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Federal Reserve Districts

Fifth District--Richmond

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Fifth District economic activity expanded at a slower pace since our last report. Services firms generally continued to report moderate revenue growth, though the overall pace eased a bit. Retail sales were flat, on balance, with most categories slowing. Manufacturing activity continued to slip, with shipments, new orders and capacity utilization edging lower in recent weeks. Lending activity at financial institutions slowed somewhat, though several contacts suggested that firms couldn't find enough skilled workers to expand. There were only scattered reports of increases in loan delinquencies and late payments, but a few lenders suggested that tax refunds had provided only temporary relief. Housing markets were generally weaker, though pockets of strength remained. Commercial real estate markets remained solid, despite some concerns about the sustainability of demand going forward. District labor markets continued to be tight, and the demand for workers was expected to remain strong in coming months. Wages grew moderately. Price pressures were mixed, with the pace of manufacturing prices ticking up, but services prices showing only modest growth. In agriculture, a cold snap in April hurt the peach crop substantially and dented the prospects for other crops.


Retail contacts said that sales were flat, on balance, in recent weeks. The manager of a West Virginia sporting goods store and the manager at a large bookstore in central North Carolina reported that sales growth increased somewhat since our last report. In contrast, the manager at a department store in Virginia Beach, Va., said she deeply discounted the considerable quantity of clothing unsold during recent unusually warm winter months and that sales of other items languished. In addition, a contact at a large home improvement chain told us that their sales continued to soften over the past month. Automobile and light truck dealers reported steady or slightly slower sales growth. Retail employment increased, despite reports of greater difficulty finding qualified people. Retail prices were slightly higher since our last report and retail wages grew more quickly.


Revenues continued to grow modestly at service-producing businesses since our last report, according to contacts. Contacts said demand strengthened at administrative, support, and other business-to-business services firms, while demand was unchanged at professional, scientific, technical, and healthcare services establishments. Price growth at services firms was restrained in March and April, while wages continued to grow at a moderate rate.


District manufacturing activity continued to drift lower in March and the first half of April, with further ongoing contractions in shipments, new orders and capacity utilization. Demand facing furniture, lumber, primary metals, and printing and publishing was notably weak. An electrical equipment manufacturer in Maryland told us that their domestic sales were down 30 percent-the third month of weakness. A North Carolina plastics producer noted that after many months of strong activity, he now sensed some slowing. Prices of raw materials and finished goods prices grew more quickly in recent weeks after tapering off in March.


District bankers reported somewhat slower lending activity since our last report. Demand for commercial loans contracted in recent weeks throughout the Fifth District. Some contacts suggested the slowing was not a sign of broadly weaker demand, however. A Winston-Salem, N.C., contact noted that the softening was only in localized pockets throughout the Carolinas. In addition, a Charlotte, N.C., banker identified a shortage of skilled workers as one cause for the downturn. He said, "Firms want to expand, but simply cannot without enough workers." Residential mortgage lending, however, remained flat. There were only scattered reports of increases in late payments or delinquent loans, but a number of contacts speculated that tax refunds supported loan payments in March, perhaps providing only temporary relief.

Real Estate

Housing markets generally softened in some parts of the District during March and early April, according to reports from residential real estate contacts. An agent in Richmond, Va., said that spring is typically the "hottest" time for the housing market but that he had seen relatively soft activity in recent weeks. However, contacts in Asheville, and Greenville, N.C., indicated that low- to middle-price houses were "flying" off the market. A respondent in Greensboro, N.C., told us that buyers were taking their time sifting though lots of inventory in his area, slowing the pace of sales. In contrast, an agent in the Washington, D.C., area noted that move-up buyers were having difficulty finding higher-priced homes inside the beltway due to a lack of inventory. House prices generally declined across the District, with contacts in some areas reporting that home prices fell 2 to 4 percent and that condo prices were off 7 to 9 percent when compared to a year ago.

Commercial real estate agents reported little change in leasing activity since our last report, as demand for commercial space remained strong. However, one contact in Washington, D.C., noted a slowdown in retail leasing. Contacts generally reported little change in new commercial construction. In contrast, a Northern Virginia contact said that the construction of office space continued and he expressed concern about the sustainability of the demand for the space. He expressed surprise that rents remained steady in the face of an "overbuilt" market. Vacancy rates were little changed across the District.


Tourist activity strengthened since our last report. A manager at a mountain resort in Virginia said that the last six weeks of the ski season improved notably with the onset of cooler weather, and that bookings for the Easter weekend were almost "maxed out." Contacts at hotels along the District's coast also reported increased bookings for the Easter weekend when compared to a year ago, noting that higher gas prices didn't hurt their business. In Washington, D.C., the annual National Cherry Blossom Festival, Washington's signature event, attracted over a million tourists.

Temporary Employment

Temporary employment agencies continued to report generally strong demand for workers since our last report. A Rockville, Md., contact reported an across-the-board strengthening in demand for computer-skilled workers at his office; he expected no letup over the next six months. Likewise, a contact in Raleigh, N.C., told us that he saw no indication that hiring was slowing. Conversely, Richmond, Va., and Washington, D.C., contacts told us that budget constraints at some firms and a little slowing in the economy had cooled demand for workers in their areas. Customer service, warehouse, accounting and computer skills and workers with specialized skills continued to be highly sought by employers.


Warmer-than-normal periods of mild, dry weather in March ended with severe frost and frigid conditions in early April. The cold temperatures and snowy weather hampered field work in Maryland, while the severe conditions damaged crops such as fruits, vegetables, corn, tobacco and small grains in the Carolinas, Virginia and West Virginia. Agricultural officials in South Carolina told us that 90 percent of that state's peach crop was lost. In addition, producers in western Virginia and West Virginia reported that freezing temperatures had taken a toll on their peach and apple crops, though they were still assessing the extent of the damage.

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Last update: April 25, 2007