U.S. Federal Reserve Beige Book: Richmond District (Text)
The following is the text of the Federal Reserve Board’s Fifth District-- Richmond.
Overview. Recent reports on economic activity in the Fifth District mostly described conditions as either unchanged or slightly improved. The more upbeat reports came from the retail sector, which rebounded in November, and the tourism sector, which continued to post moderate improvement. The agricultural sector also enjoyed a good harvest. Reports on manufacturing activity indicated little change over the last month, following several months of contraction. Likewise, the service sector was generally characterized as being flat, although a few bright spots were noted. Other sectors, including finance and real estate, reported generally mixed conditions. We received a wide variety of reports on the labor market, ranging from lower employment in the retail sector to several firms having trouble finding workers. Retail prices rose more rapidly than in our last report, as did service prices and commodity input prices.
Manufacturing. District manufacturing activity was little changed in November. Our latest survey showed virtually no change in shipments and orders across firms, after having indicated declining activity over the past four months. A furniture manufacturer reported a slight firming of new orders, but noted that cancellations had increased. He added that the net change was small and that uncertainty about the economy was holding back demand. Similarly, a textile mill producer said that his company expanded production to a seven-day workweek in order to accommodate new orders. Unfortunately, they ran out of yarn and cut back to a five-day week until suppliers could catch up. An electrical component producer said that flooding in Thailand had lowered production. He added that his company will have serious trouble meeting his customers’ orders during the next three-to-six months. Also, an electrical equipment manufacturer cited a significant slowdown in order intake due to uncertain global economic situations. He stated that firms were slowing the rate of their order placement. Raw material prices grew at a somewhat faster pace than a month ago, according to survey respondents, while prices for finished goods grew more slowly.
Retail. Retail sales rebounded in recent weeks, with apparel and department store sales leading the improvement. However, some retail and wholesale contacts remained cautious regarding inventory and expansion. A contact at a large pharmacy in South Carolina and a distributor to department stores both reported solid sales growth. Several auto dealers reported stronger sales. A jeweler in Charlotte, North Carolina remained guarded about the economy, and remarked that he is “only buying what is necessary.” In addition, a large chain store for homebuilder supplies plans more expansion overseas than domestically. Retail prices rose at a somewhat faster pace since our last report.
Services. Firms reported generally flat revenues since our last report, although a few contacts indicated that demand strengthened. A Baltimore contact noted that local unemployment had reduced the demand for daycare services, and several advertising firms and telecommunications-related businesses reported little change in demand. In contrast, revenues were up significantly for some restaurateurs in the Charlotte, North Carolina region. In addition, a central North Carolina hospital began to add a broad range of specialty physicians and associated staff, and other District healthcare facilities hired technical personnel to meet changing federal requirements for healthcare facilities. Non-retail services prices rose more rapidly in recent weeks.
Finance. Loan demand in the District continued to be mixed. A major lender in the District reported that small business loans at his bank were improving, with much of the demand stemming from the need to expand production and upgrade office equipment and software. An official for a small bank cited a strengthening commercial loan pipeline, resulting from larger banks in his market area shedding customers. A banker who specializes in export financing noted an uptick in demand, but added that many small businesses were not able to meet the bank’s lending standards. Several bankers noted continued strength in mortgage refinancing. However, few lenders were issuing new mortgages, and bottlenecks in the appraisal process were delaying closings. In contrast, a central Virginia banker described loan demand as relatively weak, with most applicants failing to meet qualification standards. And a banker on the Eastern Shore reported that loan demand remained weak, with “no demand for business expansion loans.” Several bankers and small commercial contractors stated that getting approval for new construction loans was extremely difficult, due to tight credit standards and a poor outlook for profitability.
Real Estate. Indicators of real estate activity around the District were mixed since our last report. Several Realtors reported that sales activity had increased somewhat but housing prices were about the same or down slightly from a month ago. Brokers in Richmond and Fredericksburg noted many showings but few resulting contracts. Sales in the low price range were generally reported as faring much better than sales in the upper ranges. However, a contact in northern Virginia stated that sales at the upper end of the price range were doing much better in his area. A Realtor in the D.C. area said that his inventory and new listings were down considerably. In addition, a homebuilder in the Carolinas said that existing home sales continued to fall, but added that new home sales were up in Charleston, SC, which he attributed to empty nesters relocating to that area. Also, a custom builder in southern Maryland described his business as enjoying the biggest improvement in demand that he had seen in three years.
We received varied reports on commercial real estate and construction. While construction was generally weak throughout much of the District, several new manufacturing projects were announced in North Carolina. Smaller projects were being built faster due to abundant labor availability. Contractors reported that refurbishing of commercial properties was up in both Maryland and the Carolinas, but no one was adding new capacity. A general contractor in the Baltimore area reported that he was having his ―best year ever‖ after partnering with a larger firm. However, a builder in the Baltimore area said that his market was flat. Also, a Virginia contractor noted that commercial and federal work has dried up in most areas of the state, with D.C. capturing much of what little work there is. A real estate manager in West Virginia reported that office demand in that state was down and construction activity was weak. A developer in North Carolina stated that many developers were running out of cash and that getting bank financing was a challenge. Finally, a Maryland developer noted that BRAC-related work was ending and his company had little backlog.
Labor Markets. Assessments of labor market conditions were mixed since our last report. Several employment agencies reported average-to-somewhat-stronger demand for temporary workers in recent weeks, particularly in the information technology and manufacturing sectors. Finding skilled workers continued to be a major concern. A Virginia contact noted that skill shortages and unwillingness of candidates to move to his area were becoming an increasing problem for his firm. Similarly, a manufacturer in North Carolina stated that his company was ―having a tough time hiring good people.‖ He added that many workers would not accept a job because their unemployment benefits were too good. Another agent in North Carolina said mobility issues were a major concern because potential hires could not sell their homes. A builder in West Virginia was fearful that his area was losing critically skilled workers, who will be needed whenever the housing sector recovers. According to our latest survey, hiring was flat at services firms, and wage growth on average slowed. Retailers continued to shed employees, and average retail wages over the last month grew at about the same pace as in October. Hiring by manufacturers stabilized over the last month, while the average workweek was unchanged and wage growth strengthened.
Tourism. Contacts generally reported slightly higher hotel bookings in recent weeks. A Myrtle Beach contact stated that higher hotel occupancy rates pushed up revenues, although the revenue gains remained below pre-recession highs. A contact in Annapolis, Maryland stated that local hotel bookings were up, but discounting was prevalent, and while the Annapolis Boat Show was well attended, sales there were light. A Virginia resort hotelier remarked that ―the phones have been flooded, but people are still looking for the best deal.‖ Tourism remained solid in other areas as well. For example, a hotel manager at a resort in western Virginia noted that season ski passes were selling at about the same rate as a year ago. Reservations were already being made for other local winter recreational events, and the weeks surrounding Christmas were booked. Contacts at District tourist attractions indicated that attendance rose since our last report. Most contacts reported no change in room rates.
Agriculture. Recent weather conditions allowed farmers to make steady progress in harvesting and small grain planting throughout most of the District. The corn harvest was nearing completion in Virginia and was winding down in Maryland, with farmers in those states saying that yields remained mostly good. The cotton harvest was getting into full swing in North Carolina and was ahead of schedule in South Carolina. In addition, the apple harvest was completed in Maryland and nearly completed in Virginia. Farmers in the District were harvesting their early soybean crop, which was reported to be in fair-to-good condition. Small grains had been planted and were off to a good start in much of the District.