January 18, 2017
Summary of Economic Activity
Fifth District economic activity grew at a moderately faster pace since the previous Beige Book report. Reports were strongly upbeat in early December, while assessments reported later in the month and in the surveys were more restrained. Demand for labor increased at a moderate pace, and reports of wage pressures were more common than earlier. Price changes were generally mild, except at retail and services firms where prices received rose at a slightly faster pace. The manufacturing sector strengthened and producers indicated moderate growth in new orders. Retail sales rose briskly, while tourism at winter resorts strengthened to seasonal levels. Residential real estate activity was little changed at seasonal levels. Commercial real estate leasing rose moderately and sales increased modestly. Residential and commercial loan demand was flat to slightly stronger in the weeks since the previous report. Revenue growth at non-financial services firms remained modest. Indicators for agricultural and natural resource production were mixed.
Employment and Wages
Labor demand increased at a moderate pace since the previous Beige Book. District businesses reported modest increases in wages, with more contacts reporting increased wage pressures. The supply of well-qualified workers, especially in the skilled trades, continued to be a problem. A Virginia recruiter reported slightly stronger demand for employees in customer service, health care, legal, and government positions. Staffing firms reported that the volume of worker conversion from temporary to permanent remained at normal levels. A contact in Charleston, South Carolina said companies there were doing more direct hiring in recent weeks. Also a staffing firm in West Virginia reported increased placement of temporary workers due to high demand from manufacturers, especially in the automotive sector.
Prices
Manufacturers reported that average input prices rose modestly in recent weeks, with the exception of copper and stainless steel, which advanced more rapidly. Average manufacturing output prices increased only slightly. Services and retail prices continued to rise moderately and at a slightly faster pace than reported in our previous Beige Book. Cotton prices were unchanged while peanut and corn prices remained low. Natural gas prices rose modestly in recent weeks, and Northern and Central Appalachian coal prices edged slightly higher.
Manufacturing and Construction
More manufacturers reported a rise in shipments and growth in backlogs since the previous report, as well as moderate growth in new orders. In addition, increased capacity utilization was more widespread. Producers of paper products, batteries, and office furniture reported stronger overall business conditions. Manufacturing executives expected further strengthening during the next six months.
Ports and Transportation
The volume of container traffic rose moderately at two of the District's ports since the previous report. At another port, container traffic increased by double digits every month in the fourth quarter, in part because of calls from larger, post-Panamax vessels. Imports of autos remained strong at one major port in recent weeks, while both imports and exports of farm and construction machinery remained very weak. In addition, exports of autos declined.
A couple of national trucking firms in the District reported that demand for dedicated freight services increased moderately, as businesses locked in services to ensure their freight needs will be met when an electronic log mandate becomes effective in late 2017.
Retail, Travel, and Tourism
Retail sales rose briskly in recent weeks, with strong shopper traffic and big-ticket sales. A sporting goods store manager said his sales to large-scale customers, such as schools, were particularly strong. A wholesaler of construction equipment and a chain store in the home and garden business also reported that sales increased.
Contacts generally indicated that tourist activity strengthened to normal seasonal levels at winter resorts. In addition, a source on the outer banks of North Carolina said tourist stays were above year-ago levels. However, an hotelier in western North Carolina reported a softer market in his area.
Real Estate and Construction
Residential real estate sales were flat since the previous report, with typical low levels of buyer traffic for the winter months. Inventories remained low, while days on the market were generally unchanged. However, a contact in Roanoke, Virginia stated that demand for more expensive homes improved while noting that smaller down payment requirements contributed to increased sales of modestly priced homes, particularly for first-time home buyers. Residential builders reported that home starts and closings were steady at modest levels, while one contact said that seasoned builders finished another good year. However, many sources continued to report a lack of lots and limited new home inventories.
On balance, commercial real estate leasing rose moderately in recent weeks. Rental rates rose moderately in both retail and industrial markets. The retail sector remained the most active in terms of leasing, with continued demand for fast casual restaurants and grocery stores. Real estate agents reported strong industrial leasing, with more e-commerce tenants looking for large facilities. Office leasing was generally unchanged at low levels, although some contacts reported tightening in the Class A market. Commercial real estate sales increased modestly for retail, industrial, and multifamily properties, with slightly improved sales prices. Commercial construction remained steady at modest levels, except in Washington, D.C., Charlotte, and Charleston, South Carolina, where multi-family construction was reported to be stronger.
Banking and Finance
Loan demand was reported as stable or increasing slightly in recent weeks. On the residential mortgage side, demand for new originations was unchanged while demand for refinancing rose modestly. A banker in West Virginia attributed the rise in refinance demand to anticipated interest rate increases. Commercial loan demand was described as stable overall, with reports of strength in D.C., while West Virginia's coal regions continued to be depressed. Business lending was unchanged; however lenders' outlooks improved. One banker said there was an increase in optimism although most business owners were in a 'wait and see mode.' Reports on core deposit growth were mixed. A Virginia banker reported strong growth in core deposits while a West Virginia banker reported a slight decline. Credit standards were unchanged or slightly tighter while credit quality was stable. In West Virginia, however, quality declined slightly and past-due payments rose marginally.
Non-Financial Services
Most services firms reported that revenue growth remained modest since the previous report. However, legal and accounting services providers indicated that revenues rose more quickly.
Agriculture and Natural Resources
Reports on agricultural activity in recent weeks were mixed. A South Carolina farmer indicated that improved weather conditions after Hurricane Matthew allowed crops to dry out enough to be harvested; yields, however, were down markedly from historical averages. A Maryland contact said that the fall harvest finished early, which allowed grain farmers to get moderately better prices than growers in the Midwest. Dairy farm consolidation continued and milk production was stable due to technology enhancements. Agriculture investments rose slightly for light equipment while large equipment sales remained weak.
Coal production declined slightly in the southern part of West Virginia but rose in the northern part. Natural gas extraction rose modestly in recent weeks.