Beige Book Report: Richmond
March 6, 2019
Summary of Economic Activity
The Fifth District economy continued to grow at a modest pace in recent weeks. Port activity remained robust; however, some contacts expressed concern that trade policy could negatively affect volumes in the next several months. Meanwhile, trucking demand growth slowed to a moderate pace. Manufacturing activity was mixed, and firms continued to report uncertainties and higher materials costs associated with tariffs and trade. Travel and tourism rose moderately, overall. However, a sharp decline in tourism was reported by several firms in and around the District of Columbia, which was attributed to the partial federal government shutdown. Retailers gave mixed reports; some with lower sales citied poor weather or the shutdown. Several nonfinancial services firms also reported project delays and lost revenue due to the shutdown, but other businesses saw increased demand for their services. Residential and commercial real estate sales and leasing rose modestly, on balance. Banks reported modest growth in loan volumes. Labor demand strengthened moderately, wages rose modestly, and many firms reported using non-wage benefits to attract and retain talent. Price growth remained moderate, overall.
Employment and Wages
The demand for labor strengthened moderately in recent weeks. Staffing firms reported that the volume of worker conversion from temporary to permanent increased modestly. Meanwhile, employers continued to report very tight labor markets and difficulties finding qualified workers, particularly hourly workers. Additionally, firms reported high demand for construction workers, executive assistants, HR professionals, engineers, IT professionals, accounting and finance professionals, plant production workers, mechanics, and truckers. Wage increases remained modest, overall. Meanwhile, many firms reported offering bonuses or relocation assistance to attract and retain talent.
Price growth remained moderate, overall, since our previous Beige Book report. Manufacturing prices received continued to increase at a moderate rate. Also, input price growth slowed slightly but still outpaced growth in selling prices. Manufacturers noted some price declines for energy, petrochemicals, corrugated boxes, and transportation costs, although several firms continued to report paying higher prices for tariffed raw materials, such as steel and aluminum. Services sector firms indicated that prices paid rose at a slightly faster rate than selling prices, but both remained moderate, overall.
Fifth District manufacturing activity was mixed in recent weeks. Several firms, including a Virginia furniture manufacturer, continued to struggle to deal with uncertainty surrounding tariff-related cost increases. In addition, a cabinet manufacturer reported strong demand and was able to pass through part of the materials cost increase that resulted from the tariffs. Many firms, such as a Maryland concrete company, attributed a decline in business to intemperate weather. Food manufacturers in Maryland and Virginia reported robust growth despite a drop in sales to D.C. area restaurants during the partial government shutdown.
Ports and Transportation
Ports in the Fifth District saw robust activity in recent weeks. Growth in imports was particularly strong and continued to surpass growth in exports. Ports invested in capital expansion to allow for continued growth but remained concerned about how business in the next several months might be affected by trade policy. One port executive saw business bounce back after weakness at the end of 2018. Another source reported record business to start the year but expected it to slow in the near future. In addition, an airport saw continued growth in both passenger traffic and cargo.
Trucking companies saw demand growth slow to a moderate pace. A North Carolina firm attributed some of the slowing to inclement weather but was cutting back on hiring in anticipation of a slower year. In addition, a Virginia firm saw a softening in retail shipments. A company in the District of Columbia reported trimming discretionary spending as business was expected to slow down. Concerns about a decline in the pace of trade growth in the coming year were also expressed.
Retail, Travel, and Tourism
Travel and tourism in the Fifth District picked up moderately since our last report. A Virginia resort saw strong business, and an executive at a West Virginia hotel reported that warming weather was helping business. In Charleston, South Carolina, tourism remained steady despite the temporary closure of Fort Sumter during the partial government shutdown. Meanwhile, the Washington, D.C., area saw a sharp drop in visitors during the shutdown and a hotel in Asheville, North Carolina, reported lower occupancy.
Fifth District retailers reported mixed conditions in recent weeks. Many retailers saw a drop in business, which resulted from bad weather, while others struggled with continued cost increases due, in part, to tariffs. A West Virginia auto dealer attributed a sharp decline in sales to the government shutdown leaving potential customers without pay; however, a Virginia dealer reported solid business. Meanwhile, a South Carolina retailer invested in new storage to allow for sales growth, and a West Virginia sporting goods retailer reported steady demand.
Real Estate and Construction
Residential real estate contacts indicated modest growth, overall. Home sales rose modestly in recent weeks and buyer traffic was reportedly steady, despite winter storms hitting some areas in the District. Brokers reported that inventories generally remained at low levels. Agents continued to report that lower- to middle-priced homes were absorbed quickly and, in some cases, received multiple offers. District home prices increased slightly, although agents reported slower price growth in homes priced above $800,000. Residential construction was steady in most markets; however, with limited speculative homebuilding.
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. Moreover, vacancy rates decreased slightly across all sub-markets, and contacts reported that limited inventory pushed rental rates up slightly in some areas. On the commercial sales side, brokers reported modest increases in prices and volumes. Multi-family leasing remained healthy, although reports on construction activity varied across the District.
Banking and Finance
On the whole, loan volumes increased modestly since our previous report. Residential mortgage demand was generally described as stable to increasing modestly, and bankers reported that deposits were up moderately. Commercial real estate loan demand remained strong. Other business loan demand increased slightly, on balance, while automotive lending was reportedly flat. Loan and deposit interest rates edged higher while credit quality and credit standards remained strong, overall.
Reports from nonfinancial services firms were mixed in recent weeks. Demand increased for some engineering consultants, law firms, advertising agencies, hospitals, and IT businesses. Meanwhile, several firms noted a decrease in demand, including those engaged in telecommunications, security services, and federal government contractors. Overall, firms indicated that the partial government shutdown resulted in lost revenue, job cuts, and project delays due to lapses in grant and permit approvals.
For more information about District economic conditions visit: www.richmondfed.org/research/regional_economy