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BusinessNC.com BusinessNC.com
09/15/20

Hello everyone.  Dan here.

 

We all have our economic indicators.  Are more of my receivables drifting into 60 days? Not a good sign.  Did your kid just jump to a new job with a big raise?  A good sign. 

The Federal Reserve operates kind of like this. Sure, it has people with advanced degrees crunching numbers and frowning at graphs. But the Fed also  talks to people.

Eight times a year, the Federal Reserve publishes what’s known as the Beige Book, a region-by-region look at business conditions. The report is divided up by Fed district. We are in the Fifth District, which includes North Carolina, South Carolina, Virginia, Maryland, Washington, D.C. and most of West Virginia.  

The Fed plays a major role in setting national economic policy. The Federal Open Market Committee – the Fed Board’s monetary chieftains - can push interest rates down or raise them up, depending on conditions. It can pump billions into the banking system to provide liquidity. It uses the Beige Book to get a handle on how things are going. Of course, it is looking at a bunch of economic dashboards, but sometimes you want to hear from a Toyota dealer. It can give the story behind the numbers.

One advantage of the Beige Book is that the anecdotes are fresh. Research suggests that the Beige Book can detect turning points in the economy.

The latest Beige Book (the cover is beige) came out Sept. 2. Manufacturers around the district reported a “moderate increase in shipments and new orders,” but some said demand was “unreliable.” Ports saw a modest increase in shipments since the July report,  when there were modest declines. Auto dealers were seeing strong demand, while brick-and-mortar retailers were continuing to see low demand as the market shifted online. Groceries saw strong demand but COVID-19 cleaning costs were cutting into  margins.

Residential realtors are doing well. Days on market are falling, and “many houses were bought sight unseen and some sold in hours.” Low interest rates are, obviously, a factor, but the Realtors are seeing a move from cities to suburbs, for larger homes with land.  

Bank deposits grew moderately, mainly because of federal aid. (Now that federal aid is not flowing as much, you can probably expect bank deposits to feel it.)

One interesting line in the report: “Credit quality remained excellent but a few financial institutions reported a slight increase in delinquencies.”

Another line caught my eye:  Some of the Richmond Fed’s business contacts were reporting that “generous unemployment insurance benefits had discouraged workers from applying for available jobs.” I have also seen research that this may not be true in most cases. 

I was curious about how the Beige Book came together, and so I talked with the economist at the Richmond Fed, Joe Mengedoth, who leads the folks who compile the Fifth District’s section of it. They send out monthly surveys of manufacturing and service sectors. They hold roundtables with business executives. Regional executives in Baltimore, Charlotte and Richmond are meeting with businesses and passing along what they’re hearing, as are members of the Fed’s Fifth District board of directors and Charlotte and Baltimore branch office boards. All told, Mengedoth and his team are gathering intelligence from sometimes more than 200 sources in preparation for a Beige Book. 

“One of the things I love,” said Mengedoth, “is that it gives the public a glimpse into the kinds of things that we do to inform our bank president on economic conditions” as he prepares for the FOMC meeting.  

One of the challenges is how to make the narrative accessible. They are talking to different business cultures, each with their own language. So when they hear from the ports that they are seeing “blank sailings,” they have to translate if they want to use it in the Beige Book. (It means shippers are cancelling sailings or skipping ports. It is done usually to deal with overcapacity that is dragging down rates.)

Beige Book writers choose their words carefully. If growth in a particular sector was “modest” two months ago, a subsequent report won’t call it “moderate” unless something significant has happened. For example, going back to real estate,  the July 15 book said “Fifth District home sales increased modestly since our last report.”  The Sept. 2 report said: “Fifth District home sales increased robustly in recent weeks.”  This suggests that if you’ve been thinking of listing your home, now may be the time.

The next book comes out Oct. 21

Dan Barkin

dailydigest@businessnc.com

 

Click here to subscribe to Business North Carolina magazine

Why the Fed bank is in Richmond

A postscript to the above: I wondered how the Fed’s Fifth District happened to be headquartered in Richmond and not, say, Baltimore. That decision was made by the Fed’s organizing committee in 1914. John Skelton Williams of Richmond was comptroller of the currency at the time and a member of the organizing committee. Also working in Richmond’s favor was the influence of Virginian Carter Glass, chairman of the House Banking Committee and one of the forces behind the Federal Reserve Act. Glass, as senator, later secured passage of the Glass-Steagall Act to shore up the banking system in the Depression and separate commercial and investment banking. Anyway, the selection of Richmond was controversial. Baltimore, which was four times the size of Richmond back then, was outraged. 

By the way, the president of the Richmond Federal Reserve Bank is Tom Barkin.  He is, to the best of my knowledge, no relation.  I get asked.

And while I'm at it

The Beige Book reported that there are still supply chain problems nationally, in a variety of sectors. I ran into one Saturday. I am down here in Atlantic Beach, working in my little third-row bungalow, and I left my printer back in Clayton. So I needed a beach printer.

I drove over to Morehead City and went to an electronics retailer. I found something not too expensive and hailed an employee. Sorry, he said, we’re all sold out except for that one, pointing to a very high-end model. Apparently, everyone who used the office printer has discovered they need one at home, and now there’s a shortage

I went around the corner to an office supply store, and the guy said the same thing. But then he went hold on a sec, the truck just came, let me see if it brought printers. It had. Pretty soon he was bringing me one in my price range. Out of gratitude I bought the warranty. 

Today's movie quote

“Strange things are afoot at the Circle K.”

Ted “Theodore” Logan, played by Keanu Reeves in the 1989 film Bill & Ted’s Excellent Adventure. There is a new Bill & Ted movie out. Yes, there is.

Today's number: 19 percentage points

Increase in the unemployment rate in the Atlantic City, N.J., metropolitan area between July 2019 and this past July. From 5% to 24%. It was the largest year-over-year change in the country, and that’s what happens when casinos shut down for more than 100 days.

 

Chip Mahan moves to disrupt banking
(The News Observer)

Kentuckian James “Chip” Mahan has created a group of companies that are reshaping Wilmington’s persona from a tourism destination to a tech and banking hub. The Mahan-connected business organization, rooted in Live Oak Bank, employs more than 1,000 people in Wilmington and is responsible for a satellite campus on N.C. State University’s Centennial Campus in Raleigh and nCino, a tech company which went public earlier this year.


Ohio company buys Raleigh office complex for $41.6 million
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Cleveland-based Boyd Watterson Asset Management purchased Somerset Park, an office complex in Raleigh, on Sept. 3 for $41.6 million. The property, which sits on 17.5 acres, was previously home to the U.S. Department of Agriculture and the North Carolina Natural Resources Conservation Service. The Ohio investor has not yet announced plans for the four buildings, which include 206,829 square feet of office space.


Craftmaster Furniture expands in Lenoir
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Taylorsville’s Craftmaster Furniture will expand its manufacturing by 20% with a new plant in the former Broyhill Complex in Lenoir. To start, the upholstered furniture manufacturer will use 100,000 square feet of the 400,000-square-foot building and expects to continue expanding operations there. The new plant opened this week.


Wells Fargo’s $10B cuts will mostly be layoffs, CFO says
(The Charlotte Observer)

In July, Wells Fargo announced $10 billion in cost cuts to annual expenses, which will consist mostly of layoffs occurring over two to four years, according to a presentation by Chief Financial Officer John Shrewsberry. Wells Fargo announced the likely expense cuts after its first quarterly loss in more than a decade, but previously hadn’t stated where those cuts would be made. The bank employs about 260,000, including 27,000 in Charlotte.


Red Ventures buying CNET Media from Viacom in $500 million deal
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In a sale expected to close in the fourth quarter this year, Charlotte-based Red Ventures is purchasing CNET Media Group for $500 million. CNET Media owns TVGuide.com and other properties and has 980 employees. Red Ventures will purchase the group from ViacomCBS, who bought CNET Networks in 2008 for $1.8 billion.


Bandwidth considered Durham for its expansion
(Triangle Business Journal)

Public records show Bandwidth was considering Durham for the site if its $100 million expansion now slated for Raleigh. The new headquarters will ultimately bring 1,185 jobs and $106.4 million in investment to Raleigh in exchange for a Job Development Investment Grant worth up to $32.2 million. Durham was considered until November last year, and negotiations for the project continued until days before it announced in March.


Cree pledges $4 million gift to N.C. A&T
(The News & Observer)

Durham’s Cree, a semiconductor maker, announced a $4 million gift for N.C. Agriculture and Technical State University to fund a scholars program for students studying in science, technology, engineering and mathematics. N.C. A&T is the country’s largest historical black university and ranked sixth by U.S. News & World Report for the highest student debt at graduation. The program is expected to fund eight to 10 students a year.


Charlotte offers $4 million in grants for food-beverage industry
(The Charlotte Observer)

Charlotte is launching a $4 million Food Service Recovery Grant Program for restaurants, bars, food trucks and caterers who have been affected by Covid-19. Approximately 350 businesses will receive either $10,000 or $25,000 grants depending on the size of their payroll. Only businesses within the city limits and having opened before January 1 can apply for the grant, and the business must have had at least $30,000 in revenue last year.


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