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Beige Book Report: Richmond

June 5, 2019

Summary of Economic Activity
Overall, the Fifth District economy grew at a modest pace since our previous Beige Book report. Manufacturers reported a slight decline in shipments and new orders. Trucking firms also reported a slowdown in recent weeks with volumes falling below normal levels and below expectations. Meanwhile, port activity remained strong, particularly for imports from Europe and Southeast Asia; however, port contacts expressed concerns about potential impacts from the latest round of tariff increases. Tourism remained strong across the Fifth District; however, in some cases, labor shortages led to cutbacks. Retailers gave mixed accounts with some mention of excess inventory and paying higher prices for tariffed products. Reports from nonfinancial services firms were also mixed. Health care and construction-related firms saw healthy growth, but some professional and legal services saw slower growth due to more cautious business spending and labor constraints. Home sales and mortgage lending grew modestly, overall, as did commercial real estate leasing. Bankers generally indicated modest loan demand, moderate deposit growth, and strong credit quality. Labor markets remained tight and wages rose modestly, overall. Prices continued to grow at a moderate rate.

Employment and Wages
Labor demand continued to strengthen moderately in recent weeks, while supply remained tight across industry sectors. Employment agencies noted a slight increase in job openings while staffing firms reported increased demand for entry-level positions and a pickup in permanent and executive search services. Businesses reported difficulty filling positions for accounting and finance professionals, administrative staff, IT professionals, engineers, health care professionals, electricians, and construction workers. Wage increases remained modest across sectors, but staffing firms reported increased wage pressures.

Prices
Fifth District manufacturing and services firms generally indicated that input price growth continued to outpace growth in prices received, but both remained moderate, overall. Several firms attributed recent input cost increases to labor and raw materials as freight and energy prices were flat to slightly lower. Some manufacturers noted that prices leveled off but remained high for steel, aluminum, and resin. Meanwhile, a food manufacturer noted an uptick in prices for commodities, such as sugar, poultry, and pork.

Manufacturing
Fifth District manufacturers reported slightly slowing growth since our last report, as shipments and orders fell. A Maryland manufacturer reported cutting staff because of slowing business and high expenses. Manufacturing contacts continued to express concerns about the effects of trade policy. Meanwhile, some contacts attributed the fall in new orders to retailers wanting to reduce inventories. However, an elevator manufacturer reported strong business, with a backlog extending into 2020, and was able to charge higher prices.

Ports and Transportation
Ports in the Fifth District saw strong activity since our last report. Growth of imports continued to outpace that of exports, but exports remained solid. One port noted particularly strong growth in imports from Europe and Southeast Asia. Consumer goods, especially automobiles, remained strong on both the import and export sides. A port executive attributed an increase in both imports and exports of machinery, construction, and farm equipment to positive economic sentiment. However, some port contacts expressed concern about uncertainty surrounding the potential effects of the latest round of tariff increases.

Fifth District trucking softened slightly in recent weeks, with business below normal seasonally and also below expectations. Firms reported fairly steady rates but the drop in volumes shipped led to lower revenue. Several companies also saw demand and prices fall in the spot market. Several trucking firms reported reducing the amount they had planned to spend on equipment because of uncertainty and slower business.

Retail, Travel, and Tourism
Fifth District tourism remained strong since our last report. Hotels generally reported growth in occupancy, room rates, and advance bookings for both business and leisure travel. The District of Columbia saw an increase in both visitation and visitor spending in recent weeks. Meanwhile, in Charleston, South Carolina, demand for hotel rooms increased, but rates remained low, as many of the bookings came from corporate accounts with predetermined rates. A few hospitality contacts said that labor shortages led to cutting back on services. Additionally, several restaurants in Charleston, SC, closed because they couldn't find enough staff. Moreover, one restaurant moved to counter service and disposable utensils in order to remain open with a smaller staff.

Retailers reported mixed conditions in recent weeks. Clothing retailers reported that a build-up of inventory from trying to get ahead of tariffs was preventing them from placing new, seasonally appropriate orders. Other retailers continued to struggle with high prices of products resulting from tariffs. However, a Virginia auto dealer saw higher sales and increased profit margins as manufacturers strengthened sales incentives. A kitchen supply retailer reported high inventories but strong sales, and a hardware store attributed strong sales to good weather.

Real Estate and Construction
Home sales increased modestly in recent weeks and were reportedly higher than last year. District Realtors reported that single-family inventories remained low, new listings continued to sell quickly, and buyer traffic was steady. Home prices rose modestly, while days on the market were generally unchanged at low levels. Meanwhile, new residential construction and sales continued at a modest pace while speculative construction was limited.

Commercial real estate leasing rose modestly, overall. District brokers continued to report strong industrial leasing activity; however, reports on office and retail leasing were mixed. Vacancy rates remained low across most markets. Rental rates were stable for retail and office space, while rates increased modestly for industrial space. Commercial sales rose slightly, while commercial construction increased modestly in most regions, with healthcare, warehouses, and data centers representing the majority of new projects. Multi-family leasing and construction remained healthy in most markets.

Banking and Finance
Since our previous Beige Book, loan demand grew modestly. Business loan demand increased slightly while automotive lending was reportedly flat. Meanwhile, bankers said that consumer demand was stable. In the District on the whole, residential mortgage demand grew at a modest pace. Deposits rose moderately, on balance, in recent weeks. Credit quality remained strong while credit standards were generally unchanged.

Nonfinancial Services
Since our previous Beige Book, reports from nonfinancial services firms were mixed. Services related to construction, such as engineering and architecture, saw increased demand and a growing backlog of work. Also, health care providers reported higher volumes and increased access due to employment growth. However, some professional and legal services firms reported a slowdown in activity, due to more cautious business spending and difficulties finding workers. Meanwhile, corporate giving to nonprofits fell.

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