July 13, 2016
The Fifth District economy expanded modestly on balance since the previous Beige Book report. Manufacturing activity softened, with slower growth in shipments and the volume of new orders. Retail sales growth also moderated, and services firms reported little change in revenues. Tourism experienced typical seasonal growth. Consumer loan demand rose slightly, while commercial lending increased modestly. Residential and commercial real estate markets strengthened somewhat. Agricultural production rose modestly. Natural gas extraction and coal production were unchanged since the previous report. The demand for labor increased moderately, with more frequent reports of wage pressures. According to our most recent surveys, manufacturing employment was unchanged, while more services firms were hiring. Prices of raw materials rose at a somewhat slower rate, and prices of finished goods rose at a slightly faster, but generally modest, pace. Price increases at retail establishments remained contained but rose more rapidly in recent weeks, while the previously modest pace of non-retail services price increases slowed.
Manufacturing
Manufacturing activity softened overall since the previous report. More firms reported slower growth in shipments and in new orders. Also, producers' expectations weakened compared to the previous report. A South Carolina box manufacturer and a Virginia heating component manufacturer reported that business slowed, with fewer new inquiries. Textile and chemical manufacturers indicated that exports remained weak, due in part to the strong dollar. An executive at a chemical company in South Carolina stated that overall sales were flat compared to last year, noting that domestic business was good while international business has slowed. In contrast, North Carolina and Virginia food manufacturers reported modest growth in new orders. Additionally, producers of machinery, plastics, and transportation equipment saw a slight uptick in new orders. An equipment manufacturer in Maryland said that demand for his product was strong and that operations were at full capacity, and a furniture manufacturer a reported an increase in new orders and backlogs. A robotics and automation manufacturer reported that international demand was steady. According to our most recent survey, prices of raw materials rose at a somewhat slower rate, and prices of finished goods rose at a slightly faster, but generally modest, pace.
Ports
Port activity remained generally strong since the previous Beige Book. Automobile imports continued to be robust. Container volume rose overall, but varied by location, increasing year over year each month at one port while similarly declining at another. Expectations are for a strong peak season in container imports of consumer goods beginning in August. Imports and exports of agricultural and construction machinery remained soft.
Retail
Retail sales softened on balance since the previous Beige Book. Gas station sales dropped and sales of building supplies in parts of North Carolina fell due to extended periods of rain. Automobile sales varied by location. A dealership in western Virginia reported that a recent increase in their digital footprint has helped push up foot traffic and sales, and an executive at a dealership just outside of Washington, D.C. said that sales have been stronger since our previous report. Dealerships in central North Carolina and the Hampton Roads region of Virginia reported that sales remained steady at previous levels. Sales of heavy trucks declined, according to a dealer who also noted that higher prices caused by changes in engine emissions requirements in the next model year could weaken future sales. Prices at retail establishments remained contained but rose more rapidly in recent weeks.
Services
Services firms reported little change in revenues since the last report. A wealth advisor said while individual investors seem to be doing okay, he is concerned that they may be taking on "unhealthy" levels of risk as they search for alternatives to low yield investments. The owner of a CPA firm in West Virginia has seen no change in demand but said the outlook for his business is good. An executive at a national trucking firm also reported flat demand in recent weeks, and he expects normal seasonal slowing in early summer. Demand for healthcare services remained strong. Healthcare facilities are preparing for expected changes in Medicare rules that will affect physician compensation. Price growth at services firms slowed in recent weeks, but remained modest.
Tourism
District tourism had a typical seasonal increase since the previous Beige Book, even with a slowdown during a couple of weeks of widespread extended rain. An executive on the outer banks of North Carolina said hotel bookings and rental home reservations were robust in June, and July is expected to be another strong month. In contrast, an hotelier in the Hampton Roads area of Virginia said tourist bookings slowed by double digits in recent weeks and that July is coming in a little below expectations. However, government and other group bookings were doing well there. Room and rental rates were generally unchanged, although a resort manager in the Virginia mountain region said that pricing had become more dynamic at his establishment, allowing for more responsive pricing during peak demand.
Finance
On balance, loan demand increased modestly since our previous report. Residential loan demand rose slightly in most of the District. In Maryland, loan demand softened slightly. Refinancing demand picked up slightly in central Virginia but was largely reported as unchanged in the rest of the District. Commercial loan demand continued to improve. Commercial real estate loan demand rose in some areas, according to contacts in the District of Columbia, South Carolina, and Virginia. Bankers in North Carolina reported mixed conditions with one contact citing some softening in commercial and industrial lending while another reported growth in commercial lending. In Maryland and West Virginia, commercial loan demand was characterized as flat to slightly lower, with some respondents concerned that multi-family and hospitality lending may have peaked. Interest rates were slightly lower for both residential and commercial loans. Competition remained high and net interest margins continued to compress slightly as a result. Credit standards tightened for commercial and industrial lending, according to a North Carolina banker. Lenders indicated that credit quality was generally unchanged to slightly improved.
Real Estate
Residential real estate activity grew moderately since the previous report. District real estate agents continued to report low levels of inventories. Days on the market varied across price range and region. A Washington, D.C. broker stated that sales increased since the previous report, and added that he continued to see multiple offers on appropriately priced homes. A residential broker in Greensboro, North Carolina reported an increase in buyer traffic in the $200,000-plus range. A Roanoke, Virginia contact said that demand increased for homes in the $300,000 to $700,000 range and remained strong for the $250,000 and lower price range. A broker in Owings Mills, Maryland stated that communities with good school districts were seeing improvement, as well as areas with higher-end homes. In contrast, a real estate agent in Northern Virginia reported a slowdown across all price ranges. Most residential builders reported that demand for new single family homes was robust, but that supply was constrained. The low level of inventories was attributed to both a dearth of available lots and shortages of construction workers. Multi-family construction reports were mixed, although leasing activity remained strong. Overall, builders were optimistic.
On the commercial side, leasing activity increased moderately overall, with a few reports of strong growth; commercial construction varied across submarket and region. A commercial broker in Columbia, South Carolina said that activity was strong across the board, with robust retail and industrial sales and leasing. He noted speculative construction in retail. A commercial Realtor in Richmond reported solid leasing activity, particularly for small retail spaces. Additionally, commercial brokers in Frederick, Maryland indicated that the retail leasing market was robust. In some areas of Maryland there were reports that commercial and industrial leasing was strong and that a few speculative industrial buildings had leased at 100 percent capacity. In North Carolina, sales were strong for repurposed furniture mills. A commercial real estate contact in South Carolina stated that the market was a "mixed bag," but reported an increase in clearing and repurposing of older properties. In contrast, a broker in Roanoke, Virginia said that retail and office construction slowed since the previous report. Commercial real estate activity in Charleston, West Virginia remained sluggish. Rental rates and vacancy rates varied across submarkets and locales.
Agriculture and Natural Resources
Agricultural activity increased modestly since our previous Beige Book report. Fifth District farmers stated that spring planting of cotton, peanuts, and corn was complete. Farm input prices remained unchanged in recent weeks while prices of grains, cotton, and corn declined. While the damage has yet to be assessed, sources in West Virginia expect that recent severe flooding will force farmers in some areas of the state to plow under their crops in the weeks ahead.
Natural gas extraction and coal production were unchanged since the previous report. Prices of natural gas edged down in the past month, and coal prices remained low.
Labor
Since our previous report, labor demand continued to increase at a moderate pace. Throughout the District, employers and staffing agents reported increasing demand for workers at all skill levels. For example, a staffing agent in Maryland cited high demand for low-skilled warehouse and production workers while an agent in North Carolina said high-skilled IT workers were in demand. Across the District, contacts reported difficulties finding workers in manufacturing, distribution centers, cyber security, biotech, and professional services fields. According to our most recent surveys, manufacturing employment was flat while service sector businesses continued to add employees at a moderate pace. The number of reports of wage increases and upward wage pressures continued to increase in recent weeks. A Maryland staffing service said that most clients were increasing starting wages. Those who were not changing wages either could not fill the positions or were left with the least motivated and least skilled employees. Additionally, an executive in South Carolina stated that skilled workers could name their price. A staffing agent in North Carolina, on the other hand, said employers were only raising wages reactively to attract the best candidates. According to our most recent surveys, wage increases were more prevalent in recent weeks at manufacturing and service sector businesses.