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Federal Reserve Districts

Fifth District--Richmond

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Economic growth in the Fifth District continued to be modest in March and early April as inclement weather and uncertainty about the economy and the war in Iraq constrained consumer demand. Services businesses reported generally flat revenues and little change in employment. But retailers said that harsh weather and the war in Iraq decreased customer traffic and lowered sales substantially. District manufacturing activity contracted in March, and manufacturers told us that their hiring and capital investment plans were generally on hold until the economy improves. In real estate, District home sales rose at a robust pace, but commercial leasing and construction was generally flat. In agriculture, excessive rainfall delayed field preparation and crop planting activity in many areas. Price inflation remained modest in most sectors of the District's economy.

District retailers reported that inclement weather and customers' concerns regarding the war in Iraq contributed to generally lower sales in recent weeks. An Annapolis, Maryland, department store manager said the area was "hammered with snow" in March, leading his store to sharply discount prices to move out seasonal items. A contact at a building supply chain in the District cited poor weather for lower revenues at his store. A central North Carolina bookseller told us sales have dropped since the war in Iraq began but that she has added to her inventory of war-related and social sciences materials in an effort to boost business. On a brighter note, automobile dealers in Martinsburg and Charleston, West Virginia, reported increased sales due in part to manufacturers' incentives. One dealer said, however, that more people have been buying smaller cars since the war began.

District services businesses reported that customer demand was generally flat to slightly higher in March and early April. A contact at a truck rental firm in West Virginia said revenues had fallen, but other contacts at firms in Washington, D.C., and North Carolina reported stable demand. Hospitals and health-care systems throughout the District reported generally unchanged demand for services. Business-to-business services firms also reported little change in demand for services. Fitness centers in Charlotte, North Carolina, and Washington, D.C., said people were deferring signing up for summer camp and other programs while the war in Iraq continued. Most contacts said they were not adding new employees but were replacing workers who had left.

District manufacturing activity contracted slightly in March. Shipments edged lower and new orders continued to fall, particularly in the food, furniture, and fabricated metal industries. Factory managers indicated that war uncertainty was one factor in limiting customer demand, but they attributed much of the softness in demand to a continued weak economy. A furniture manufacturer in North Carolina told us that sales of both residential and office furniture in March were the slowest since 1982. Several fabricated metal producers said that weak demand and strong price competition were squeezing their profits. In addition, numerous manufacturing contacts indicated that prices of raw materials had increased substantially since our last report. They attributed the increase primarily to higher energy prices and noted that they were unable to pass higher costs on to customers. District manufacturers continued to trim their payrolls, and some tell us that they will not increase hiring or undertake substantial capital investment until the sluggish economy improves.

District loan officers said that stronger demand for residential mortgage loans drove overall bank lending higher in recent weeks. A lender in Greenville, South Carolina, said that mortgage applications were "going through the roof" and that his staff was struggling to process the heavy volume. A mortgage lender in Charlottesville, Virginia, also reported robust demand for residential mortgages, which he attributed to improved consumer confidence. Commercial lending remained sluggish; several bankers noted that their clients continued to delay expansion because of the economic uncertainty caused by the war in Iraq. A commercial banker in Richmond said that credit needs had declined and that a number of her clients were paying down debt. Several commercial lenders told us that they had increased marketing efforts to solicit loans.

Real Estate
Residential real estate agents reported stronger growth in home sales since our last report. A Richmond realtor said that sales were "great," noting that his office posted record sales in March. A realtor in Fredericksburg, Virginia, said that home sales over the last two months had been exceptionally strong; in her words the brisk activity was "wonderful, but exhausting." Agents in Asheville and Greensboro, North Carolina, also reported solid housing markets. There was some slowing of home sales in West Virginia, however; agents in Parkersburg and Charleston told us markets there had slumped.

Commercial realtors reported generally flat leasing and construction activity in recent weeks as international political developments continued to create considerable uncertainty among clients. "Things are pretty much the same, just waiting around for some good news," noted a realtor in Baltimore. Rent levels were down sharply in all commercial sectors. Vacancy rates for office and retail space held steady, but industrial vacancy rates edged higher. The leasing of retail space in Richmond continued to be "very strong for the short and long term," but leasing activity in other commercial sectors remained sluggish. A realtor in Washington, D.C., said companies were "tightening up" and eliminating unnecessary office space.

Tourist activity strengthened somewhat in March and early April. Contacts at mountain resorts in Virginia and West Virginia told us cold weather and substantial snowfall helped make this year's ski season the best in recent memory. Coastal tourism, however, was mixed. A respondent from the Outer Banks of North Carolina said that hotel bookings were higher, in part because of events celebrating the centennial of the Wright Brothers first flight. But contacts in Myrtle Beach, South Carolina, and Virginia Beach, Virginia, told us that wet weather had caused some trip cancellations. Despite cold weather and concerns about the war, attendance at the National Cherry Blossom Festival in Washington, D.C., nearly matched last year's approximately 1 million people.

Temporary Employment
Temporary employment agencies in the District reported somewhat stronger demand for workers in recent weeks. A contact in Charlotte, North Carolina, said improved economic conditions there had created more demand for workers in automotive industries, and that the mortgage industry was "booming." An agent in Raleigh, North Carolina, said renewed confidence in economic recovery and the decisions of several firms to expand sales forces had resulted in a greater need for her services. However, a Cary, North Carolina, agent reported that the demand for workers was somewhat weaker and noted that her agency was expanding its marketing efforts to solicit business.

Excessive rainfall in recent weeks improved soil moisture, replenished ponds, streams, and reservoirs, and ended the persistent drought in South Carolina. The wet weather, however, delayed spring planting activity in most areas of the District. The planting of cucumbers and cantaloupes in Maryland, corn in South Carolina and West Virginia, and small grains in Virginia was behind schedule. A late March snowfall damaged some peach trees in North Carolina and sent some West Virginia farmers scrambling for hay to feed livestock. Pastures were reported to be in good condition in most areas of the District.

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Last update: April 23, 2003