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Federal Reserve Districts

Fifth District--Richmond

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The Fifth District economy weakened during late October and early November. Retail sales contracted as shopper traffic waned, and demand dropped for big-ticket items, such as cars and furniture. Manufacturers reported falling shipments and new orders while export activity declined. Both retailers and manufacturers cut employment in recent weeks. Meanwhile, the housing sector failed to improve as mortgage demand was weak and credit standards tightened for most loan products. Contacts reported that the only measurable movement of houses occurred among homes in the low-to-middle price range. Furthermore, commercial real estate markets were sluggish as leasing activity decreased, new construction stagnated, and contacts had difficulty obtaining loans. Price pressures in the District eased in the last six weeks as the prices of manufactured goods fell, raw materials and retail prices grew at a slower pace, and services firms' prices were little changed.

Retail sales contracted since our last report, as big-ticket sales fell sharply and shopper traffic declined. A seller of building supplies said his market was "dead," and store managers at department stores in Virginia Beach, Va., and central North Carolina said their sales contracted. Among our contacts at car and light truck dealerships, sales of domestic brands continued to fall. A West Virginia domestic car dealer told us he had gone from average sales of 250 cars per month to selling only six cars in November 2008. In contrast, a Virginia Beach dealer reported seeing a slight pickup in sales of vehicles with foreign nameplates. Retailers made deep cuts in employment, and wages declined in recent weeks. Retail price growth moderated during the period.

According to contacts, revenues generally declined at services-providing firms since our last report. A healthcare executive in central North Carolina told us that people whose health insurance expired following a job loss had cut back on visits to primary-care groups located at his facilities. Along with the president of another hospital in North Carolina, he voiced concern that this would soon result in sicker people in emergency rooms, with no way to pay. Other services businesses also faced a weaker market. District financial services firms reported that the mood of clients remained negative despite "hints" of loosening credit. However, telecommunications businesses and CPA firms stated that demand for their services was strong. Overall, services employers cut jobs in recent weeks, and several contacts said they were planning hiring freezes in the near future. Average wages grew modestly, while price growth at services firms was nearly zero.

District manufacturers reported that activity contracted further in recent weeks with notable weakness in shipments, new orders, and employment. A furniture maker in North Carolina told us that the furniture business had "frozen shut" across the country and across all of his furniture lines. He reported that the recent furniture market in High Point, N.C., was lightly attended with few orders placed and indicated that his company had laid off employees. A producer of paper products in North Carolina said that even though waste paper prices had been reduced by 50 percent and energy costs were down, business was terrible--which he attributed to the unavailability of financing. He pointed out that if market conditions did not improve over the next six months, his business would be in danger of failing. Other contacts noted that finished goods prices declined, which they attributed to slower business and weaker demand for their products. In addition, they indicated that input price pressures had eased, reflecting the pullback in energy and commodity prices.

Port activity slowed "considerably" in October and early November, according to our contacts. Exports fell at each of the District's major ports, where contacts reported seeing "a lot more ship space available." Shipping rates for bulk goods decreased notably in recent months, leading exporters, when possible, to switch from container shipping to bulk shipping, thus reducing the demand for containers and increasing the number of outbound empty containers. Additionally, import activity cooled in Norfolk, Va., and Baltimore, Md., where the number of inbound containers declined and imported autos were "sitting around." In contrast, imports increased "aberrantly" in Charleston, S.C., between September and October, according to a local port official.

Commercial lending activity remained soft in recent weeks. Nearly all contacts reported that demand for loans was "flat" to "slightly down," although one lender at a Virginia community bank said her office had "been busy since we haven't pulled back in our lending." Changes in credit standards were mixed, with some lenders reporting a slight tightening of loan-to-value ratios and stricter credit policies, while others indicated no revisions over the last six weeks. A banker covering Virginia and the Carolinas noted "continued deterioration" in the financial portfolios of his clients--especially for consumer related businesses--while other District contacts reported that credit quality was generally stable.

Demand for home mortgages continued to be weak in late October and early November. Lenders reported a further slowdown in activity across the District, with a Washington, D.C., contact noting that most of his firm's business was stemming from foreclosure and short sales in the northern Virginia area. Credit standards remained tight in recent weeks as some institutions raised required credit scores and further reduced product offerings. However, contacts in the Washington area reported a slight loosening in standards for a limited number of loan products.

Real Estate
Fifth District housing markets remained generally sluggish in recent weeks. A Richmond Realtor reported little activity in house sales, although he noted that, "we are going through a seasonal change right now." He reported that houses in the middle price range were selling but mostly to first-time homebuyers. Additionally, he said the uncertainty of the economy had everyone in a "holding pattern"--people looking to sell their homes were waiting to see if the housing market will turn around. Meanwhile, market volume rose in the northern Virginia area; a Realtor in the area was optimistic about December house sales, which he said would "reduce his inventory and ready the market for when spring hits." On the other hand, an agent in Greensboro, N.C., reported very slow house sales, with major concessions to buyers being made. He said there had been some movement in lower-priced houses, but not enough to keep builders afloat; several builders in his area were on the verge of "closing shop." Meanwhile, an agent in Greenville, S.C., reported a 17 percent decrease in volume. House prices were steady across much of the District although a few contacts reported slight decreases.

Commercial real estate contacts across the District generally noted slower leasing activity since our last report. Agents reported a moderate volume of deals going through, although clients were increasingly stretching out the decision making process. Rental rates trended down in Richmond but held steady in most other cities. In Washington, D.C., Norfolk, Va., Charlotte, N.C., and Greenville, S.C., contacts reported a rise in landlord concessions--such as free rent and tenant improvements--while agents in Baltimore, Md., Richmond, and Raleigh, N.C., noted an uptick in broker incentives. Changes in occupancy rates varied. Vacancies moved higher for retail space in Richmond and Columbia, S.C., office space in Raleigh and industrial space in Charlotte. Elsewhere in the District, vacancy rates were mostly unchanged, but contacts in Washington and Norfolk expected increases in coming months. Contacts reported that financing was harder to obtain as lenders were requiring lower loan-to-value ratios. Little new construction was announced in recent weeks and agents across the District reported that deals were being shelved or canceled due to the current economic environment and difficulty obtaining financing.

Assessments of tourist activity were mixed in recent weeks. Coastal contacts in the Outer Banks of North Carolina and in Myrtle Beach, S.C., told us that the fall season had been very soft, which they attributed to weaker consumer spending and wide-ranging concerns about the economy. In contrast, a manager at a ski resort in Virginia said that his bookings were steady and sales of time shares were on par with last year. He also indicated that reservations were somewhat stronger for the Thanksgiving and Christmas holidays. Adding to the upbeat tone, tourism officials in the Washington, D.C., area told us that they were anticipating record attendance for the Presidential inauguration in January, which would benefit hotels and restaurants in that region.

Temporary Employment
Fifth District temporary employment agents reported weak demand for workers in October and early November. An agent in Raleigh, N.C., said people were willing to take jobs that pay less in order to keep working. In contrast, an agent in another area of Raleigh was optimistic that demand would strengthen over the next several months. A Richmond, Va., agent expected demand to weaken further in coming weeks due to the "terrible economy." In general, wages remained unchanged across the District.

Cooler-than-normal temperatures coupled with above average rainfall helped replenish soil moisture in much of the District, but delayed field work in some regions. Analysts in Virginia and West Virginia told us that soggy field conditions hindered soybean harvests, while contacts in South Carolina noted that wet conditions had slowed planting and crop-combining activities. In contrast, small grain plantings were ahead of schedule in Maryland and North Carolina, and the cool, wet conditions in Virginia improved small grain and cover crops. Fruit producers in Maryland and South Carolina reported that the apple harvest had been completed, and the peanut and cotton harvests were nearing completion in Virginia. In addition, the Christmas tree harvest was in full swing in North Carolina as producers prepared for the holiday season.

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Last update: December 3, 2008