Beige Book Report: Richmond
September 4, 2019
Summary of Economic Activity
The Fifth District economy grew at a modest rate since our previous report. Manufacturers experienced a decline in shipments and new orders, and continued to cite trade-related impacts on demand and raw materials costs. Trucking companies also reported a modest decline in shipping volumes. Ports, on the other hand, saw robust activity stemming from strong import volumes. Agriculture contacts gave mixed reports, largely due to differing weather conditions across the region. Meanwhile, demand for nonfinancial services remained moderate. Several firms indicated that they were holding back on new investment due to uncertainties with trade, the federal budget, and the availability of labor. Tourism increased moderately. Auto sales were reportedly up and some hardware stores saw strong growth while other retailers experienced slower sales and less buyer traffic. Residential real estate sales and new home construction increased modestly, on balance. Commercial real estate contacts reported some increased leasing activity, low vacancy rates, and stable to modestly increasing rental rates. Bankers generally indicated modestly increasing deposits and loan demand. Labor markets remained tight and wage increases were modest. Prices continued to rise at a moderate rate.
Employment and Wages
The demand for labor remained strong in recent weeks. Staffing agents reported a high level of job postings; however, finding qualified applicants continued to be difficult across job categories and experience levels. One staffing agency said that they had turned down some clients because they believed the wages that were offered would not be high enough to attract quality workers. Looking ahead to the fall recruiting season, staffing firms expect demand to increase across the board and expect the usual seasonal uptick for temporary workers. Wage increases remained modest.
Price growth remained moderate for most finished goods and services since our previous report. Manufacturers generally indicated moderate growth in prices paid, which narrowly outpaced growth in selling prices. Several firms continued to note that tariffs were a driving factor behind some higher raw material prices, but lower prices were reported for lumber, steel, copper, and trucking. In addition, some retaliatory tariffs by China reportedly drove down selling prices for U.S. scrap metal and paper. Service sector firms also reported moderate price growth in both prices paid and prices received.
Manufacturers in the Fifth District experienced sluggish demand since our last report. Both shipments and new orders declined, and many firms reported weaker local business conditions. Several contacts cited tariff-related effects on their businesses, including lower demand and higher raw materials costs that they could not pass through to customers. A Virginia manufacturer delayed purchasing new equipment because of fear that business conditions would deteriorate in the coming months. However, a South Carolina appliance manufacturer reported strong sales and revenue growth and invested in expansion projects.
Ports and Transportation
Fifth District ports saw strong growth in recent weeks that met or exceeded expectations. Growth of imports was particularly robust, as import volumes remained above export volumes. One port continued on a strong capital investment plan because of good conditions, but another delayed investments in order to see how business would change in the coming months. A Fifth District airport saw a slowdown in international cargo traffic. Executives also expressed concerns about future trade conditions and impending fuel price increases.
On balance, Fifth District trucking companies reported a modest decline in shipping volumes in recent weeks. Several firms attributed the drop in volumes to tariff-related reductions of shipments and they expressed concerns that these reductions would continue in coming months. One contact stated that the softer demand put downward pressure on shipping prices. Another said that they reduced staff and capital expenditures as a result. In contrast, a Virginia firm reported an uptick in volumes across a wide range of products and customers.
Retail, Travel, and Tourism
Tourism in the Fifth District was moderate in recent weeks. Hotels in Greenville and Charleston, South Carolina, saw strong demand. In addition, an executive at a Virginia resort reported strong demand but nevertheless had to close some pools due to a labor shortage, which was expected to be persistent. Conversely, tourism in Asheville, North Carolina, and in Baltimore was reportedly down, and an amusement park in North Carolina attributed soft business to rainy weather.
Fifth District retailers reported mixed business conditions since our last report. A Virginia auto dealer reported growth in sales of both new and used cars. A high end clothing store, however, reduced inventory after several weak months. Also, a shoe store reported a drop in both sales and customer traffic. Hardware stores around the District gave conflicting reports on demand, with some seeing strong growth and others seeing a drop in business. Several retailers reported increased costs resulting from tariffs, which they were partially able to pass on to consumers.
Real Estate and Construction
Residential real estate sales increased modestly, overall. Brokers reported steady levels of buyer traffic in recent weeks. Existing home sales remained below year-ago levels, in part due to low inventory levels. Meanwhile, agents reported steady rental demand for single-family homes. Home prices rose modestly, on balance, while days on the market were generally unchanged at low levels. New home construction and sales increased modestly while speculative construction remained low and was mostly for higher priced homes.
Commercial real estate brokers reported a moderate rise in industrial leasing across the District. Office leasing was mostly unchanged in recent weeks, with the exceptions of Charlotte, NC, and Washington, D.C., which experienced strong activity. Retail leasing was reported to be flat to down slightly. Vacancy rates remained low in most markets and rental rates were stable to increasing modestly in all sub-markets. On the commercial sales side, brokers reported modest increases in prices and sales. Industrial construction increased modestly across the District, while multifamily construction and leasing remained steady.
Banking and Finance
Overall, loan demand rose modestly in recent weeks. Residential mortgage demand was generally described as stable to increasing modestly. Additionally, a few lenders noted an increase in residential refinance loans. On the commercial side, real estate loan demand strengthened modestly. Business loan demand improved slightly and automotive lending was reportedly flat compared to the previous report. Deposits grew modestly and credit quality remained stable at strong levels.
Since our previous Beige Book report, demand for nonfinancial services remained moderate, overall. Professional and health services firms generally reported steady to increasing demand. A few contacts, however, reported that turnover and labor shortages were driving up recruiting costs and in some cases constraining growth. Educational institutions also indicated steady demand, and a university president saw significant investment in computer science related programs in Northern Virginia. On balance, services firms indicated modest business investment. A few firms said they were holding back or being cautious due to uncertainties around trade, the federal budget, and the availability of labor.
Weather effects varied across the district. For example, a farmer in Maryland saw improvement this year due to more favorable weather conditions and remarked that other farmers in their area, except for dairy, seemed to being doing well. In contrast, a farmer in South Carolina said that the heat and lack of rain were hurting crops. In general, trade issues and low commodity prices were hurting farmers, including by lessening their ability to repay loans and by reducing their desire to purchase new equipment.
For more information about District economic conditions visit: www.richmondfed.org/research/regional_economy