Beige Book Report: Richmond
November 29, 2017
Summary of Economic Activity
The Fifth District economy grew at a moderate rate since our last Beige Book report. Manufacturers noted a moderate rise in new orders and shipments, and they generally expected strong growth over the next six months. District ports continued to see high volumes, particularly for imports. Trucking firms reported robust growth, in part due to relief shipments being sent to hurricane-affected areas. Retailers were optimistic ahead of the holiday shopping season. Tourism remained robust as mild weather helped boost activity. Residential home sales rose modestly and the inventory of houses for sale remained low. Commercial real estate leasing increased moderately. Residential loan demand was little changed in recent weeks, while commercial, small business, and agriculture lending picked up. Nonfinancial services firms reported moderate revenue growth. The demand for labor increased moderately in recent weeks while wage increases remained modest. Prices continued to grow at a modest pace.
Employment and Wages
The demand for labor strengthened moderately in recent weeks as employment agencies reported growth in new job openings across all industries and anticipated continued high demand for the rest of the year. Employers continued to report a tight labor market with limited supply of qualified candidates. Executives noted difficulty finding skilled mechanics, electricians, engineers, information technology specialists, hospitality workers, nurses, truck drivers, construction managers, and construction workers. Additionally, retailers had difficulties finding extra seasonal help. Wage increases remained modest, overall, but contacts continued to suggest that wage pressures increased. In particular, wages reportedly rose for airport workers, truck drivers, and for some nonfinancial services workers that were in high demand.
Prices
Since our previous report, prices continued to grow at a moderate rate. According to our latest surveys, manufacturing input prices rose moderately while final goods prices rose more modestly. There were reports of manufacturers paying higher prices for plastics, lumber, copper, electricity, and freight. Additionally, a paper manufacturer noted a substantial increase in pulp prices. In the service sector, price growth remained modest overall, with some instances of larger price increases. For example, an IT service provider noted that it was able to raise prices considerably in recent months without losing any customers. Likewise, an elevator servicing firm was raising prices substantially across all lines of business (routine service, repair, and modernization). Food services firms reported modest price increases across many food categories. Both manufacturing and services firms commented on rising health insurance costs.
Manufacturing
On balance, manufacturing firms reported moderate growth in new orders and shipments in recent weeks. Manufacturers of plastic, rubber, paper, and transportation equipment noted strong growth in new orders. Also, electrical and medical equipment producers saw increased sales. Contacts experienced longer vendor lead times, and some businesses continued to report delayed customer shipments due to Hurricane Irma and Hurricane Harvey. Expectations were more upbeat, as producers anticipated strong increases in new orders and shipments for the next six months.
Ports and Transportation
District ports reported increases in shipments in recent months, driven mainly by growth in imports. One District port noted that it handled more volume in October than in any month on record. Ports remained optimistic that shipments would remain high in the near future.
Trucking companies in the District saw robust business growth in recent months. Firms continued to report increased demand and higher prices as relief shipments were sent to hurricane affected areas. A shortage of drivers has persisted in the District, even as firms raised wages, leading some trucking companies to turn away business.
Retail, Travel, and Tourism
Reports on retail sales were somewhat positive in recent weeks. Many District retailers noted moderate growth in sales so far this year and were optimistic heading into the holiday season. A Virginia home decor store reported customer traffic above the seasonal norm and strong sales even as prices rose. On the downside, some small clothing stores saw slightly weaker sales. A South Carolina auto dealer reported robust growth. However, a Virginia auto dealer reported a drop in sales of high-end vehicles.
Tourism has remained robust since our previous report. Hotels across the District reported that bookings were up over last year, and a South Carolina hotel had record revenues in October. A Virginia resort attributed recent increases in bookings and golfing to good weather. Conversely, visits to D.C. museums and monuments fell slightly.
Real Estate and Construction
Residential real estate firms indicated modest growth, overall. District agents reported steady levels of buyer traffic, although home sales rose only modestly due to very limited inventory. Home prices continued to rise modestly. Average days on the market decreased since the previous report, as most contacts stated that homes were on the market for about 45 days. In some markets, brokers said that they have seen more appraisals coming in under contract price due to limited comparable home sales. Although new home sales continued to improve modestly, new home construction remained subdued.
Commercial real estate leasing rose moderately in recent weeks. Contacts reported increased leasing activity for large industrial space and small retail space, while office leasing rose modestly for urban class A space. Vacancy rates remained low across all sub-markets. In particular, brokers said that large industrial and distribution spaces were in high demand, but limited supply. Rental rates increased moderately for retail and industrial spaces, and some executives reported modest increases for urban office space. Commercial construction increased for several types of structures, including industrial, class A office, grocery-anchored shopping centers, and medical projects. Brokers indicated that the number of newly announced multifamily construction projects decreased across the District.
Banking and Finance
On the whole, loan demand increased modestly since our previous report. Residential mortgage demand was generally characterized as stable. A lender in Virginia reported an increase in mortgage loans, but attributed it to more advertising and concessions on closing costs. Meanwhile, a banker in North Carolina said the low inventory of homes for sale was restraining mortgage loan growth. Commercial lending activity rose moderately in recent weeks. A banker in Baltimore saw an increase in commercial real estate lending for multi-family and senior housing facilities. Small business and agriculture lending rose modestly, according to contacts in Virginia and North Carolina. On balance, interest rates and net interest margins increased slightly in recent weeks. Credit quality remained strong while credit standards were generally unchanged.
Non-Financial Services
District services firms reported moderate growth in revenues in recent weeks. The strongest reports came from wholesalers, telecom firms, performing arts centers, vehicle repair services, and utilities. A contact from a Maryland utility company said business was growing week after week. Likewise, a Virginia natural gas utility reported that revenues were growing as temperatures were falling in recent weeks. Business also picked up for legal firms, accounting firms, defense contractors, and IT service providers across the District.
For more information about District economic conditions visit: www.richmondfed.org/research/regional_economy