U.S. Federal Reserve Beige Book: Richmond District (Text)
The following is the text of the Federal Reserve Board’s Fifth District-- Richmond.
Overview. Fifth District economic activity improved modestly since our last report. Most manufacturing contacts reported activity firmed somewhat. Port activity continued to expand. Retailers reported that sales grew on balance, and non-retail firms cited marginal revenue expansion. Lending activity improved somewhat, although most applications continued to be for refinancing. Residential real estate activity continued to strengthen; however, areas of weakness remained in the District. Tourism contacts reported healthy bookings as the summer season ended. Commercial real estate reports were mixed for private- sector projects and weaker for government-related projects. Labor market reports were also mixed, with accounts of modest increases in employment along with major layoffs and hiring freezes. Price changes were generally small in the manufacturing and services sectors in recent weeks.
Manufacturing. District manufacturing activity firmed somewhat after having softened in earlier months. An auto supplier reported that his firm’s sales continued to exceed expectations, which required overtime and additional hiring. A manufacturer of wallboard indicated that sales at his company rose, with the last few weeks being the busiest this year. A manufacturer of residential door frames said that demand in late summer was fairly flat, but he expected sales to improve over the next six months. In contrast, a producer of electrical components cited very weak business conditions, which resulted in layoff announcements and plans to close the factory at the end of this year. According to our latest survey, growth slowed in prices of both raw materials and finished goods over the past month.
Activity at most District ports expanded over the last few months. Port officials reported that both import and export activity strengthened, although one official attributed some of the gain to increased market share. According to another contact, the shipping season peaked earlier than in past years, which may have been due to manufacturers and retailers moving goods in advance of a threatened labor disruption at East Coast ports. Nonetheless, imports were bolstered by continued demand for commodities and components used by manufacturers. One contact stated that exports to China of some commodities and bulk goods were holding up better than expected. In addition, exports of autos and heavy machinery to Europe remained strong.
Retail. Retail sales reports from our contacts were mixed, with modest improvement on balance. In Virginia, a grocer stated that customer counts were up, but shoppers were spending less, while another grocery contact commented that he will be opening several new stores by early next year. A major building supply firm reported a significant increase in the volume of wallboard sales; other inputs for major renovation work also picked up. Several small retailers said that they were preserving margins by reducing payrolls and cutting expenses. However, collections on customer accounts have become a bigger problem, according to one contact. Merchants remained somewhat guarded in their outlook for spending during the holiday season. Small retailers were conservative with inventories; they expected that their suppliers would be flexible enough to make quick shipments if reorders should be needed. To help push early purchases, several big-box retailers were advertising a return of their lay-away programs, and other merchants started offering lay-away for the first time. In addition, a number of internet retailers were offering an online lay-away program. District automobile sales varied, according to dealers. A contact at a large dealership reported high foot traffic, observing that buyers gravitated to “the deals,” such as substantial rebates. Retail prices rose at a somewhat slower pace in recent weeks, according to our latest survey.
Services. Non-retail services providers reported slight gains overall since our last report. Business activity strengthened for professional, scientific, and technical services firms; a contact at a Maryland telecommunications firm noted that demand was strong for tech-related security services. However, there were also reports that the possibility of government spending cuts associated with sequestration caused firms to delay business decisions. One industry executive commented, “We are hoarding cash.” Healthcare firms continued to restructure to accommodate the post-reform environment in that sector. According to a contact at a private healthcare group, that organization had begun shifting away from low margin, basic services. A Virginia airport executive noted that increased passenger traffic in recent weeks had recovered from a drop earlier in the summer. Prices moved up more slowly at services firms.
Finance. Lending activity improved marginally from weak levels since our last report. One banker reported continued strength in refinancing demand, which accounted for three out of four commercial loan applications. A North Carolina banker noted that, while most home mortgages were for refinancing, applications were fifty percent above normal levels and over one third were for either purchasing or building a home. Demand for commercial loans across the District was mixed, according to several contacts, with modest improvements coming from the medical, legal, and other services-related segments of the market. An official at a large bank described consumer demand as remaining weak, with the notable exception of auto loans, while business loans for capital equipment improved slightly. Several bankers stated that credit standards remained tight for consumer loans, but some easing had occurred in order to capture attractive commercial loan applications. A commercial banker said that uncertainty about whether a successful SBA program would be renewed had curtailed his ability to get approval of several viable small business loans.
Real Estate. Residential real estate activity improved since our last report. A Realtor in the Richmond area said that closings were up double digits over last year and prices were rising slightly. Properties below the $200,000 range, in particular, were selling more quickly. However, an agent in the D.C. area indicated that housing sales in the $800,000-plus range were rising relatively quickly, adding that the lowest inventory for housing in eight years was pushing up prices. A Realtor in the Fredericksburg area reported that her agency was extremely busy for this time of year and indicated that sales were up forty percent over last year; she expected the stronger market to continue. Moreover, a Maryland contact mentioned that foreclosures in central Maryland had fallen thirty percent from the previous quarter, which bolstered housing prices. In contrast, a report described the housing market in North Carolina as mostly unchanged, with the exception of an improvement in the Research Triangle. Also, a source stated that there had been a slowdown in housing in the Hagerstown area.
Commercial real estate and construction activity remained mixed since our last assessment. A Realtor in North Carolina stated that both leasing and sales activity had slowed since June, with some tenants switching to shorter leases. Another agent reported moderate increases in office leasing, especially in suburban locations. Several contacts in Virginia and West Virginia noted increased interest from clients but few closings. A Virginia Realtor said that retail leasing had improved, but it was “still a bumpy road” and that leases were “taking forever to close.” Both leasing and construction-related activity in the industrial sector was sluggish. Several contractors reported that government-related projects continued to weaken or decline. New private sector projects also started to decline in recent weeks. A large contractor in Maryland expected that few new projects would emerge until after the election. However, a banker noted that small developers were joining together to buy and renovate low-priced B and C Class properties, in anticipation of an improved real estate environment next year.
Labor Markets. We received mixed signals on labor market activity over the last few weeks. A source from West Virginia reported that the state experienced several major layoffs related to mine closings and bankruptcies. A contact in Hagerstown said that the local labor market continued to recover, but at a slow pace, and that the area would lose a major manufacturer later this year. Moreover, an auto supplier in Virginia stated that his firm had frozen hiring and would reduce staff through attrition. In contrast, several employment agencies cited an increase in demand for workers, particularly among goods-producing industries. At a North Carolina staffing agency specializing in finance, companies were actively hiring staff and senior level accounting and finance professionals. In the retail sector, an industry representative mentioned that many small retailers expected to add hours for permanent employees during the upcoming holidays, rather than hire seasonal workers. According to our recent surveys, average wages in both the manufacturing and services sectors were growing at a slightly quicker pace than a month ago.
Tourism. Hoteliers, restaurateurs, and other tourism contacts reported stable but solid leisure business going into the autumn season. In addition, their outlook was upbeat for late fall and early winter. An hotelier in western Virginia stated that business was solid, with a trend toward more last-minute leisure bookings. A tourism contact in Washington, D.C. reported seeing “tour buses galore” and crowds on the mall. Tourist activity on the outer banks of North Carolina was steady, and good attendance was expected for upcoming music and food festivals. Hotel and rental rates were not being discounted, although incentives were offered for time slots that were difficult to fill. In contrast, hotels that depend heavily on government- sponsored bookings reported a significant drop in business.
SOURCE: Federal Reserve Board