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Federal Reserve Districts

Fifth District--Richmond

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On balance, reports on Fifth District economic activity indicated that growth picked up a bit during late April and May. Services firms continued to be a catalyst for growth as revenues expanded briskly in recent weeks. Similarly, commercial lending activity at financial institutions remained strong since our previous report. Tourism-related business in the District also strengthened over the last six weeks--bolstered by robust Memorial Day bookings. Not all reports were upbeat, however. Softness in big-ticket categories kept retail sales weak in recent weeks, and manufacturing activity continued to contract somewhat. The reports on housing sales and prices remained generally soft though pockets of strength were noted. Reports on commercial markets, on the other hand, were mainly positive headlined by an overall increase in leasing activity. In agriculture, crop conditions were described as "fair to good" despite some concerns over moisture levels. Prices reportedly grew at a slightly faster pace in recent weeks, behind reports of particularly sharp increases in the price of raw materials from some District manufacturers. Wages were more varied with services firms indicating slower wage growth while retailers reported somewhat faster growth.

Retail sales remained soft in recent weeks led by weaker big-ticket sales. District automobile dealers generally said sales were sluggish, though they noted an uptick in sales of smaller, less expensive cars as gas prices continued to climb. Contacts generally reported slowing shopper traffic and several attributed decreases to higher gas prices. Some retailers also cited softness in the housing market as a factor depressing sales--a large building supply retailer, for example, noted that merchandise was moving slower in recent weeks. On the employment front, District retailers trimmed their payrolls somewhat, though average retail wages continued to increase at a moderate pace.

Revenues at most services-producing firms expanded at a healthy clip during late April and May. A contact at a large North Carolina health care provider said that demand for services had remained steady since the start of 2007. Additionally, a contact at a Washington, D.C., brokerage firm indicated that revenue growth had strengthened in recent weeks. However, an executive at a North Carolina transportation services firm said demand had softened somewhat since our last report. Services firms reported that they raised their prices at a slightly faster rate from mid-April through the end of May. Despite strengthening revenues, contacts indicated that the pace of hiring and wage growth moderated during the period.

District manufacturing activity continued to pull back in May. Contacts reported that the recent weakness in shipments moderated but noted somewhat larger declines in new orders and employment. By industry, demand was notably weaker at chemicals, paper, stone and clay, and textile firms. A radiator manufacturer in North Carolina told us that they had experienced a marked slowdown due to a falloff in commercial truck manufacturing. In addition, an automotive parts producer in West Virginia expressed concern regarding the future of car and truck sales. Turning to prices, contacts said that both raw material and finished good prices increased more quickly since our last report. Some manufacturers noted difficulty in passing on higher costs to their customers--a North Carolina textile producer, for example, said that recent increases in synthetic fiber prices were too large to reasonably pass on to their customers.

On balance, commercial lending activity throughout the District remained fairly strong, maintaining the pace from earlier in the spring. An exception to this picture was a Charleston, W.Va., banker's report which noted a marked decrease in demand, citing softening investment tied to lower coal and natural gas prices. District mortgage lenders reported that activity remained flat. Lenders relayed only scattered reports of rising loan delinquencies. A Charlotte, N.C., contact noted that there appeared to be no widespread impacts from the recent developments in the subprime sector.

Real Estate
Real estate agents across the District gave mixed reports on home sales activity. A Richmond, Va., Realtor reported stable home sales in recent weeks but also noted an increase in the number of contracts contingent on buyers selling their homes. Additionally, he said that clients were becoming more attuned to interest rate developments. In Northern Virginia, contacts characterized sales as "still churning away," but said inventory levels remained elevated. Reports were also generally mixed in the Carolinas. A Greenville, S.C., agent expected activity to strengthen because of a recent uptick in job growth in that area. But a Greensboro, N.C., agent told us that builders continued to offer substantial incentives to sell properties. He went on to say that he perceived a lack of confidence among buyers, due in part because of businesses leaving the area. Reports on home prices varied as well with prices declining a bit in some markets while holding steady in others.

Feedback on commercial activity was somewhat brighter during recent weeks. Commercial real estate agents reported an uptick in leasing activity since our last report. Contacts noted that the increase in the demand for commercial space was concentrated in the retail and industrial segments of the market, while the demand for office space remained steady. A Washington, D.C., Realtor said that customer interest in retail space made him realize how slow activity had been earlier this year. Contacts in northern Virginia and Raleigh, N.C., reported increases in the construction of industrial space. The Raleigh agent also noted that though local industrial vacancy rates were still high, quality industrial space was generally in short supply. Reports on commercial vacancy rates and rent levels across the District indicated little change since our last report.

Tourist activity continued to strengthen in recent weeks. Contacts at hotels along the coast told us that bookings for the Memorial Day weekend--bolstered by near-perfect weather--were notably stronger than a year ago. A contact from the Outer Banks of North Carolina said her area experienced one of the best Memorial Day weekends ever, noting that the number of vacationers had not been noticeably affected by higher gas prices. In addition, a manager at a mountain resort in Virginia said that sales of time shares were doing well and he characterized consumer spending there as robust.

Temporary Employment

Temporary employment agents across the District indicated firming demand for workers since our last report. A Raleigh, N.C., contact attributed the recent surge in activity to the continued strength of the local labor market due in part to a sizeable number of new start-ups. Similarly, a contact in Richmond, Va., reported that the strong economy in that area had boosted demand for temporary workers. In contrast, a contact from Bethesda, Md., anticipated demand for temporary workers to weaken in coming months because of a softening in local economic conditions. Overall, skilled workers remained in short supply. Contacts noted that customer service, computer and other general administrative abilities remained highly sought.

Warm, dry weather in late May effectively lengthened the planting season for District crops, but depleted soil moisture hindered crop development in some areas. Cantaloupe, cucumbers, snap beans, tomatoes, and watermelon plantings were generally ahead of schedule in South Carolina, as were corn, soybeans, and other vegetable crops in Maryland. In Virginia, however, an analyst expressed concern that dry field conditions were jeopardizing the development of small grain crops. Moreover, pasture conditions deteriorated somewhat in West Virginia. Nonetheless, in most parts of the District, agricultural officials characterized crop conditions as "fair to good."

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Last update: June 13, 2007