June 1, 2016
The Fifth District economy continued to expand in recent weeks. Manufacturing activity increased moderately for most firms. Retail sales growth was flat on balance since the previous report, while revenues continued to grow modestly at other services firms. Tourist activity picked up seasonally, with the increase about on par with a year ago. In banking, overall loan demand increased since the previous reporting period, particularly on the commercial side. Residential and commercial real estate transactions rose moderately. Farm activity picked up modestly. Natural gas extraction increased, while coal production was unchanged. In District labor markets, demand rose moderately on balance, accompanied by some upward wage pressure. According to our most recent surveys, employment increased modestly at manufacturing and non-retail services firms, while retail hiring was flat. Wage gains were evident across a broader array of manufacturing and service sector firms. Prices of both raw materials and finished goods accelerated slightly, but increases remained generally modest. Additionally, retail and non-retail prices rose slightly faster than in the prior period, but the pace of price increases remained moderate.
Manufacturing
Manufacturing activity increased on balance since the previous report. Most firms reported solid growth in both shipments and the volume of new orders, and producers reported positive expectations for the six months ahead. A West Virginia manufacturer of industrial safety and hazardous material handling products said that new orders increased and production continued at a brisk pace, while a lumber company in West Virginia reported improvement in the market for higher grade lumber used for cabinets and floors. A composite materials manufacturer in South Carolina reported very strong demand and added that output firmed in the past six weeks as sales of new lightweight aircraft engines increased. In Virginia, manufacturers of engine components, furniture, and seasonal products all reported increased sales. Machinery and metal manufacturers in North Carolina indicated that new orders had risen, although backlogs were flat. In contrast, producers of chemicals (petrochemicals, industrial, and printing and ink) and manufacturers of computer and electronic equipment stated that new orders declined in recent weeks. According to our most recent survey, prices of both raw materials and finished goods rose at a slightly faster, but generally modest, pace.
Ports
Port activity varied. Automobile exports rose at two District ports, and auto imports were also strong at one of them. Container imports of consumer goods such as flooring, furniture, apparel, food, and beverages were strong. Container exports of forest products such as logs, waste paper, and pulp increased. However, exports of industrial machinery and auto parts declined. According to port officials, exports of construction equipment have been held down by weak global demand, and the outlook is for continued slow growth. Additionally, imports of agricultural equipment remained soft as low commodity prices reduced farmers' demand for new equipment. The opening of the third set of locks through the Panama Canal has been announced for June of 2016, and officials stated that at least several months would pass before the effects of the additional capacity become clear.
Retail
Retail sales were flat since the previous report, and big-ticket sales declined. An executive at a West Virginia department store complained of online competition and the economic "domino effect" of coal mine closures, but then said that his business was good on balance. A source at a large pharmacy reported faster sales growth. A building supply retailer and an executive with a chain of convenience stores both said sales were unchanged in recent weeks. However, a big-box building supply retailer and a plumbing supply chain reported slower big-ticket sales. Sales of specialty auto parts also declined, according to another executive. Automobile and light truck sales remained fairly strong but have started to slow, according to dealers and an industry expert, while motorcycle sales were sluggish. Retail prices rose slightly faster, although increases were moderate overall.
Services
Services firms reported continued modest revenue growth in recent weeks. An executive at a national trucking firm located in the District said business was uneven, but quotes had increased for dedicated service contracts in which trucks, trailers, and rates are locked in. Regional airports reported flat to slightly stronger revenue growth in passenger and cargo. A Maryland roofing and exterior remodeler said sales were up and he was optimistic about 2016. A healthcare organization executive reported that demand for services had stabilized at normal levels following a spike in flu and norovirus illnesses in March and April, while an executive at another healthcare organization said demand remained at high levels. Price increases remained contained, rising moderately since our previous report.
Tourism strengthened seasonally in recent weeks, with reports that bookings for the Memorial Day weekend were at about the same level as a year ago. Newly built homes and rentals on the outer banks of North Carolina are expected to bring more visitors and year-round residents, according to a tourism executive. In western North Carolina, an hotelier reported a good start to the early summer season, with strong convention bookings. A Virginia Beach hotel executive said the hotel's bookings were up in recent weeks, as was the average length of stay, with group bookings expected to be good through the end of the year. A Virginia resort manager reported an increase in online bookings, and a West Virginia sports and adventure executive said revenues were up. Most reports indicated that room and rental rates were flat over this reporting period.
Finance
Since our previous report, overall loan demand rose moderately. Residential mortgage lending increased modestly, but varied throughout the District. Bankers in North Carolina, South Carolina, and Virginia reported a pickup in residential mortgage demand. In Washington and West Virginia, loan demand was characterized as stable with some localized improvements where pent-up demand and increased inventories lifted market conditions. A banker in Maryland noted an increase in lending for home remodeling. The demand for commercial loans rose more broadly. Commercial real estate demand strengthened around Baltimore and the greater Washington metro area. Merger and acquisition activity also picked up in Washington and in Virginia as well. Commercial loan demand remained strong in North and South Carolina, with some new real estate development activity; however, one banker reported that hotel development may have peaked. The highly competitive lending environment continued, with a banker commenting that there is still a lot of cash on the sidelines. Interest rates were widely reported as unchanged or slightly higher. Credit standards for new loans loosened slightly while backward-looking credit quality measures improved somewhat.
Real Estate
Residential real estate activity grew moderately since the previous report. District real estate agents continued to report low levels of inventories, with bidding wars in a couple of locations. Days on the market varied across price range and region. A real estate agent in North Carolina said demand was steady in the $200,000 price range, although he noted softer demand for homes above the $500,000 price point. A residential broker in Washington reported a strong $900,000-plus market, with increased listings and multiple offers. Residential construction reports were mixed, with contacts noting strong demand in Columbia, South Carolina and a tight single family market in Charleston, but softness in Greensboro, North Carolina and Richmond. Multi-family leasing remained strong across the District.
On the commercial side, leasing activity increased moderately overall. A commercial real estate development company in Richmond reported a very active market for retail and grocery stores. In Washington, a contact noted that limited available office space for rent was pulling vacancy rates down. A broker in Charleston, South Carolina reported robust commercial leasing and indicated that supply was limited across all leasing categories. Additionally, Charleston sources noted strong demand for industrial space and announcements of projects to accommodate new auto suppliers coming to the region. Virginia Beach leasing activity picked up, particularly in the retail sector, while commercial leasing in surrounding areas was sluggish. Rental rates and vacancy rates varied across submarkets and locales. With respect to commercial construction, increased activity was reported in Charleston, South Carolina, Charlotte, Richmond, Washington and Baltimore.
Agriculture and Natural Resources
Agricultural activity increased modestly since our previous Beige Book report, according to sources. Cotton, corn, and peanut planting are underway. However, a few Virginia and North Carolina farmers reported delayed planting and harvesting of some crops because of a protracted period of rain. South Carolina planters continued to report more labor-intensive field preparation work because of last year's flooding. According to agribusiness contacts, input prices remained unchanged in recent weeks while crop prices and beef prices declined slightly.
Natural gas extraction increased since the previous report, while coal production was unchanged. Prices of natural gas edged up slightly in the past month, and coal prices remained at low levels.
Labor
On balance, the demand for labor rose moderately since our previous report. A staffing agent in Maryland indicated an increase in demand for almost every occupation with the exception of entry-level office jobs like customer service and clerical positions. A job matching firm stated that new job openings were outpacing new job seekers on their site. Throughout the District, contacts noted continued recruitment difficulties, even for entry-level production workers. Challenges were reported in finding engineers, nurses, medical technicians, machinists, industrial production workers, architects, sales and marketing professionals, farm hands, and construction workers. According to our most recent surveys, employment increased modestly at manufacturing and non-retail services firms, while retail hiring was flat. Reports of upward wage pressures increased modestly in recent weeks. A western North Carolina executive reported substantial upward wage pressure in the hospitality industry as restaurants, hotels, and health care employers compete for many of the same people. In Maryland, a temporary employment agent said his firm was successful in getting wage increases in most job categories, particularly for entry-level positions. More manufacturing firms reported increasing wages than in the prior period, and the average workweek lengthened for manufacturers, according to our surveys. Fewer services providers reported wage increases in recent weeks.