Beige Book Report: Richmond
September 12, 2018
Summary of Economic Activity
The Fifth District economy expanded at a moderate rate since our previous Beige Book. Manufacturers gave mixed reports as some saw robust growth while others struggled with higher input prices that they were unable to pass along. District ports continued to report high volumes of imports and exports but expressed some concerns for the near future. Trucking remained strong and demand continued to exceed capacity, leading some firms to turn away business or to look toward increasing fleet size. Business travel and tourism was robust throughout the Fifth District. Meanwhile, retailers reported moderate growth, overall. Residential real estate conditions improved moderately as sales increased and home prices moved higher. Commercial real estate demand strengthened for industrial and retail space while office leasing demand varied by location. Loan demand rose modestly, overall, as short term interest rates ticked up. Demand for nonfinancial services grew moderately. Overall, labor demand strengthened and job openings increased as employers struggled to find qualified workers. Prices grew at a moderate rate, on balance.
Employment and Wages
The demand for labor strengthened moderately in recent weeks, and employment agencies reported growth in new job openings. Meanwhile, employers continued to report tight labor markets and difficulties finding qualified workers. Staffing firms indicated that job openings increased for customer service representatives, administrative assistants, medical professionals, and construction workers. Additionally, firms reported high demand for construction workers, electricians, engineers, pilots, logistics workers, accountants, IT professionals, auditors, financial analysts, marketing/sales managers, plant workers, mechanics, and truckers. Wage increases remained modest, overall.
On balance, prices grew at a moderate rate since our previous report. According to our latest surveys, manufacturing input prices rose moderately and continued to outpace selling prices. Specifically, rising prices were noted for aluminum, lumber, chemicals, rayon, polyester fiber, paper, and fuel. Conversely, copper prices were reportedly down slightly. Meanwhile, service sector firms indicated that both their prices paid and prices received grew at a moderate rate. Firms across both manufacturing and service sectors saw higher shipping costs. Lastly, coal and crude oil prices increased in recent weeks while natural gas prices were stable.
Fifth District manufacturers gave mixed reports in recent weeks. Many firms reported robust business and optimism, such as a Virginia window manufacturer who attributed the best business they have had in years to high consumer confidence. However, other firms gave more negative reports as they were unable to pass through to customers rising materials costs as a result of recent tariffs. A Maryland can manufacturer feared price increases would lead to permanent business losses as customers would look for alternative forms of packaging. Manufacturers also struggled as a result of the truck shortage, reporting rising shipping costs and delayed deliveries.
Ports and Transportation
District ports have continued to report robust activity. One port saw record volumes of imports but a slight decrease in exports while another port reported strong growth in both imports and exports. A District airport reported seeing strong growth but was cautious about making capital expenditures over concerns that business might soften as a result of new tariffs. While some port contacts have not yet seen any effects from the tariffs, they expressed concerns, noting that the effects may be delayed since shipments are often planned well in advance. One port also anticipated losing some inland business soon as a result of trucking shortages.
Trucking activity remained strong in recent weeks, and some companies continued to turn away business because they did not have enough trucks or drivers to meet demand. A Virginia executive reported trying to increase his fleet to meet demand, despite rising equipment costs, and believed that his competitive compensation would attract more drivers. In North Carolina, a company reported seeing their lowest-ever operating ratio as they are able to raise prices and be selective about what size shipments to handle.
Retail, Travel, and Tourism
Tourism was robust in recent weeks. Hotels in the District of Columbia were able to increase rates because of strong business. Meanwhile, in North Carolina, healthy tourist activity boosted business for shops and restaurants. In South Carolina, increased business travel is keeping demand for hotels high, but the recent increase in supply kept prices from rising. Resorts in Virginia and West Virginia saw strong business despite setbacks from bad weather. Short-term rentals received a boost from workers on the Atlantic Coastal Pipeline.
District retailers reported moderate business conditions since our last report. A West Virginia sporting-goods retailer saw strong back-to-school business but suppressed profit margins as costs, particularly for shipping, increased. Meanwhile, a Virginia home goods store credited an uptick in business to strong tourism, and a high-end clothing store saw strong customer traffic and sales. Some retailers attributed higher input prices to recent tariffs and were hesitant to make long-term business decisions.
Real Estate and Construction
Residential real estate sales increased modestly, although agents reported a slight decline in buyer traffic. Inventory levels remained low across markets, and brokers stated that the lack of inventory was restricting home sales. However, most agents described the market as healthy and expected activity to remain steady in the coming months. Home prices rose modestly, while days on the market were generally unchanged at low levels. New home construction and sales increased modestly while speculative construction was limited. Builders continued to struggle to meet production timelines due to the lack of available and qualified roofers, framers, and siding crews. A broker in Virginia noted an increase in house flipping and remodels.
Commercial real estate leasing activity rose modestly in recent weeks as brokers reported increased demand in the industrial and retail markets. Office leasing activity was mixed across the District. Brokers in South Carolina, West Virginia, and Virginia reported slower office leasing activity in recent weeks, while agents in North Carolina and the District of Columbia reported modest increases. Vacancy rates decreased slightly in some office markets and were unchanged in the retail and industrial markets. Rental rates for all sub-markets were stable to increasing modestly. On the commercial sales side, brokers reported modest increases in prices and sales. Industrial and retail construction increased modestly, but there were no reports of new office construction projects.
Banking and Finance
Overall, loan demand rose modestly in recent weeks. Reports on residential mortgage demand varied by location but was generally described as stable to increasing modestly. On the commercial side, real estate loan demand strengthened modestly in most locations, and remained particularly strong in the District of Columbia. Business loan demand improved slightly, on balance, and automotive lending was reportedly flat compared to the previous report. On balance, short term interest rates increased slightly in recent weeks as deposits grew modestly and competition among banks remained strong. Credit quality remained stable at strong levels.
Overall, the demand for nonfinancial services continued to grow at a moderate rate in recent weeks. Firms in engineering, telecommunication, and healthcare services were particularly positive. A hospital reported strong earnings and higher Medicaid reimbursements. Meanwhile, a few professional services firms that rely on government spending reported stronger demand. On the downside, several contacts mentioned that labor constraints were holding back growth.
For more information about District economic conditions visit: www.richmondfed.org/research/regional_economy