March 4, 2020
Summary of Economic Activity
The Fifth District economy grew at a moderate pace since our previous Beige Book report. Manufacturers’ shipments and new orders increased modestly. They were encouraged by recent trade negotiations with China, but expressed some concerns about the coronavirus delaying some shipments of inputs. This sentiment was echoed by port contacts despite their reporting strong growth in volumes over the past several weeks. Meanwhile, trucking volumes rose slightly and shipping rates remained soft. Retail sales grew moderately, while travel and tourism strengthened further in recent weeks. Realtors said that 2020 was off to a stronger start than 2019 and that existing home sales picked up modestly. Also, a low inventory of homes for sale along with low interest rates reportedly contributed to the strong demand for new residential construction. In addition, commercial real estate leasing improved moderately while construction of industrial and multifamily properties remained strong. Bankers reported a slight increase in loan demand, overall, with more activity coming from residential real estate and consumer lending than commercial lending. Nonfinancial services firms reported moderate growth in revenues and demand in recent weeks. Employment increased at a modest rate, overall, while wages grew moderately. Prices of finished goods decelerated, as raw materials price growth eased and competition and pricing transparency made it difficult for firms to raise prices.
Employment and Wages
Overall, employment increased at a modest rate in recent weeks. Firms indicated that the demand for labor was strong and turnover rates declined slightly; however, employment growth was being restrained by a tight labor supply. Difficulties filling open positions were cited by employers across a wide variety of industries. One employment agency said that they encouraged clients to seek direct hires because it was harder to recruit workers without a guarantee of a full-time job. Wage growth remained moderate, overall, with higher wage growth reported for certain occupations in high demand. In addition, there were continued reports of firms offering non-wage benefits, such as flexible work schedules, to recruit and retain workers.
Prices
Since our previous Beige Book report, price growth slowed to a modest rate. According to our most recent surveys, growth slowed for prices paid and for prices received in both the manufacturing and service sectors. A few service firms said that it was difficult to raise prices because of competition and because customers can go online and compare prices. In contrast, a metals manufacturer said that steel prices had risen in recent months and a landscaping company raised prices after keeping them flat for several years.
Manufacturing
On balance, manufacturers in the Fifth District reported a modest increase in shipments and new orders in recent weeks. Food, auto parts, and furniture manufacturers reported stable, strong demand. Several manufacturers were encouraged by trade negotiations with China. However, many firms noted that while conditions were improving, their markets remained soft. Some manufacturers were able to raise prices. Others reported higher costs of inputs in some cases due to tariffs that squeezed profit margins. Also, the coronavirus led to concerns about delays in the arrival of inputs.
Ports and Transportation
Fifth District ports had strong growth in shipment volumes in recent weeks. Growth of export volumes was particularly strong, with notable increases in plastic, meat, and auto exports. Import volumes also increased, but more modestly, as several ports saw an increase in blank sailings—that is shippers cancelling ports of call— particularly from China. Port officials were optimistic about recent trade negotiations with China but expressed concern over the potential impact of the coronavirus on imports, although they were currently uncertain about the magnitude of that impact.
Trucking volumes increased slightly since our last report but remain lower than a year ago. This trend was consistent across industrial and retail shipments. Spot market activity rose slightly, while rates remained fairly soft. Most firms were optimistic about the coming year. One company looked to invest in new equipment and another considered hiring after a year of reducing staff. A few firms expressed concerns about market competition, low profit margins, and uncertainty associated with an election year.
Retail, Travel, and Tourism
Retail sales in the Fifth District grew moderately since our last report. While customer traffic was soft in some places, demand, sales, and profitability were generally higher. Some retailers continued to struggle with higher costs of products resulting from tariffs, but others saw relief after trade negotiations. Sales of both new and used autos were strong, although dealers expressed uncertainty from elections and the coronavirus.
Travel and tourism strengthened slightly in recent weeks. Hotel occupancy and room rates increased. In Asheville, North Carolina, growth in hotel revenue surpassed growth in short-term rental revenue. In contrast, a Virginia ski resort struggled with slow business resulting from warm weather. The greatest concern among most tourism contacts was lack of staffing, which in some cases led services to be cut. In the District of Columbia, some groups canceled travels because of the coronavirus. Firms around the Fifth District were fairly optimistic about continued strength in the coming year.
Real Estate and Construction
Fifth District home sales increased modestly since our last report. Realtors said that 2020 was off to a stronger start than 2019 and noted particularly strong demand in the low to mid-price range but a low inventory of these homes. Buyer traffic remained strong, but days on the market increased slightly in some areas, returning to more normal averages. Single family construction was strong amid low inventories. One contact noted that a low inventory of rentals was causing difficulties for people looking for somewhere to live while waiting to close on homes. Home prices were fairly stable but growth rates varied across locations and home types.
The Fifth District commercial real estate leasing increased moderately in recent weeks. Demand for industrial space was high across the District, with little vacant space in some markets. Both speculative and built to suit construction for industrial spaces were solid. Office occupancy rates were high, leading to low supply and increasing rental rates. Brokers reported strong multifamily construction. Demand for retail space was fairly stable, although one contact noted that many large chain restaurants were closing and were replaced by new restaurants that occupied less space.
Banking and Finance
Overall, loan demand grew slightly since our previous Beige Book. Bankers indicated that commercial real estate and commercial and industrial lending improved slightly, though several banks mentioned that much of commercial borrowing now is outside the traditional banking system and that most of their new lending was for refinancing existing debt rather than new capital expenditures. Residential mortgage lending, auto loans, and demand for other consumer credit grew moderately, attributed in part to low rates. Meanwhile, credit standards, delinquencies, and credit quality were reportedly unchanged at good levels. Despite several bankers citing fierce competition, deposits increased modestly in recent weeks.
Nonfinancial Services
On the whole, nonfinancial services firms indicated a moderate increase in revenue and demand in recent weeks. There were some reports of strong growth from firms engaged in construction-related services, legal services, advertising, and IT consulting services. Contacts in the healthcare sector also saw solid growth. One hospital administrator said that they were investing in brick and mortar facilities to meet demand, and in IT infrastructure for productivity gains. Also, a product design firm said that entrepreneurship was at a 20-year high, and the number of patents issued last year was up considerably.
For more information about District economic conditions visit: www.richmondfed.org/research/regional_economy