Beige Book Report: Richmond
September 6, 2017
Summary of Economic Activity
The Fifth District economy continued to expand at a modest pace, although reports from some sectors were a little more mixed since the last report. Moderate growth in new orders and shipments was noted by manufacturing firms; ports and trucking companies reported increased cargo movements. Retail sales were mixed but mostly flat in recent weeks while tourism and travel activities were strong. Existing home sales declined slightly while new home sales and construction were said to be up modestly. Commercial leasing increased at a slightly slower pace in recent weeks; reports on commercial construction were mixed. Overall loan demand increased slightly as business lending was up modestly while residential lending was relatively flat. Services firms indicated that revenues grew moderately. Labor demand strengthened moderately and prices increased at a modest pace.
Employment and Wages
Labor demand continued to strengthen moderately in recent weeks. Compared to the previous report, employment agencies noted slightly lower levels in new job openings; however, they anticipated a significant increase during the upcoming fall recruitment months. Wage increases remained modest across all sectors, and a few firms reported increased wage pressures to retain top talent in tight labor markets. Executives reported difficulty finding qualified cybersecurity specialists, mechanics, accounting professionals, construction workers, agriculture workers, truck drivers, and customer service agents.
Prices
Overall, prices rose at a modest pace in recent weeks. According to our most recent surveys, services firms indicated that prices grew modestly, on balance. Manufacturing input prices grew a modest rate and continued to outpace final goods price growth. Contacts throughout the Fifth District specifically noted increases in prices for steel and scrap metal, fuel, and construction inputs, such as lumber and dirt. Contracted trucking prices reportedly rose moderately as capacity continued to tighten. Conversely, an architectural firm noted that increased competition over bids was driving fees down slightly. Coal and natural gas prices were unchanged or marginally lower.
Manufacturing
On balance, manufacturing firms reported moderate growth in new orders and shipments in recent weeks. Metal manufacturers continued to report improved business conditions, and computer and electronic equipment firms noted a recent pickup in new orders. Additionally, a steel producer commented that business remained very strong with order backlogs above normal levels. Expectations were generally optimistic for the next six months, as most producers anticipated modest increases in new orders.
Ports and Transportation
Cargo volumes at District ports remained robust since our last report and continued to increase modestly. Most ports were seeing growth that was in line with, or better than, expectations. However, one executive indicated that new services initiated in June had not resulted in the increase in activity he had anticipated. Growth in import volumes continued to exceed that of exports. Remarks from trucking firm executives were unusually consistent as they reported moderate increases in shipments, broad-based strength in demand, and very steady growth beginning around April. One trucking firm executive suggested that he had "the luxury" of being able to turn down business. A regional airport in the District reported that air cargo shipments were up significantly over the year and there were no signs that this growth trend was trailing off.
Retail, Travel, and Tourism
On balance, retail sales were flat to up in recent weeks, with some variation by segment. A home furnishings store reported the largest improvement in sales in the past six to seven years, although margins were down due to discounting. Clothing sales were flat to slightly up, with considerable variability from month to month. Hardware and home improvement stores saw strong sales for seasonal outdoor items, but slower growth for smaller-ticket hardware sales. An auto dealer in coastal South Carolina reported that sales had leveled off and that inventories continued to build, so he expects manufacturers to offer even more incentives in coming months.
Tourism and recreation activities were strong in recent weeks in coastal areas as well as the mountain attractions in the District. A rafting and outdoor adventures business in West Virginia experienced a record July, despite double-digit increases in many of their activity prices. In contrast, a western Virginia outdoor recreation facility reported a dip in July activity, but saw bookings picking up at a normal pace for September and October. In coastal North Carolina, visitors were up relative to last year, despite a power outage in the Outer Banks, and restaurants and retailers were busy. Modest growth in hotel occupancy was reported in western North Carolina as well as Washington, DC, although average daily rates were mostly steady.
Real Estate and Construction
Residential real estate agents reported a slight seasonal decline in home sales and noted that buyer traffic remained slow in recent weeks. Brokers reported a significant increase in first time home buyers, with one firm indicating that sixty percent of its sales were to first time home buyers. Inventories remained low, and home prices continued to rise modestly. Average days on the market remained at low levels; however, some contacts noted slight increases due to the seasonal slowdown in sales. New home construction and sales improved modestly since the previous report.
Commercial real estate leasing rose modestly in recent weeks, slowing slightly from the previously reported pace. Industrial leasing transactions generally declined, while retail leasing and sales remained strong. Office leasing remained limited; however, a few brokers reported an increase in office building sales. Vacancy rates remained low across markets. Rental rates were stable to increasing modestly, with reports of rising rate pressure in the industrial market due to lack of inventory. Commercial construction accounts were mixed. Realtors reported more industrial warehouse construction and noted an increase in speculative building, while office construction remained limited throughout the District. Reports from brokers in Virginia Beach and Columbia, South Carolina said there were fewer new multi-family developments taking shape and fewer sales in recent weeks, while agents throughout North Carolina and in Charleston, South Carolina, central Virginia, and the District of Columbia said that demand is keeping pace with new construction and new space is needed.
Banking and Finance
Loan demand grew slightly in recent weeks. Commercial real estate and business lending picked up modestly, overall, while residential real estate lending was little changed. A North Carolina lender said that recent branch expansions and a rise in deposits provided additional capital and allowed them to increase commercial and business lending. Interest rates were little changed, on balance, as short term rates rose slightly while long term rates were flat to somewhat down. Competition among banks intensified, particularly in the residential mortgage market. A West Virginia lender reported seeing secondary market mortgage lenders offering low and no down payment mortgage loans in an effort to combat the flat demand. Historical credit quality metrics remained strong and there were no reports of changes to credit standards.
Non-Financial Services
According to our most recent survey, services firms indicated moderate revenue growth and expected demand to grow further over the next six months. Reports from firms in the administrative, education, hospitality, telecom, and warehousing services were the most consistently positive. A civil engineering firm in Maryland noted an uptick in demand in recent weeks and expected it to persist for the remainder of the year. There were fewer bidding opportunities reported for government contracts, as federal agencies relied more on large, single award agreements.
For more information about District economic conditions visit: www.richmondfed.org/research/regional_economy