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Federal Reserve Districts

Fifth District--Richmond

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Economic activity in the District generally advanced at a moderate pace during June and early July, with uneven growth across sectors. Following six months of declines, manufacturing rebounded behind increases in new orders and shipments. Additionally, the service sector continued to post strong revenue growth during recent weeks. Commercial leasing activity also maintained its solid pace, though pockets of softness in retail leasing were noted. In residential markets, contacts reported a slight improvement during the last six weeks as sales activity picked up a bit in some areas. Assessments of other sectors were not as rosy. The pace of commercial and mortgage lending activity subsided since our last report. Moreover, weakness in big-ticket categories continued to constrain overall retail sales, while a stretch of particularly hot and dry weather hindered crop development. Tourist activity was mixed. On the employment front, hiring activity across the District intensified since our last report, amid already taut labor markets. Turning to prices, contacts indicated that price growth in the District generally continued to rise as businesses passed along increases in raw material and finished good prices.

Reports on District retail activity were mixed in recent weeks. Contacts at department store chains and discount stores noted slightly stronger growth, though big-ticket sales continued to slump, especially in early July. An executive for a home-building supply chain told us that weak housing market conditions continued to damp sales and customer traffic at his stores. Softness in housing also affected furniture retailers as contacts reported slower sales during the period. In addition, automobile dealers noted that sales of domestic lines moved lower while foreign brands held up somewhat better. Amid the mixed sales reports, retailers complained that qualified workers were difficult to find. One contact said that wages for new hires had risen sharply, compressing his salary scale and driving other wages higher.

Revenue growth at services-providing firms generally remained strong in June and early July. Contacts at healthcare and telecommunications firms, in particular, reported steady to greater demand during the period. Heating and cooling and electrical contractors also said business had increased. National freight-trucking businesses headquartered in the District told us that demand had firmed somewhat, but noted that their pricing power had eroded a bit. Overall, price growth at services firms generally moderated in recent weeks, while the pace of hiring picked up.

District manufacturing activity bounced back in June and early July following six months of declines. Contacts reported strong increases in new orders and shipments, and noted that the recent weakness in employment had moderated somewhat. By industry, demand was notably stronger at fabricated metals, lumber, printing and publishing, rubber and plastics, transportation equipment, and textile firms. A contact at a machinery manufacturing firm in North Carolina told us that their business was on an upswing and a rubber producer in West Virginia said growing orders from European customers led him to boost production. On the price front, contacts noted that both raw material and finished good prices grew at a quicker pace since our last report.

The demand for mortgage loans tapered off in recent weeks. Contacts said the slowdown followed softer demand for higher-priced homes and residences in coastal markets. Recent interest rate increases were also cited as a cause for the softening. The pace of commercial lending in the District also moderated in recent weeks. Additionally, slight increases in delinquent loans were reported in both the commercial and mortgage sectors.

Real Estate
On balance, District residential real estate agents reported a small uptick in sales activity since the end of May. A contact in Greensboro, N.C., said that home sales had picked up in recent weeks with activity increasing across all price ranges. Sales were steady in the Greenville, S.C., area where strong job growth continued to fuel demand for housing. Likewise, an agent in Odenton, Md., reported solid home sales throughout June and early July. On the other hand, a Realtor in Richmond, Va., reported softer sales compared to a year ago and an agent in Asheville, N.C., told us that sales contracts in his area were becoming increasingly dependent on clients selling their existing homes. Reports on home prices were also less than rosy as prices moderated in some markets and fell slightly in others. On the commercial side, conditions were generally unchanged as leasing activity throughout the District remained strong. Contacts noted steady demand for office and industrial space, but expressed mild concerns regarding the performance of the retail segment. One Washington, D.C., contact reported a "surprising slowdown" in retail leasing activity. Additionally, agents in Richmond and in Washington, D.C., said there was significant downward pressure on rents of retail properties. In contrast, office rents rose in recent weeks with notable increases in the Washington, D.C., market. Little change was reported in commercial vacancies though a Richmond, Va., contact reported that the departure of a major company could add a large amount of office space to the market in coming months. Little to no new construction was reported since our last report.

Tourist activity varied across the District since our last report. Contacts at mountain resorts in Virginia and in West Virginia reported stronger bookings for the week of the July 4th holiday compared to a year ago. A manager at a mountain resort in Virginia attributed the increase to exceptionally pleasant weather and families taking vacations closer to home. Tourist activity at coastal areas was mixed, however. A hotelier on the Outer Banks of North Carolina reported brisk restaurant sales and golf courses filled to capacity, while a contact in Virginia Beach, Va., noted a pullback in food and beverage sales. Moreover, a contact in Myrtle Beach, S.C., told us that vacationers seemed to be taking shorter vacations.

Temporary Employment
Temporary employment agents across the District reported stronger demand for workers since our last report. Hiring agents in both Raleigh, N.C., and Richmond, Va., said that increasingly taut labor markets in those areas continued to drive demand for temporary workers, particularly in life sciences and business services. Conversely, a contact in Hagerstown, Md., expected demand for temporary workers to wane during coming months due to softness in the local economy. Sales, administrative, accounting and warehouse skills were among those most highly sought during recent weeks.

A prolonged spell of hot, dry weather during June and early July depleted soils, delayed plantings, and stressed crops and pastures in many areas of the District. In Maryland and Virginia, a lack of soil moisture halted soybean planting and sapped corn crops. Additionally, a contact in Virginia noted that damage to pastures and hayfields was causing farmers to thin their herds and begin supplemental feeding of livestock. On a brighter note, apple and peach crops were reported to be in generally good condition in Maryland and West Virginia, and the small grain harvest was ahead of schedule in the Carolinas.

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Last update: July 25, 2007