Beige Book Report: Richmond
October 24, 2018
Summary of Economic Activity
Since our previous report, the Fifth District economy expanded at a moderate rate. On balance, manufacturing activity expanded moderately; however, rising materials costs and some hurricane-related disruptions were reported. Imports increased and exports declined but some Fifth District ports sustained property damage due to Hurricane Florence. Trucking activity remained robust despite highway and service center closures in hurricane-affected areas. Tourism and business travel also fell due to Hurricane Florence, as many travelers canceled bookings and coastal areas were evacuated. Farm animals were killed and crops were damaged by Hurricane Florence and by rainy weather, in general. Residential and commercial real estate activity picked up modestly. At the same time, loan demand picked up. Meanwhile, demand for nonfinancial services rose at a moderate pace. Labor demand strengthened and job openings increased while wage increases remained temperate. In general, prices continued to grow at a moderate rate.
Employment and Wages
The demand for labor strengthened moderately in recent weeks, and employment agencies reported a pick-up in new job openings. Meanwhile, employers continued to report very tight labor markets and difficulties finding qualified workers. Staffing firms saw stronger demand, particularly for customer service representatives and human resource professionals. Additionally, firms reported a need for more construction workers, engineers, IT professionals, accounting and finance professionals, plant workers, mechanics, and truckers. Wage increases remained modest.
Prices
Overall, prices continued to grow moderately in recent weeks. According to our latest surveys, manufacturer's selling prices grew at a moderate rate while their input prices rose at a slightly faster rate. Specifically, contacts reported price increases for packaging materials, paper, steel, aluminum, resin, and concrete. Additionally, a food manufacturer saw higher prices for poultry and eggs. Service sector firms reported moderate price growth in prices paid and prices received. Shipping costs continued to increase, according to firms in both manufacturing and services sectors. Coal prices rose slightly in recent weeks while natural gas prices increased at a moderate rate.
Manufacturing
Fifth District manufacturing activity increased moderately in recent weeks. A North Carolina fabric producer reported robust demand, and a Virginia window manufacturer attributed strong sales to high consumer confidence. However, many manufacturers struggled with rising costs of raw materials, some of which was attributed to the recent tariffs. A Virginia display case manufacturer looked to import materials from countries other than China. Several firms reported negative impacts from Hurricane Florence, which included lost production time, reduced demand, and/or larger backlogs. One firm said they could make up the production deficit with overtime, but it was going to be more expensive.
Ports and Transportation
Fifth District ports saw mixed conditions in recent weeks. Some ports suffered losses from Hurricane Florence in the form of closures, property damage, and storm preparation costs. Overall, imports remained strong while exports decreased modestly. Port contacts attributed some of the export decline to the recent tariffs on American goods and believed that imports remained strong because orders were placed early, in anticipation of tariff increases. Meanwhile, a South Carolina airport reported booming business, unaffected by storms or tariffs, as both passenger and cargo flights continued to grow.
Trucking activity remained robust since our last report. Demand stayed strong and companies continued to turn down business because of a lack of drivers. One North Carolina trucking company invested in new service centers to help with business growth, but another worried about rising costs of equipment. District truckers did see some effects from Hurricane Florence, largely coming from highway and service center closures as well as additional costs associated with protecting equipment.
Retail, Travel, and Tourism
Reports on tourism were mixed since our last report, as Hurricane Florence discouraged people from visiting parts of the Fifth District. In Charleston, South Carolina, hotel occupancy fell significantly, and many hotels and restaurants closed as employees evacuated the area. In Asheville, North Carolina, hotels faced high levels of cancellations and local attractions lost business because of the hurricane. However, tourism in areas not affected by Florence was healthy. For example, a West Virginia resort reported strong business growth and high bookings for the coming months.
Fifth District retailers reported modest activity in recent weeks. A South Carolina auto dealer reported a slight uptick in business despite a downturn in sales at other local dealerships. Many stores saw sales growth and expected it to continue through the end of the year. However, retailers also expressed concerns about rising costs, some of which were attributed to the recent tariffs, and their inability to pass the cost increase through to customers.
Real Estate and Construction
Residential real estate firms indicated modest growth, overall. Home sales rose modestly in recent weeks and buyer traffic was steady, although low levels of inventory persisted. District home prices increased slightly, while days on the market were generally unchanged at low levels. Meanwhile, residential construction reportedly picked up in the District of Columbia, Virginia, South Carolina, and Maryland. Builders reported strong backlogs, although speculative construction remained limited.
Commercial real estate leasing rose modestly in recent weeks. District brokers reported increased demand for restaurant, grocery, and industrial space, while retail activity was stable to increasing. Office leasing varied across the District. A North Carolina broker stated that urban office space is in high demand, leading to new construction and conversions. Meanwhile, vacancy rates decreased slightly across all sub-markets, and contacts reported that limited inventory pushed rental rates up slightly. On the commercial sales side, brokers reported modest increases in prices and sales. Multifamily leasing remained healthy, although reports on construction activity varied across the District.
Banking and Finance
Overall, loan demand rose moderately in recent weeks. Residential mortgage demand was generally described as stable to increasing modestly. On the commercial side, real estate loan demand strengthened moderately. Business loan demand increased slightly, on balance, while automotive lending was reportedly flat. Bankers in Virginia and the District of Columbia reported increased C&I lending in recent weeks. A West Virginia banker saw higher than normal deposit growth and an uptick in loan demand in oil and gas areas of the state and a leveling off in demand elsewhere. Deposits grew moderately since our last report and contacts continued to report increased rate competition among banks. Credit quality remained stable at high levels.
Nonfinancial Services
The demand for nonfinancial services grew moderately in recent weeks. An accounting firm reported stronger demand, particularly from clients in the professional services, information, and manufacturing sectors. One firm attributed their increased business to a newly awarded federal contract while another firm saw more bid opportunities. Meanwhile, healthcare service providers continued to report strong business conditions.
Agriculture and Natural Resources
Natural gas production increased slightly in recent weeks while coal production was little changed. Farmers in North Carolina lost crops and livestock to flooding from Hurricane Florence. A farmer in South Carolina who was not directly affected by the hurricane, but had a lot of rain since, was at risk of losing some crops.
For more information about District economic conditions visit: www.richmondfed.org/research/regional_economy