Beige Book Report: Richmond
June 19, 1996
Overview
Economic activity grew moderately in the Fifth District in
May, with some firms straining capacity, but others experiencing
weaker demand. Retail activity picked up while service-sector
activity was mixed. Manufacturing activity continued to grow
moderately overall, and some manufacturers indicated that capacity
constraints limited further growth. Tourism grew at a faster pace
and real estate activity strengthened. Mortgage loan demand
weakened, but consumer loan demand strengthened. Markets for inputs,
especially labor, tightened. Scattered price pressures were
reported; expectations of future price increases were more
widespread in manufacturing, but less apparent in the service
sector. In agriculture, crop conditions improved.
Retail Trade
Retailers surveyed reported faster growth in retail
sales, employment, average wages, big-ticket sales, and shopper
traffic. Respondents also reported an increase in inventory growth.
Retail prices rose more slowly in May and retailers expected their
prices to rise more slowly during the next six months than they had
in April. They anticipated a decrease in demand for their products
over the next six months.
Service Production
Service producers surveyed by mail reported
mixed activity in May. Revenues declined slightly and employment
growth increased in May from April. Average wages increased faster
in May. Service producers said prices rose more quickly in May than
they had in April. Respondents expected demand for their product to
soften over the next six months, and believed that their prices
would rise more slowly.
Manufacturing
Manufacturing activity continued to expand at a
moderate pace in May, and tight inputs markets constrained some
firms. Except in Virginia, respondents to a mail survey reported
faster growth in shipments. Virginia manufacturers said their
production was hampered by a scarcity of skilled labor. A boat
manufacturer and a textile producer also indicated that tight labor
markets limited their production. Durable-goods producers were
upbeat, reporting that new orders had strengthened in May. Several
suppliers of industrial machinery and equipment reported that their
lead time lengthened recently because demand strengthened and one
said delays in receiving inputs reduced output at his firm.
Manufacturers indicated that finished goods prices increased and raw
materials prices decreased in May from April. Respondents' six-month
outlook was for higher finished goods and raw material prices.
Tourism
Tourist activity continued to pick up in May, despite a
rainy Memorial Day weekend that dampened beach activity in some
areas. Baltimore contacts attributed increased tourism to the
Orioles' baseball team while respondents from mountain resorts cited
vacation packages that emphasized golf and skeet shooting. Contacts
reported that summer bookings looked good. However, one respondent
from a popular North Carolina coastal area said tourist activity
there was the slowest it has been in the last 10 years. Contacts
expected summer rates to increase by 3.8 percent to 6.5 percent
after adjusting for inflation.
Port Activity
Activity at District ports changed little in April
from March and from a year ago. Port representatives continued to
expect exports and imports to increase during the next six months,
with exports expected to rise faster than imports. Several port
contacts said that an increasing number of ship lines were entering
into vessel sharing agreements, an arrangement that the contacts
believed would lead to more ships calling at their ports during the
next six months.
Temporary Employment
The demand for temporary workers increased in
May. Demand was especially strong for light-industrial laborers and
customer-service representatives. Several temporary agencies
reported that their clients increasingly opted to use "contingent"
workers rather than hire permanent employees. However, a North
Carolina contact indicated that less employee turnover at firms in
his area had reduced the demand for temporary workers. Temporary
workers' wages changed little in May, although slight increases were
reported in a few localities with low unemployment and for computer-
skilled workers. Contacts generally expected stable wages during the
next six months.
Finance
District contacts indicated that overall lending activity
changed little in May. District mortgage loan companies said that
demand weakened noticeably; one Virginia contact described demand as
"crummy." Mortgage lenders reported particular weakness in
refinancing activity and two contacts indicated that refinancings
occurred only in cases of extreme financial necessity. Consumer
lending strengthened during May but some respondents expected
activity to moderate in coming weeks. Descriptions of commercial
lending ranged from very weak to very strong. Several contacts
indicated business loans were mainly being used to finance
activities other than fixed capital investment. District banks
generally reported that they were "cautiously optimistic" about
future loan demand.
Residential Real Estate
Residential real estate sales rose in May,
but builders in some areas reported stagnant growth. Realtors
reported increases in sales and customer traffic; some contacts
describing the market as "terrific" and "outstanding." However,
homebuilders indicated that customer interest in new homes declined;
one builder reported that the weak market had forced her company out
of business. Wages and materials prices increased. Several contacts
said that higher petroleum prices had increased the cost of
transported materials, such as lumber and concrete.
Commercial Real Estate
A telephone survey of commercial real estate
brokers suggested that commercial real estate activity picked up in
May and early June. Leasing activity remained brisk and, except in
the District of Columbia, vacancy rates fell. Commercial rents
increased, continuing a trend which began last November. The
availability of prime office space continued to tighten, and nearly
half the respondents reported shortages, particularly for large
blocks of space. Contacts continued to report an increase in new
construction, and one District of Columbia contact reported the
construction of a new speculative office building there, an anomaly
in recent years.
State Revenues
State tax collections were flat in the Carolinas but
were higher in the other District states. Contacts across the
District reported that strong 1995 capital gains led to higher May
estimated tax payments. North Carolina and Virginia contacts said
corporate tax collections were down significantly because of lower
profits. Retail sales collections were higher in the District of
Columbia, Maryland and South Carolina and real estate recordation
receipts rose in Maryland, North Carolina, and West Virginia.
Agriculture
On balance, agricultural conditions improved in May and
early June according to District analysts. Spring planting was
almost complete. Recent rains brought relief to crops in dry areas
of South Carolina, but led to flooding in some areas of West
Virginia. Cooler temperatures caused some scattered freeze damage to
the already-poor fruit crop. Despite these episodes, the weather was
generally favorable for crops, and most were in good condition.