Beige Book Report: Richmond
April 18, 2018
Summary of Economic Activity
Since our previous report, the Fifth District economy grew moderately. Manufacturers provided mixed accounts of business conditions with some noting continued challenges of rising input prices and shipping delays. Port activity remained strong, overall, with particularly high export growth coming out of South Carolina. Trucking firms continued to see robust demand and several companies were able to hire new drivers and increase capacity. Retailers reported weaker demand in recent weeks and tourist activity varied as atypical weather resulted in travel disruptions and lower hotel occupancies in some areas. Residential real estate sales picked up modestly, particularly for lower-priced homes. Meanwhile, commercial real estate leasing activity rose moderately, led by increased demand for office space. Nonfinancial services saw a moderate rise in demand, overall. Labor demand strengthened moderately in recent weeks while wage pressures remained modest. Prices grew moderately, on balance; however, steel and aluminum prices rose sharply and were expected to rise further as a result of recently-imposed tariffs.
Employment and Wages
Labor demand continued to strengthen moderately in recent weeks. Compared to the previous report, employment agencies noted no change in the level of new job openings; however, openings remained at strong levels. Executives reported difficulty filling positions for accounting and finance professionals, IT professionals, engineers, health care providers, and construction workers. Wage pressures reportedly rose for residential builders, professional services workers, manufacturers, and IT professionals. Wage increases remained modest, overall.
Prices
Prices grew moderately, on balance, since our previous report. According to our most recent surveys, manufacturers' input costs grew at a moderate rate and continued to outpace growth in selling prices. Steel and aluminum prices rose sharply and were expected to rise further as a result of recently-imposed tariffs. Housing and construction material prices, such as those for appliances, cabinetry, carpet, drywall, lumber, and concrete were also on the rise. Service sector prices grew at a modest rate, overall. Contacts reported that coal and natural gas prices declined slightly in recent weeks. Meanwhile, oil and petroleum-based product prices grew moderately.
Manufacturing
Manufacturing business conditions were mixed in recent weeks. A Virginia food manufacturer reported an improvement in business activity with particularly strong Easter sales. A North Carolina machine parts company saw a rise in orders in March after a slow start to the year. Meanwhile, a Virginia window and door manufacturer reported softer demand due to adverse weather conditions. Manufacturers generally struggled with rising input prices and slow delivery times. In fact, a West Virginia rubber manufacturer said he started to store more raw materials on site since delivery times have more than doubled, on average. Similarly, a Virginia display case manufacturer reported stockpiling steel in anticipation of higher prices resulting from the new tariffs.
Ports and Transportation
Ports saw fairly strong activity in the past several weeks, with volumes of loaded containers rising, particularly for exports. A South Carolina airport saw growth in both passenger and cargo traffic, and continued to see a balance of imports and exports after a long period of exports lagging. A South Carolina port saw a slight softening of imports compared to last year but experienced a drastic increase in exports. A Maryland port saw strong growth in imports and exports compared to last year with import growth slightly outpacing export growth. Several ports noted some uncertainty about what effects the steel tariffs might have on trade.
Trucking companies continued see robust growth, with many facing more freight than they could handle. However, several companies had more success hiring drivers in the past few weeks, which helped to increase their capacity. Even with this capacity boost, firms had to turn away business because they were unable to meet demand. Several trucking firms were also concerned about rising equipment and repair costs potentially leading to a shortage of trucks that could add to capacity constraints.
Retail, Travel, and Tourism
Many retailers reported weak demand in recent weeks. A Virginia auto dealer attributed low sales to reduced customer traffic and low credit scores among potential buyers and said that the lower sales combined with increasing prices from manufacturers had hurt profits. A West Virginia sporting goods retailer reported that retail sales continued to fall as some consumers were increasingly buying directly from manufacturers; however, the wholesale sales continued to keep the business afloat. On a positive note, several furniture and clothing retailers saw a slight uptick in sales, and a West Virginia appliance retailer reported strong business activity.
Tourist activity was mixed in recent weeks, due in part to adverse weather conditions. A Virginia ski resort was unable to make up losses after temporarily closing for unusually warm weather. At the same time, the nor'easter storms caused flight cancellations and shutdowns in Washington, D.C., leaving hotels in the area with low occupancy rates. Hotels in Charleston, South Carolina also had low occupancy rates, but attributed them to increased supply as demand for rooms actually rose in the area. Meanwhile, some North Carolina restaurants and hotels reported strong demand despite difficult travel conditions created by winter storms. Hotels and tourist attractions around the District were optimistic that business would improve along with the weather in the coming weeks.
Real Estate and Construction
Residential real estate sales increased modestly compared to the previous report. Agents reported steady buyer traffic in recent weeks, while homes in the $200,000 – $400,000 price range sold quickly with multiple offers. Overall, inventory levels remained low and in some regions were below last year's levels. Home prices rose modestly, while average days on the market were generally unchanged. New home construction and sales increased slightly across the District.
Commercial real estate leasing activity rose moderately in recent weeks as brokers reported increased demand in office leasing, while the industrial and retail markets remained active. Vacancy rates were mostly unchanged, although some agents reported modest increases in office vacancy rates due to new supply coming on line. Rental rates were stable to increasing modestly across the District. On the commercial sales side, brokers reported modest increases in prices and sales. Commercial construction varied across the District, but most contacts noted that new construction remained limited.
Banking and Finance
On the whole, loan demand increased modestly since our previous report. Residential mortgage demand varied by location but was generally described as stable to increasing modestly. Interest rates inched higher in recent weeks, while deposits were up modestly, overall. On the commercial side, loan demand varied, with a notable uptick reported in the greater Raleigh and Asheville, North Carolina areas. Credit quality remained strong while credit standards were generally unchanged. Bankers continued to report strong competition among banks, credit unions, and financial technology firms.
Nonfinancial Services
On balance, nonfinancial services demand picked up moderately since our previous report. The strongest demand was reported for administrative services and health care services. Comments from professional and business services firms were mostly positive; however, some firms noted a decline in activity due to reductions in federal spending. Lastly, a natural gas utility firm reported softer demand as usage declined due to warmer weather.
Agriculture and Natural Resources
A farmer in South Carolina saw more acreage being used to grow cotton as a result of higher export selling prices. He also said that more agricultural land was being converted to solar farms. Coal production was little changed in recent weeks while natural gas production declined slightly.
For more information about District economic conditions visit: www.richmondfed.org/research/regional_economy