WASHINGTON (MNI) – The following is the latest Beige Book’s
Fifth District assessment of economic activity, published
FIFTH DISTRICT – RICHMOND
Fifth District economic activity improved somewhat in most sectors
since our last report, although manufacturing and employment weakened.
Retail sales improved, and non-retail services providers reported a
moderate increase in demand. Tourism contacts generally indicated that
summer business was strong, and they anticipated a busy autumn season.
Widespread precipitation in July and August brought relief from drought
conditions, boosting expected crop yields. Residential real estate
activity inched up, while commercial real estate reports were mixed.
Lending activity also varied, and most mortgage lending was for
refinancing. Manufacturing activity softened as orders declined. Weaker
District hiring was led by a slowdown in requests for temp workers,
although demand for highly skilled employees persisted. Price changes
generally slowed in both the manufacturing and services sectors, with
the exception of a small uptick in retail.
District manufacturing activity continued to decline since our last
report. A manufacturer reported that demand fell sharply for heating
equipment components, with domestic and European customers both reducing
their orders. An auto supplier also reported a significant drop in new
orders in the past two months. Another auto parts manufacturer stated
that earlier in the year, demand for his components was growing, but now
orders were “treading water.” He added that inventories were rising and
he expected to cut production. A food manufacturer reported that power
outages from recent storms resulted in a one-week shutdown, and
production did not return to normal for over three weeks. According to
our latest manufacturing survey, growth in raw materials prices slowed
over the past month, while finished goods prices edged downward.
Retailers reported improved sales since our last report. Merchants
in several states had a successful “tax free weekend” in early August.
In addition, some department store contacts said they were able to clear
inventories of patio furniture and other seasonal items. Several jewelry
retailers also reported increased sales. Record heat this summer helped
to push air conditioner sales, with one big-box store depleting its
entire inventory. An auto industry contact reported that District sales
grew at a somewhat slower pace in recent weeks, although demand remained
especially strong for mid-size vehicles. Used cars remained in short
supply, putting upward pressure on prices and improving trade-in values.
A number of apparel and furniture contacts noted that inventories for
the upcoming holiday shopping season will be kept tight, since they
expect to be able to easily reorder as needed. Grocery executives
expected price increases in meat and dairy products, due to rising feed
costs caused by drought. The pace of retail price change rose
moderately, according to our most recent survey.
Accounts from non-retail services firms were generally positive in
recent weeks. An executive at a North Carolina healthcare system
reported that demand for services had been steady, adding that there
were a few “sparks” from the arrival of new businesses in an otherwise
stagnant local economy. Contacts at healthcare organizations expressed
concern about potential Medicare reimbursement cuts that will come with
the change to value-based metrics under the new healthcare legislation.
Ground freight firms reported solid demand and higher shipping rates. A
freight service executive reported that retailers increasingly have
moved to an online presence in addition to in-store sales, contributing
to growth in direct shipping to customers through internet sales.
Technology services continued to be in strong demand, particularly for
developing websites, mobile services, and cloud computing. On balance,
responses to our recent survey were that price increases at services
firms moderated since our last report.
Banking activity was little changed from the weak, but somewhat
mixed conditions that prevailed in our last report. Most bankers said
that very few new loans were made recently and the number of loans in
the pipeline was shrinking. An often-cited exception was mortgage
refinancing, as well as business loans that were captured from other
banks by offers of better terms. However, several mortgage lenders noted
some increase in new home loans, especially in the mid-priced range, and
one official reported a modest increase in single-home construction
loans. A Maryland banker cited a sharp increase in small business loans,
but several other bankers stated that many small business loan
applications did not meet lending standards. A lending officer in
northern Virginia reported a slowdown in industrial loans due to rising
economic uncertainty. A banker in West Virginia noted strength in
industrial loans going into the state’s energy sector, although he
expected lending to decline after the completion of current mining
projects. While margins continued to be squeezed, most bankers described
loan quality as stable following several quarters of steady improvement.
Residential real estate activity continued to improve since our
last report. A Realtor in the Richmond area said that sales were up
double digits over last year and pending sales had increased sharply
from a year ago. Moreover, his company had seen a marked increase in
prices. An agent in the D.C. area also reported strong sales “inside the
Beltway. A Realtor in the Fredericksburg area indicated that sales had
increased and traffic was very active for this time of year, noting that
the average sales price had risen by about $40,000 over last year. She
mentioned that her firm had seen virtually no listings of foreclosed
properties in July, and she saw fewer short sales. A West Virginia
developer, who specializes in second homes in the mountains, stated that
there had been an increase in inquiries and contracts for homes after
four years without any sales. Similarly, a contractor reported a solid
increase in home sales in the Charleston, South Carolina area, with the
average price of new homes sold rising slightly as well.
Commercial real estate activity remained mixed over the last few
weeks. A few Realtors pointed to companies that were downsizing their
space requirements as a cause for limited new construction and high
vacancy rates. An agent in the D.C. area reported a recent drop in
office leasing activity by as much as half from year-ago levels.
However, several Realtors noted that, due to the lack of office
construction, landlords had been offering fewer incentives to capture or
retain tenants at existing properties. Retail leasing activity was
mostly described as weak, especially among small, locally owned
businesses. A contact in northern Virginia noted weakness in many
segments of the market, but notable exceptions included car dealerships,
gas stations and doctors’ offices. A North Carolina real estate agent
reported that purchasing activity had picked up markedly among his
investment clients, which he attributed to national firms being
increasingly attracted to the region. A few pockets of improvement in
both leasing and construction activity were noted in eastern South
Carolina, which has benefited from an expansion in the aerospace
industry, and in northern West Virginia, where gains were driven by
natural gas drilling.
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** MNI Washington Bureau: 202-371-2121 **