‹ Back to Archive Search

Beige Book Report: Richmond

October 18, 2017

Summary of Economic Activity
The Fifth District economy grew at a moderate pace since our previous report, with some respondents attributing increased activity to the recent hurricanes. Manufacturing firms continued to report moderate growth in new orders and shipments. Ports and trucking companies saw robust growth in cargo movements, which was partially due to ships being rerouted to district ports from areas affected by hurricanes. Retail sales picked up slightly, overall, including those for building materials to support hurricane relief efforts. Tourism and travel activity remained strong. Commercial leasing rose modestly, on balance. Loan demand picked up moderately in recent weeks, driven by commercial activity. Services firms generally indicated moderate revenue growth. Labor demand strengthened moderately and wage pressures broadened. Prices rose at a moderate pace. Supply chain disruptions drove some input prices higher.

Employment and Wages
Labor demand continued to strengthen moderately in recent weeks and labor markets remained tight. Although employment agencies reported a slight increase in new job openings, that increase was lower than expected going in to the fall recruiting season. They continue to anticipate an increase in openings in coming months. Wage increases remained modest, but more contacts noted increased wage pressures. Executives reported difficulty finding qualified machinists and machine operators, engineers, construction workers and contractors, executive assistants, mechanics, and nurses. Trucking companies continued to struggle finding drivers, despite an increase in drivers' wages across the industry.

On balance, prices grew at a moderate pace since our previous report. According to our most recent surveys, manufacturing input prices increased moderately and continued to grow at a faster pace than final goods prices. Manufacturers said that supply chain disruptions from the recent hurricanes drove some raw materials prices higher, particularly for resins, lumber, and petroleum-based products. Services firms indicated that price growth decelerated slightly in recent weeks but remained at a modest level, overall. Agriculture commodity prices increased modestly for poultry, eggs, wheat, and sugar in recent weeks and were expected to rise further as a result of the recent hurricanes. A food manufacturer also expressed concerns about future price increases for plastic wrap. Prices continued to rise for transportation services, construction materials, and health insurance premiums. Coal and natural gas prices rose moderately.

On balance, manufacturing firms reported moderate growth in new orders and shipments in recent weeks. Medical equipment producers and furniture manufacturers noted a recent pickup in new orders, while metal manufacturers continued to see improved business conditions. Additionally, a packaging manufacturer reported increased shipments with the opening of its new fulfillment center. Contacts generally experienced slightly longer vendor lead times. Expectations remained optimistic for the next six months, as producers anticipated increases in new orders and shipments.

Ports and Transportation
District ports continued to see robust growth in shipment volumes in recent months and expected the strength to persist in coming months. In August, one District port reported its largest volume ever and another reported its second-largest on record. Ports continued to see stronger growth in imports than in exports. District ports reported seeing increased traffic as incoming ships were rerouted from hurricane affected areas. Trucking companies also reported strong business conditions, easily loading trucks to capacity. Firms noted that a portion of the recent uptick was a result of the recent hurricanes, as trucks brought relief shipments to affected areas.

Retail, Travel, and Tourism
Retail sales rose slightly, overall, since our previous report. Hardware and construction material providers saw an increase in demand resulting from the hurricane, which led to higher prices of hardware and lumber. An auto dealer in North Carolina reported a slight increase in sales and customer traffic but noted uncertainties about how the hurricanes would affect the used vehicle market. Meanwhile, a sporting goods company in West Virginia said that sales continued to slow as some manufacturers opted to sell directly to customers.

The Fifth District saw strong tourism in recent months. A West Virginia resort experienced bookings 12 percent to 15 percent above expectation. A Virginia outdoor adventure center credited strong business to early fall weather and visiting school groups. Coastal North Carolina witnessed tourism above the seasonal norm, and some businesses claimed it was the best season they have ever had. Some hotels reported an influx of people due to Hurricane Irma evacuations, but believed tourism might be depressed in the near future as hurricane victims might be less likely to travel later this year.

Real Estate and Construction
Residential real estate reports were more mixed compared to the previous report. Agents in Charlotte, Durham, and Washington D.C. reported modest sales growth, but elsewhere most brokers noted a modest decline in home sales as inventory remained low, particularly in the $200,000 to $400,000 price range. Home prices continued to rise modestly. Average days on the market were unchanged since the previous report, most contacts stated that homes were on the market for about 60 days. New home sales improved modestly in recent weeks. A broker said that new home communities in more desirable locations continued to have steady sales, while most builders were keeping standing inventory low.

Commercial real estate leasing rose modestly in recent weeks, as brokers reported more demand in urban locations. Vacancy rates were unchanged from the previous report, with most contacts noting steady, low rates across markets. Rental rates were stable to increasing modestly. Commercial construction accounts were mixed. Office and warehouse construction increased in Raleigh and Charlotte, North Carolina and Charleston, South Carolina, while in Washington, D.C., retail development slowed somewhat. Multifamily construction continued at a steady pace in large urban markets but was limited elsewhere.

Banking and Finance
Overall, loan demand rose moderately in recent weeks. Reports on residential mortgage demand varied by location but was generally described as stable to increasing modestly. On the commercial side, real estate loan demand strengthened moderately, with a notable uptick reported in the greater Raleigh, North Carolina area. Business lending improved slightly, on balance. Deposits grew moderately as bankers reported growth in both CDs and checking accounts. Short term interest rates were reported as unchanged to up slightly. Competition among banks remained aggressive with some reports of extended term durations and non-recourse loans being offered, which led to concerns about softening credit standards. Credit quality remained stable at strong levels. Late payments and delinquency rates trended lower.

Non-Financial Services
Services firms indicated moderate revenue growth, according to our most recent surveys, and remained optimistic for demand to improve further over the next six months. The strongest reports came from construction related services, including civil engineering, home repair, maintenance, and contractor services. Telecommunication services, amusement facilities, and performing arts studios also indicated a pickup in business in recent weeks. A marketing firm in Virginia reported an extension to an existing contract but a lot of competition for new business. Health care service providers were less upbeat and one hospital system administrator expressed concerns over rising insurance costs.

Agriculture and Natural Resources
Coal production was little changed in recent weeks while natural gas production rose slightly. On the whole, agriculture conditions were unchanged as the growing season progressed; however, some farms in South Carolina were flooded by Hurricane Irma. A hardwood producer reported a moderate rise in export demand in the flooring market while cabinetry demand softened somewhat.

For more information about District economic conditions visit: www.richmondfed.org/research/regional_economy