U.S. Federal Reserve Beige Book: Richmond District (Text)
The following is the text of the Federal Reserve Board’s Fifth District-- Richmond.
Overview. Economic activity in the Fifth District improved modestly since our last assessment. Retail sales were sluggish, held back in part by weak big-ticket sales. Growth at services firms slowed, although tourism businesses reported strong demand. Bankers said that lending grew slowly, and much of the activity was refinancing. Residential real estate agents noted encouraging signs of improvement in housing sales, while commercial Realtors described leasing and construction activity as mostly flat to moderately up. Manufacturing reports were mixed, with auto and other transportation equipment-related producers continuing to do well, while other producers faced unchanged or weakening demand. District hiring activity varied, with some businesses reluctant to hire or unable to find qualified workers. Recent rainfall aided newly planted fields, but excess moisture in some areas delayed planting. Price increases-- both paid and received--generally slowed.
Manufacturing. We received mixed signals on manufacturing activity since our last report. According to our latest survey, new orders and shipments were essentially unchanged in May, following solid expansion during the previous month. A producer of metal extrusions reported that, although his sales slowed a bit in April, demand in May picked up again. However, a producer of gas turbines said that economic problems in Europe led to fewer exports, and he expected to lay off ten percent of his employees this summer. Several manufacturers cited decreased government spending as the primary reason for recent cancellations of orders. A manufacturer of aircraft engines expected that cuts in defense spending would soon weaken government demand for his products, but private sector orders remained robust. A spokesperson at another aerospace manufacturing firm said that her business was expanding nicely, and she attributed the increase to strengthening demand for helicopters and gyroplanes. According to our latest survey, both raw materials prices and finished goods prices grew at a somewhat slower pace than a month ago.
Retail. Sales were tepid in recent weeks, after an early Easter pulled some holiday sales into March. Stores reported good Mothers Day sales, although foot traffic was lighter than normal for many retailers. Shopper traffic was unchanged since our last report and big-ticket sales declined, according to a recent survey. A central Virginia retail representative reported little stability in the market as customers exhibited “yo-yo spending” (i.e., up one month, down the next). Accordingly, retailers managed inventories tightly and were reluctant to make capital investments. A South Carolina grocer observed that customers were buying special sale items at different stores, rather than shopping at one store. In contrast, an executive at a chain of hardware stores noted that sales had improved at a slow-but- steady pace since the start of the year. Discount department store managers generally reported a pick-up in sales. For a few discounters, however, the opening of new competition kept sales flat. Automobile sales were also flat. Most home improvement retailers reported a decline in sales in recent weeks. Retailers’ prices rose at a somewhat slower pace since our last report.
Services. Revenues advanced more slowly at services firms since our last report. A building contractor stated that consumers were still avoiding big projects, but were increasingly looking for “more than a coat of paint,” as homeowners improved their current homes rather than trying to sell. Several services providers, particularly architectural, engineering, and telecommunication firms, reported stronger revenues. A healthcare provider in Central Virginia reported that demand for in-patient services had flattened out a bit recently, partly due to an absence of influenza cases, but out-patient services were still growing. Several healthcare institutions reported that they were continuing capital spending projects, especially on computer technology, to meet federal requirements and guidelines. Non-retail services providers reported a mild up- tick in the rate of price increases.
Finance. Lending activity increased modestly across most segments of the market. On the commercial side, several bankers cited markedly higher volumes of small business loan applications and increased loan approval rates. One banker attributed the gains to growth in inventory and capital improvement spending, while another said that small businesses were making renovations to commercial properties. However, several loan officers around the District saw little improvement in loan demand from the retail sector. On the consumer side, mortgage demand continued to improve, although refinancing dominated much of the lending. Other bank officials noted solid gains in home improvement loans, with one banker citing an increase in use of equity lines of credit. In contrast to the more upbeat reports, several officials at mid-sized banks described loan demand as flat in recent months, with little new business in the pipeline for either mortgage or commercial loans.
Real Estate. Residential real estate activity generally improved since our last report. A Realtor in the Richmond area, who noted some improvement in April, said that May would be a big indicator of whether the spring market just came early, or if gains would continue into June. He was cautiously optimistic that real estate activity was moving in a positive direction. A source from the Hampton Roads area of Virginia said that housing-related activity in that area had seen recent signs of improvement, adding that properties were being “snapped up” as investors became more confident of a housing recovery and home sellers became more realistic with their prices. Moreover, several brokers in Asheville and Raleigh, North Carolina stated there was an up-tick in housing sales. However, an agent in the Winston-Salem area of the state mentioned that there was still stagnant growth in some areas, and that homes for sale in that area were out of balance with area incomes. Several Realtors reported that sales picked up in recent weeks, while housing prices dropped. Most Realtors indicated that sales were concentrated in the low-to- mid-price range.
Commercial real estate leasing and construction was flat or moderately improving in recent months, although pockets of weakness persisted. Respondents around the District reported more construction and absorption, especially in the industrial segment. Contacts at several engineering and architectural firms confirmed that interest in new construction projects increased, although demand remained well below pre-recession levels. Construction activity in South Carolina was driven by the recent expansion of manufacturing activity in the state, while gains in West Virginia were associated with the emerging boom in natural gas. One real estate developer in Charleston, South Carolina said that rents had increased to the point where “new construction is starting to make sense.” A developer in the Richmond area cited a rise in demand for warehousing space, related to healthcare facilities and an increase in on-line shopping activity.
Labor Markets. Assessments of labor market activity were mixed since our last report. Several employment agency contacts saw somewhat greater demand for temporary workers, and most expected demand to remain strong for the remainder of the year. A Baltimore agent reported an increase in demand for manufacturing workers, adding that manufacturers were hurt by a severe shortage of trained workers. Several contacts said that current hiring was focused on skilled positions, and they expected that companies would continue to experience recruitment problems. However, a representative at a Richmond staffing agency reported that job orders continued to be steady and that more area companies were hiring workers on a permanent basis than a year ago. A source in South Carolina noted that the aerospace industry was investing heavily in new technologies that would reduce the need to hire additional workers. According to our latest survey, District wage gains in manufacturing were slightly lower than a month ago, while the pace of wages in the service sector increased.
Tourism. Tourism contacts reported strong bookings during the last four to six weeks, and restaurants in tourist areas experienced solid customer demand. Several hotel owners on the outer banks of North Carolina said that spring got off to a strong start and summer rentals were up. Memorial Day is the traditional summer kick-off for resorts, and most were advertising special events for that weekend. A resort owner in the mountains of Virginia said that he expected a record crowd for the holiday. He added that lower gas prices and good weather boosted bookings in recent weeks, following a winter season with weak demand due to unusually warm weather. In addition, time- share rentals were strong, and booking incentives were no longer necessary.
Agriculture. Rainfall across the District supplied much-needed moisture to emerging field crops. In South Carolina, cotton planting was slightly ahead of schedule, and planting of peanuts was well ahead of its normal pace. However, rainfall delayed plantings of cotton and peanuts in parts of North Carolina and Virginia. Excess precipitation was also problematic for strawberry farmers in Virginia, causing fruit spoilage; the problem was compounded by a lack of pickers. Corn and soybeans began to emerge in Maryland, while farmers in West Virginia reported that warm weather put planting of corn and soybeans ahead of schedule. Lastly, the peach harvest was under way in South Carolina, and cantaloupe and watermelon planting was complete.