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Federal Reserve Districts

Fifth District--Richmond

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The Fifth District economy expanded at a quicker pace in the weeks since our last report as growth in the services sector edged up. District services businesses reported moderately higher revenue growth in June and early July. Retail sales gained momentum throughout the period, boosted by brisk automobile and light truck sales in recent weeks. District manufacturing activity edged lower in June but strengthened substantially in the first half of July. District real estate agents continued to report robustness in housing markets and relatively strong demand for office and retail space in the commercial sector. In the financial sector, bank lending moved moderately higher as demand for residential mortgages strengthened. When asked about prices, most of our business contacts responded that price pressures remained generally mild. In agriculture, remnants of two tropical storms brought substantial rainfall to the District in July, helping to alleviate dry soil conditions and boost crop and pasture conditions.

Retail sales rose at a moderate pace in the weeks since our last report. Automobile and light truck sales, which languished in the spring, picked up in June and the first half of July. Furniture sales also strengthened in recent weeks--a manager at a department store in North Carolina noted that customer response to an expansion of the store's furniture product line had been "very positive." In addition, other retailers generally reported higher shopper traffic and big-ticket sales in early July. District bookstores noted particularly brisk customer traffic in mid July in advance of the latest release in the Harry Potter series of children's books. Retailers reported that their hiring picked up in June but eased in the first two weeks of July. Retail price growth was moderate in both months.

District services firms reported stronger revenue growth since our last report. Contacts at business-to-business firms in central West Virginia and at financial services firms in Richmond, Va., and eastern North Carolina told us that customer demand rose at a quicker pace in recent weeks. In contrast, most contacts at healthcare facilities in the District said demand, while strong, had shown little additional growth. Services sector firms reported moderate increases in hiring and noted that information technology workers, truck drivers, and registered nurses were more widely sought. Prices in the services sector rose at a moderate pace in June and July.

District manufacturing activity softened in June but picked up the pace in early July. Manufacturers told us that shipments, new orders, and capacity utilization expanded at a solid clip in July. Manufacturers in the electronics, food, and plastic products industries reported particularly strong growth in output during the month. A plastics manufacturer in North Carolina, for example, reported being "very busy right now...We have some good new orders in-house and pending, so I'm optimistic about the next few months." Despite higher output, manufacturing employment continued to drift lower. Textiles firms, in particular, said they continued to trim payrolls. District manufacturers told us that raw material price increases eased in June and July and that prices for final goods manufactured rose only modestly.

District bankers said lending activity rose at a moderate pace in June and early July as demand for residential mortgages picked up. A mortgage lender in Greenville, S.C., told us that residential mortgage applications and closings in his office in June were the best this year, and that while the year started off slowly, they were now "turning the corner." Several lenders said that the pickup in mortgage lending was due in part to uncertainty regarding future mortgage interest rates--borrowers were committing to mortgages now in anticipation of higher interest rates ahead. Commercial lending activity was little changed. A commercial banker in Richmond, Va., reported "a lot of renegotiation of existing loans, but little new business" in recent weeks. A lender in Charlottesville, Va., told us there were new loans in the pipeline, but noted that many of his commercial clients appeared reluctant to draw down their lines of credit until business strengthened further.

Real Estate
While a few residential real estate agents reported somewhat slower growth in home sales, most told us that both home sales and prices strengthened since our last report. Housing markets in Virginia were particularly robust; a Richmond agent reported "great" home sales in July, while a contact in Virginia Beach said he had never seen a stronger market. Residential real estate markets in the Washington, D.C., metropolitan area showed continued strength as well, although the pace of activity was not as frenzied as in the spring. An agent in Washington, D.C., said that multiple offers on homes for sale were still common, and that condominiums selling for prices in excess of $500,000 were moving particularly well. A contact in Fredericksburg, Va., however, noted that while the market there remained busy, it was taking "maybe a bit longer to sell properties." Real estate agents in several towns in the Carolinas said that housing markets were generally stable; a Greenville, S.C., agent said there were lots of homes on the market and they were being sold relatively quickly. House prices continued to move higher in most areas of the District.

Commercial real estate agents reported little change in Fifth District leasing activity in June and early July. Demand for office and retail space remained strong in most areas but the onset of summer vacations made closing deals a little more difficult. "There is still a lot of business going on out here; it just takes a little longer to get stuff done when summer rolls around," noted a contact in Columbia, S.C. Despite robust demand for lease space and investment properties, agents said that price increases for both had begun to moderate during the last six weeks, and most contacts said they expected only modest increases in rents in the near future.

Tourist activity was somewhat stronger in recent weeks. Hoteliers along the coast reported solid bookings for July. A contact at Myrtle Beach, S.C., noted that hotel bookings were particularly strong around the July 4th holiday. In addition, July 4th holiday celebrations attracted lots of visitors to the nation's capital--the city's Metro subway ridership on the holiday was about 25 percent higher than a year ago. Tourism officials noted that the return of professional baseball to Washington, D.C., had also boosted tourism in the city.

Temporary Employment
Temporary employment agencies in the District reported continued strong demand for workers since our last report. Warehouse, production, sales, administrative, and software skills in particular were widely sought. A Raleigh, N.C., contact told us that renewed confidence in business growth strengthened demand for his agency's services. An agent in Baltimore, Md., said that he expected demand for services to rise further in coming weeks, and noted that he was seeing better qualified applicants for temporary positions.

Remnants of tropical storms Cindy and Dennis brought much-needed rainfall to crops and pastures in the Fifth District in early July. While some eastern parts of the District remained generally dry, substantial rainfall greatly improved soil conditions and yield prospects for corn and soybeans, and "greened-up" pastureland in most of the District. Heavy rains in South Carolina, however, caused some flooding and damaged crops in low-lying areas. On a brighter note, small grain harvesting neared completion in the Carolinas, and peach crops in Maryland and South Carolina remained in good-to-excellent condition.

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Last update: July 27, 2005