Beige Book Report: Richmond
April 17, 2019
Summary of Economic Activity
Since our previous Beige Book report, the Fifth District economy grew moderately. Manufacturing activity picked up modestly as firms experienced steady growth in shipments and new orders. Ports continued to report robust business, with import volumes exceeding exports. Meanwhile, trucking companies saw demand pick back up to a strong level after a slow start to the year. Travel and tourism strengthened across most of the Fifth District. Most of the contacted retailors reported sluggish conditions with softness noted in apparel and auto sales. Reports from nonfinancial services firms were mostly positive with increased demand for staffing and recruiting, administrative services, engineering, legal services, and health care. Residential home sales increased modestly in recent weeks while inventories remained low. Commercial real estate leasing and sales rose modestly, overall, with notable strength in industrial markets. Banks generally reported stable to modest growth in real estate lending, strong and increasing deposits, and solid business lending. On the whole, the demand for workers increased, labor markets remained tight, and wages rose modestly. Prices continued to grow at a moderate rate, overall.
Employment and Wages
Labor demand continued to strengthen moderately in recent weeks, while labor markets remained tight across industry sectors. Employment agencies noted a slight increase in the level of new job openings. Employers reported difficulty filling positions for accounting and finance professionals, IT professionals, engineers, health care providers, and construction workers. Firms continued to report increased use of retention tools and high levels of employee turnover, particularly for truck drivers, production workers, mechanics, salespeople, and temporary workers. Wage increases remained modest across sectors, though firms reported that wage growth was picking up.
Prices
On balance, price growth remained moderate since our previous Beige Book report. Manufacturers indicated that prices received grew at a moderate rate but continued to lag input price growth. Some raw materials price increases were reported for specialized chemicals and metals, while some easing of prices was cited for freight, lumbar, resin, and natural gas. Overall, services firms saw prices paid increase at a faster rate than selling prices, with both remaining within a moderate range.
Manufacturing
Overall, manufacturing activity picked up modestly since our last report. Contacts reported steady growth in shipments and new orders, overall. However, several manufacturers continued to face higher costs of raw materials due at least in part to tariffs. A North Carolina furniture manufacturer said that price increases were difficult to pass through to customers, but a Maryland company was able to pass them through. A few contacts, such as a Virginia window manufacturer, reported that recent bad weather led to weak business.
Ports and Transportation
Fifth District ports saw robust growth in recent weeks. Imports remained strong and continued to outpace exports. Contacts reported a slight decrease in exports, particularly for agricultural goods to China. An airport planned to add new international flights as both cargo and passenger business grew. Contacts also reported being able to process imports and ship them domestically more efficiently. However, port executives remained cautious about investment decisions because of lingering uncertainty over tariffs.
Fifth District trucking companies saw strong growth in recent weeks. Contacts reported an increase in business after a slow start to the year with growth in shipments of most goods. One firm noted a strong increase in food shipments but a softening of government business. A North Carolina company was overbooked heading into the busy spring season. Similarly, a Virginia firm reported capacity constraints, with more freight than trucks, although all the firm’s trucks had enough drivers. However, one contact reported a drop in volumes but still maintained good profit margins and revenue growth.
Retail, Travel, and Tourism
Fifth District travel and tourism were strong in recent weeks. The Asheville, North Carolina area saw tourism revenue grow, particularly for short-term rentals. A new hotel in Charleston, South Carolina was unable to open many rooms because of an inability to find staff. However, a Greenville, South Carolina hotel credited low revenues to an increase in supply in the area, as well as softening demand. A zoo reported raising prices amid confidence that business would remain strong.
On the whole, retailers experienced sluggish conditions since our last report. Several contacts attributed poor sales to bad weather. A Virginia high-end clothing store reported that sales have been persistently bad since November. A contact at a Virginia furniture store attributed business swings to unstable consumer confidence. Meanwhile, a North Carolina auto dealer reported low sales, resulting in a build-up of inventory. On a positive note, a regional hardware store had strong sales in March and most retailers remained optimistic about 2019.
Real Estate and Construction
Home sales increased modestly in recent weeks. District Realtors reported that single family inventories remained low, new listings continued to sell quickly, and buyer traffic was steady at open houses and showings. Brokers also reported that home prices rose modestly. Agents reported that new home sales and construction were steady, although construction of lower priced homes remained limited. Meanwhile, some District homebuilders reduced their planned production numbers for the rest of 2019.
Commercial real estate leasing rose modestly in recent weeks. Brokers reported strong demand for industrial space and office leasing was reportedly flat to increasing modestly in some markets; however, retail leasing slowed across markets. Vacancy rates increased slightly for some office and retail markets. Meanwhile, rental rates were reportedly stable to increasing modestly. Commercial sales rose modestly, according to a few brokers, with warehouse and industrial building sites representing the majority of transactions. Commercial construction increased modestly in some regions. Multifamily leasing remained healthy in most markets, while multifamily construction remained steady.
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. The demand for commercial real estate loans remained modest. Corporate lending was reportedly strong and small business lending was solid. Overall, deposits were increasing. Credit quality remained high 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 firms reported modest growth in recent weeks. Increased demand was reported by businesses engaged in staffing and recruiting, engineering, administrative support, law, and health care. However, several firms reported profit margin compression with limited ability to pass along rising input costs to customers. A few federal government contractors said that business was starting to return to normal after sustaining negative impacts from the shutdown, although one contractor noted a slowdown in spending by some federal agencies.
For more information about District economic conditions visit: www.richmondfed.org/research/regional_economy