U.S. Federal Reserve Beige Book: Richmond District (Text)
The following is the text of the Federal Reserve Board’s Fifth District-- Richmond.
Overview. District economic activity strengthened moderately in recent weeks. Manufacturing shipments and new orders increased. Consumer spending firmed somewhat and auto sales remained solid. Services providers also reported steady to stronger demand. Additionally, tourist bookings were up year over year. In banking, demand rose for new residential mortgage lending. Commercial and industrial lending was flat to slightly higher. Residential real estate sales and construction increased, with speculative building returning to some areas. Commercial construction was little changed and leasing was steady overall, with occasional reports of rising rental rates. The effect of continued heavy rainfall on agriculture was mixed, slowing planting or damaging some crops while bolstering others. Natural gas production increased since our last report, particularly shale gas, and coal production was steady but well below year-ago levels. In labor markets, temp hiring picked up, although many firms were reluctant to hire permanent workers. Average wage growth was flat to faster, and price changes were mixed.
Manufacturing. Manufacturers expressed cautious optimism in the weeks since our last report, as activity in that sector strengthened modestly. Shipments and new orders rose, and the average workweek increased. Despite the improved conditions, producers preferred to use cash to update technology and existing infrastructure, rather than undertake expansion. A plastics manufacturer commented that his company was purchasing new machinery in response to increased work levels, and he saw industrial confidence as being up, but still cautious. A lumber company executive said he will not hire new full-time employees until next year, but that, so far, this has been his best year since 2007. Moreover, according to a representative of several manufacturers, some firms have gone to two shifts and further growth is expected for the second half of this year as backlogs build. Even so, he described confidence as “fragile, and nobody takes it for granted.” Federal spending reductions, tax changes, and slower overseas demand affected some manufacturers. A manufacturer of packaging materials commented, “There is a light at the end of the tunnel, but it only flickers at times.” Price growth increased for raw materials and finished goods, according to our latest survey of manufacturers.
Ports. Port volumes were little changed overall in recent weeks. Lumber imports picked up, while imports of auto parts and auto assembly inputs softened slightly from very high volumes. Imports and exports of autos remained strong. Exports of containerized agricultural products rose, particularly logs and animal feed inputs, while exports of wheat sprouts declined. Energy-related exports and agricultural equipment were solid, with agricultural equipment peaking in late spring as usual, albeit somewhat below year-ago record levels. Overall, coal exports were unchanged. Port administrators expected seasonal increases in the weeks ahead for back-to-school and holiday imports.
Retail. Retail sales strengthened slightly in recent weeks, helped by big-ticket sales. A wholesaler of heavy construction equipment commented that his firm had seen significant improvement. Additionally, a contact at a large auto and light truck dealership remarked that sales volume was strong and the market was extremely competitive. He noted that new vehicle sales were being driven by full-size pickups that are typically purchased by homebuilders and construction-related services businesses. Used car sales were exceptionally strong and some dealers had shortages of used vehicles. A report from a large department store chain said that cold and damp weather, along with the payroll tax change, had constrained sales. Retail price growth slowed since our last report.
Services. Non-retail services firms reported steady to stronger activity. Telecommunications firms, accountants, and a firm specializing in software design for clinical use reported rising revenues. Hospital consolidation remained “intense,” according to a contact in North Carolina. Non-retail prices rose more slowly in this reporting period.
Tourism picked up. Bookings rose in the Tidewater, Virginia region. Additionally, a hotel manager in western North Carolina noted that his bookings have risen compared to a year ago and that expectations were for continued year-over-year growth for the remainder of this year. A contact on the outer banks of North Carolina reported general optimism and added that cutbacks in government funding for tourist sites have led to increased fund-raising events, such as concerts. Rates were little changed.
Finance. Banking activity increased slightly since our last assessment. Demand for residential mortgages was up in most markets and bankers across the Fifth District commented that there had been a noticeable shift toward new purchases and away from refinancing. A Virginia banker proclaimed that “refinancing had died,” although a lender in South Carolina said that refinancing still made up the majority of his residential mortgage business. However, some customers no longer qualified for loan refinancing due to higher rates. Similarly, “the phone rang more often” for a Virginia banker while a lender in Maryland reported that people were waiting to see what rates would do. Demand for residential construction loans rose in South Carolina. Commercial and industrial loan demand was flat to slightly higher. There were several loans in the pipeline at a West Virginia bank, most of which were for new structures (i.e., office buildings, car showrooms, and a retirement community). However, higher interest rates caused some deals to be reevaluated and put on hold or pulled. Contacts also stated that clients were surprised at the higher rates and that businesses were trying to figure out how best to budget for them.
Real Estate. Residential real estate sales expanded. Two Washington, D.C. area agents reported that it was now routine to see multiple offers for a home, as well as escalator clauses in those contracts. Another contact in the region said that home repair and specialized construction were benefitting from strength in the housing market. Due in part to its proximity to D.C. and Baltimore, home sales in the eastern panhandle of West Virginia finally saw some improvement. In addition, home sales in western North Carolina were up, causing inventories to erode and speculative building to resume. Inventories were also low in the Charlotte region where home sales and prices had both increased. Lastly, a source on the eastern shore of Maryland stated that appraisals were below the sales price of homes in some areas.
Commercial real estate and construction markets were little changed overall in recent weeks. Demand for commercial real estate in Washington. D.C. continued to be scarce as people were “waiting on the sidelines” to see what would happen with the economy and government spending. In addition, one large business in the D.C. area sold its buildings and turned to renting space while another shifted out of large leased spaces and consolidated into buildings owned by the firm. There were conflicting reports from our North Carolina contacts about multi-family housing: one reported there was now some overbuilding while another said there was still a lot of strength in this type of housing. This latter sentiment was echoed by a report from the Tidewater area of Virginia indicating that multi-family was doing well and stalled projects were coming back on line. Contacts in other parts of the state reported that lot inventory was low or “almost nil.” Retail, office, and industrial leasing activity was steady in Virginia and West Virginia while rental rates edged up in Charlotte and Richmond.
Agriculture and Natural Resources. Recent reports on agricultural conditions were mixed. While a South Carolina farm loan banker reported that the wet weather earlier in the year “started the crop season off in a positive light,” other reports from South Carolina and Virginia indicated that the rains delayed planting and even resulted in one farmer planting soybeans and cotton instead of corn. In addition, a South Carolina contact noted that heavy rains had damaged the regional wheat crop to the extent that sprouts were unacceptable for export. A North Carolina source also noted a recent shift to cotton over corn, due to declining corn prices. Nevertheless, another source remarked that agricultural lending was “booming” and demand for wood products continued to rise.
Natural gas production--particularly shale gas--continued to increase in West Virginia. Moreover, one shale plant was less than fully staffed because of a worker shortage. Although rig counts were down nationwide, West Virginia was one of five states that recently saw an increase in rig counts. Coal production remained steady in recent weeks though well below a year ago. Coal lay-offs in southern West Virginia were expected to come later this year.
Labor Markets. Conditions in the District labor market were somewhat better since our last report. Employment rose in several industries, including home repair and construction, hotels, and medical software. In addition, a contact from a temp agency in North Carolina reported there was high demand for technology professionals, particularly for healthcare-related IT, as well as accounting, finance, and real estate. He added that contingent labor was in much greater demand than full-time employees due to uncertainty about the economy; another source said that small businesses were going out of their way to avoid the long-term commitment of permanent hiring. In contrast, a web consulting firm in Virginia and a social assistance organization in North Carolina planned to add employees. Also, a staffing agency in South Carolina reported weak demand for labor, and two electrical equipment manufacturers laid off employees. According to our latest surveys, wage growth picked up in the manufacturing sector, remained robust at non-retail establishments, and flattened at retail businesses.
SOURCE: Federal Reserve Board