Beige Book Report: Richmond
November 30, 2016
We have received mixed signals on economic activity since the previous Beige Book report. While Hurricane Matthew caused evacuations, flooding, and temporary shut-downs in some coastal areas, most sources reported that areas were rebuilding in recent weeks and activity was returning to normal. Manufacturing continued to decline, albeit more slowly. Revenues rose at a modest pace at most services firms, but retail sales were little changed. Tourism slowed, consistent with normal seasonal patterns, with the exception of hard-hit coastal resorts which ended their season early. In finance, demand increased moderately for new home loans, while demand for commercial loans was unchanged. Residential real estate activity continued to increase at a modest pace, while commercial leasing and construction increased moderately. Despite hurricane-related delays in harvesting, agricultural activity increased slightly. Natural gas extraction was unchanged, while coal production rose slightly.
Labor demand increased moderately across the District and there were more reports of wage increases. According to our most recent surveys, employment rose slightly among manufacturing and non-retail services firms but declined for retailers. Our survey measures of average wages indicated a broadening of wage gains among manufacturers while fewer services firms reported wage increases in recent weeks.
Surveyed manufacturers reported that average input prices continued to edge up overall, and average prices received increased modestly faster. Services price increases remained modest and slowed somewhat compared to our last report, while retail prices also increased at a slightly slower pace. Crop prices remained low. Natural gas prices fell slightly, while coal prices were unchanged.
Manufacturing
Manufacturers reported that activity declined since our previous Beige Book report, albeit more slowly. According to surveyed firms, shipments flattened in recent weeks, while the volume of new orders remained sluggish, and more firms noted decreasing backlogs. Manufacturers reported an uptick in capital spending, particularly on software. New orders fell for textiles, transportation equipment, primary metals, furniture, and medical equipment and supplies. Among the few categories with increasing business activity were automotive inputs and advanced manufacturing products. According to our most recent survey, average input prices continued to edge up, and average prices received increased modestly faster, compared to the previous report.
Ports
Port authorities reported stronger traffic in recent weeks. Notable imports included foods and beverages, furniture, appliances, and other household goods, as well as chemicals, plastics, steel, and iron. Food and beverage exports increased, in addition to chemicals and agricultural commodities such as cotton and forest products. At one port, automotive parts were especially strong. A port official said that flooding in the Carolinas caused by Hurricane Matthew had delayed some agricultural exports. Since the opening of the new Panama Canal locks, some ports reported a decline in vessel calls while container volume increased.
Retail
Retail sales were mostly unchanged since the previous Beige Book, with a few exceptions. A frozen food supplier and an HVAC wholesaler reported increases in revenues. Auto sales declined, which a couple of dealers attributed to election-related uncertainty. Retail prices increased at a slightly slower pace than the mild rise previously reported.
Services
Revenues at services firms rose modestly in recent weeks. Software companies reported increased revenues, while healthcare organizations reported no change in demand. A national trucking firm located in the District reported downward rate pressure as excess capacity persisted in the industry. Price increases remained modest.
Tourism
Tourist activity softened overall in recent weeks, consistent with normal seasonal patterns. In the nation's capital, the seasonal uptick in conventions was strong, while other tourist activity was seasonally lower. A general manager at a West Virginia resort reported that early bookings for December through February were at normal levels. On the outer banks of North Carolina, Hurricane Matthew brought the tourist season to an early finish for some hotels and restaurants due to heavy property damage. Restaurants and some other businesses in a flood area of eastern North Carolina were closed for four to five days following the storm because they were without running water. However, the general manager at an inland hotel reported that all hotels in town were fully booked during the hurricane and remained booked with FEMA personnel several weeks after the storm. Room and rental rates were unchanged.
Finance
Overall loan demand rose slightly since the previous Beige Book. Residential loan demand increased moderately in recent weeks. Lenders in South Carolina and Virginia reported moderate growth in residential mortgage activity, although the Virginian felt that transactions were being limited by low home inventories and limited available lots. In contrast, a banker in West Virginia said that loan demand softened somewhat. Residential refinancing activity remained at low levels, according to several sources. Commercial loan demand was mostly flat in recent weeks. A banker in Maryland said that there was little activity outside of multi-family construction. Lenders' interest rates were unchanged, on balance. The competitive environment stiffened and net interest rate margins were compressed. No changes to credit quality were reported. Credit standards, on the other hand, loosened slightly as some bankers reported seeing competitors using more aggressive loan structures, such as nonrecourse loans. Core deposit growth increased, according to a Virginia banker.
Real Estate
Overall, real estate activity continued to increase at a modest pace. Home sales rose modestly in a few areas, but elsewhere seasonal slowing in buyer traffic was reported. Inventories remained low across the District. A contact in Maryland reported strong markets in both new and existing homes. A Richmond agent noted a slight uptick in the number of sales and sale prices. Realtors in Greensboro, Winston-Salem, and High Point, North Carolina said buyer traffic had slowed, with no change in the number of sales. Builders reported modest increases in new home sales in the past six weeks, and said that new home inventories remained low.
On balance, commercial real estate leasing rose moderately in recent weeks, while vacancy rates varied across submarkets. Across the District, industrial leasing activity rose moderately. A Baltimore agent stated that distribution warehouse leasing was healthy. A Richmond agent said leasing and sales of large industrial spaces increased. Most sources continued to report a sluggish office market; however, commercial agents in Charlotte and Richmond reported decreasing vacancy rates, and strong leasing activity. Rental rates were mostly unchanged. A contact from Columbia reported that construction continued to be very strong across all sectors and a Charlotte source reported "booming" commercial construction. However, multifamily construction slowed somewhat since the previous report. A multi- family builder described activity as being in the "late innings of a double header," with limited interest from lenders.
Agriculture and Natural Resources
Agricultural activity picked up slightly. According to a Virginia farmer, weather conditions in recent weeks were excellent for harvesting. In the Carolinas, some harvests were delayed by Hurricane Matthew. The biggest impact on international trade was in the poultry industry, with the loss of four to five million birds killed by the hurricane and related floods. Crop prices remained low.
Natural gas extraction was unchanged in recent weeks. Meanwhile coal production rose slightly, but remained below year-ago levels. Natural gas prices edged lower, while coal prices were unchanged.
Labor
Labor demand increased at a moderate pace since the previous Beige Book. The demand for contingent labor picked up slightly in the last several weeks, according to a staffing agent in North Carolina. A contact from Virginia added that their staffing firm entered the busy season in recent weeks and was tracking last year's pace. In the District as a whole, demand recently picked up for the permanent placement of skilled tradespeople, construction workers, engineers, scientists, elevator mechanics, accountants, and IT professionals. According to our most recent surveys of business activity, employment rose slightly in manufacturing and non-retail services but declined in retail. Wages were reported as increasing slightly. Staffing services firms in the Carolinas were seeing more wage increases, with one noting that higher turnover led businesses to raise wages. Our survey results indicated that wage gains were spreading in manufacturing, but narrowing in services.