifically, engineering, architectural, accounting, and housing related services such as landscaping, home improvement, and pest control reported revenue growth in recent weeks. Demand for self-storage units rose moderately. A few contacts in D.C. and Maryland cited concerns over slowing federal procurement spending.
Agriculture and Natural Resources
Reports on energy markets were somewhat positive. Coal production was little changed in recent weeks but rose moderately compared to the same time last year. Exports remained elevated, particularly for thermal coal. Meanwhile, agriculture conditions were unchanged as the planting season got underway.
For more information about District economic conditions visit: www.richmondfed.org/research/regional_economy