Beige Book Report: Richmond
October 16, 2019
Summary of Economic Activity
On balance, the Fifth District economy grew modestly in recent weeks. Manufacturers saw a modest decline in shipments and new orders, overall, as trade policies continued to reduce sales and raise raw materials costs. Port activity grew robustly in recent weeks, particularly import volumes. Trucking companies reported a modest increase in demand and a rail company saw continued strength in auto and construction-related shipments. Travel and tourism picked up modestly despite some disruptions from hurricane evacuations in North and South Carolina. Retail sales rose moderately, overall, but some retailers expressed concerns that economic uncertainty could hamper fourth quarter sales. Home sales, although hampered by low inventories, rose modestly. Meanwhile, shortages of labor and buildable lots restrained new home construction. Commercial real estate leasing, sales, and construction picked up, although some softness was reported in retail and office construction. Loan demand picked up for real estate purchases and refinancing, but was flat for business and auto lending. Nonfinancial services firms saw a slight increase in demand in recent weeks and remained cautiously optimistic about future growth. Labor markets remained tight and wages increased at a moderate rate. Overall, price growth remained moderate.
Employment and Wages
The demand for labor strengthened moderately in recent weeks. Employment agencies reported a seasonal pick-up in new job openings. Also, employers continued to report very tight labor markets and difficulties finding qualified workers. In particular, firms reported shortages of construction workers, engineers, IT professionals, accounting and finance professionals, manufacturing plant workers, mechanics, and truckers. Wages increased moderately, overall, with some larger increases reported for jobs in high demand. Some employers said they were using non-wage compensation, such as sign-on and stay-on bonuses, to attract and retain workers.
Price growth remained moderate overall since our previous report. Manufacturers indicated that growth in prices paid was little changed in recent weeks and remained slightly above growth in selling prices. Raw materials prices rose for steel plates, scrap metal, and electricity and remained elevated for some tariffed goods, while other materials prices were generally flat to down slightly. Service sector firms also reported moderate growth in prices paid that outpaced growth in selling prices.
Fifth District manufacturers reported a modest decline in shipment and new orders. Several firms indicated that trade policy was reducing their foreign sales and raising raw materials costs. An electrical equipment manufacturer reported raising prices to cover tariff-related cost increases, while another firm looked to cut costs in other areas of the supply chain. A Virginia furniture manufacturer said that trade issues could lead to jobs losses if not resolved. Meanwhile, a food manufacturer cited the rapidly rising price of chicken as a concern, and a Virginia manufacturer reported looking for new suppliers over concerns about the possible effects of Brexit.
Ports and Transportation
Ports in the Fifth District saw robust growth since our last report. Import volumes continued to exceed export volumes, but both showed healthy growth. Multiple ports saw record volumes in recent weeks. One executive reported an increase in vehicles going to Thailand and Russia for assembly to avoid Chinese tariffs. A Fifth District airport reported that cargo volumes continued to increase, although at a somewhat slower rate. Ports continued to hire and make new investments for expansion.
Fifth District trucking demand increased modestly, after softening in the previous months. One executive reported turning away some business but not as much as a year ago, while another reported having some excess capacity. Both were fairly content with the current level of demand. Another contact reported a slight disruption from Hurricane Dorian but business remained solid, overall. Meanwhile, a rail company saw some shipments move back to trucks but noted that auto and construction-related shipments remained strong. Some transportation contacts delayed investments over concerns about economic uncertainty.
Retail, Travel, and Tourism
Travel and tourism in the Fifth District were modest since our last report. On the outer banks of North Carolina, hotels and restaurants saw strong business and increased receipts despite a temporary disruption from Hurricane Dorian evacuations. However, some restaurants had to close an extra day a week because of labor shortages when students went back to school. Charleston, South Carolina, also saw fairly solid tourism despite a hurricane evacuation. Meanwhile, hotels in the District of Columbia reported a decline in rates and occupancy in recent weeks.
On balance, retail sales rose moderately in recent weeks. A Virginia auto dealer reported strong sales of trucks and SUVs. However, a few firms reported declines. A North Carolina home furnishing store reported a drop in sales instead of the normal seasonal uptick. Meanwhile, a hardware store said that lumber mills recently reduced production, which affected availability and prices. Several retailers said that they planned to reduce inventories and scale back capital spending over concerns that economic uncertainty could limit consumer spending in the fourth quarter.
Real Estate and Construction
Home sales rose modestly in recent weeks and buyer traffic was steady, although inventories remained low. Most agents continued to see multiple offers in specific areas, especially for homes selling in the $250,000 to $400,000 price range. District home prices increased slightly, while average days on the market remained low. New home construction remained limited and was constrained by labor shortages and lot availability.
Commercial real estate leasing rose moderately in recent weeks. District brokers continued to report strong demand for industrial space and office leasing was described as healthy in most locations. Reports on retail leasing were mixed, as demand for smaller inline spaces remained steady, but demand for larger spaces declined. Multifamily leasing remained healthy. Overall, industrial construction remained strong, while retail and office construction slowed. Vacancy rates remained low across most sub-markets, although some slight increases in retail were reported. Contacts reported that rental rates were flat to increasing slightly. On the commercial sales side, brokers reported modest increases in prices and sales.
Banking and Finance
Loan demand rose moderately in recent weeks. Residential mortgage demand was generally described as stable to increasing modestly. On the commercial side, real estate loan demand strengthened modestly. Business and automotive lending were flat, on balance. Bankers noted an uptick in residential and commercial refinancing due to lower interest rates. Deposits grew moderately since our last report and bankers continued to report heightened rate competition. Measures of credit quality remained stable at high levels.
On balance, demand for nonfinancial services picked up slightly in recent weeks. Many service providers continued to report difficulties finding workers and rising labor costs, particularly for health insurance. In some cases, those firms faced profit margin compression since they were not able to pass along cost increases to customers. Overall, businesses remained cautiously optimistic about growth prospects over the next several months. There were several remarks about investing in software and technology. A few firms, on the other hand, were holding back on capital spending due to uncertainties around labor constraints and trade.
For more information about District economic conditions visit: www.richmondfed.org/research/regional_economy