Beige Book Report: Richmond
July 17, 2019
Summary of Economic Activity
Since our previous Beige Book report, the Fifth District economy grew at a modest rate. Manufacturers saw a slight increase in shipments and new orders, but continued to face challenges from the current trade environment. Import volumes remained strong and, at one port, the composition of imports is shifting from China to other Asian countries. Trucking firms, on the other hand, had freight volumes fall below seasonal levels. Nonfinancial services firms reported moderate growth, particularly for construction-related and health care services. Tourism contacts indicated that both business and leisure travel increased in recent weeks, which helped boost restaurant and touring business in some areas. Meanwhile, reports from retailers were mixed. Residential real estate sales picked up modestly, overall, but were constrained by low inventory levels. Commercial leasing and sales also increased modestly in recent weeks, vacancy rates remained low, and rental rates were generally reported as stable to increasing modestly. Fifth District bankers reported deposit growth and a modest increase in loan volumes. Labor markets strengthened, overall, but employers continued to face challenges finding workers and were increasing wages at a moderate rate. Price growth remained moderate, overall.
Employment and Wages
Labor demand strengthened moderately in recent weeks. Employment agencies reported growth in new job openings across all the industry segments they service. Meanwhile, employers across sectors continued to report tight labor markets and difficulty filling positions, particularly for skilled tradespeople, engineers, experienced bankers, IT professionals, and hospitality workers. Wages reportedly grew at a moderate rate, overall, and several firms are increasingly using non-wage benefits, such as flexible work arrangements and additional paid time off, to attract and retain workers.
Since our previous Beige Book, manufacturing firms generally indicated slower, but still moderate, growth for prices paid and a slight acceleration of growth for prices received. Several contacts noted that some raw material prices eased in recent months, including a notable decline in steel prices. Meanwhile, services firms reported a slight increase in both prices paid and prices received, with both growing at a moderate pace. Businesses in both sectors attributed some of the overall increase in prices paid to tariffed imports and paying higher wages to attract and retain workers.
On balance, manufacturers in the Fifth District reported mild growth in recent weeks, with shipments and new orders increasing slightly. A cabinet manufacturer reported solid growth in business, and a food manufacturer planned to increase capital expenditures because of strong demand. On the other hand, several contacts continued to report challenges with tariffs and the trade environment. For example, a North Carolina furniture manufacturer was unable to pass tariff-related cost increases on to customers, and a West Virginia rubber manufacturer attributed a drop in business from Chinese customers to the trade wars.
Ports and Transportation
Fifth District ports saw robust activity in recent weeks. Import volumes rose and remained above export volumes. One port saw record-breaking imports, with particularly strong furniture imports. A separate port contact noted that furniture imports had shifted away from China, to other South-Asian countries. One port executive noted that exports recently picked up; however, lumber exports to China declined according to multiple Fifth District ports. Meanwhile, an airport reported strong growth in cargo shipments, although growth slowed slightly in recent weeks.
Trucking companies reported slowing business since our last report, with freight volumes below normal seasonal levels. One executive attributed slowing business to retailers who placed orders to get ahead of the tariffs and still have excess inventory as a result. Companies generally reported that the softer demand led to lower shipping rates, and one company had to eliminate several positions because there was not enough work. On the other hand, another firm continued to look for drivers but said that they no longer needed to raise starting wages.
Retail, Travel, and Tourism
The Fifth District tourism sector continued to grow in recent weeks, with many contacts reporting a strong start to the summer tourism season. Travel for both business and leisure increased, although some hotels struggled with occupancy and rates because of an increasing supply of hotels in their markets. Restaurants and touring companies did robust business as travel was high. Firms expect tourism and travel to remain strong throughout the summer.
Comments from Fifth District retailers varied considerably. A Virginia hardware store had an uptick in business as weather improved. A North Carolina auto dealer saw strong buyer traffic and sales, but expressed concerns about how unrest in the Middle East might affect business in the coming months. Meanwhile, a Virginia high-end clothing retailer reported that business continued to weaken after several soft months, but hoped that July sales events would improve revenues. A North Carolina retailer reported rising prices from suppliers, which was attributed to tariffs.
Real Estate and Construction
Residential real estate firms indicated modest growth, overall. Home sales were reportedly stable to increasing modestly in recent weeks. Brokers continued to report that low levels of inventory were constraining sales, and agents said that new listings continued to sell quickly. Meanwhile, residential construction activity remained flat in most areas; however, a broker in Columbia, South Carolina, reported an increase in recent weeks.
Commercial real estate leasing and sales rose modestly, since our previous Beige Book. Fifth District brokers reported increased demand for industrial space and higher fast casual restaurant leasing. Meanwhile, retail activity varied as small retail sites were generally leasing well but larger anchor tenant leasing had slowed. Commercial office leasing was steady to increasing slightly in most markets. A Charlotte, North Carolina, broker reported conversions of older warehouse space to office space, and also noted high-rise towers with rents starting to push over $40 per square foot. Multifamily leasing and construction remained healthy, overall. Vacancy rates remained low across sub-markets. Lastly, reports indicated that commercial rental rates were stable to increasing modestly.
Banking and Finance
On the whole, loan volumes increased modestly since our previous report. Residential mortgage demand was flat to slightly up in recent weeks, but down slightly compared to last year. Bankers commented that the lack of housing inventory continued to affect the volume of mortgage loans underwritten so far this year. Commercial lending activity rose modestly in recent weeks. Bankers noted increased demand for business investment and commercial real estate development loans. Deposits rose moderately. Bankers said that competition for deposits remained strong, and accordingly interest rates moved higher. Credit quality remained strong while credit standards were generally unchanged.
On balance, demand for nonfinancial services strengthened moderately in recent weeks. Engineering and architecture consulting firms saw strong growth. Overall, health care providers reported growth in services and reimbursements; however, revenues declined in rural hospitals in one area in Virginia. Some firms were concerned that growth could slow in the near future, but they had not altered capital expenditure plans. In fact, one contact reported increased spending on software upgrades and PC replacements.
For more information about District economic conditions visit: www.richmondfed.org/research/regional_economy