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Federal Reserve Districts

Fifth District--Richmond

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Economic activity in the Fifth District remained weak in late July and August. Retail sales were soft despite recent tax holidays and rebates; a few auto dealers reported low but nearly steady sales. Similarly, service sector firms reported mostly sluggish demand with little or no revenue growth, while temporary employment agencies noted mixed conditions. Residential real estate sales remained weak across most markets, resulting in low home mortgage demand. Commercial real estate activity was generally softer. Manufacturing activity declined further amid feeble domestic sales that were not fully offset by increased exports. Tourism was a bright spot, with contacts in both coastal and mountain resort areas noting increased bookings since our last report.

Retail sales remained weak since our last report, despite the early August "tax holiday" on back-to-school purchases in Washington, D.C., North Carolina, South Carolina, and Virginia. A spokesperson for retailers in central Virginia said the effect of that state's sales tax holiday was "mediocre at best." Several retailers also reported slower sales since the federal stimulus check distributions dropped off. A department store manager in an upscale area near the Washington, D.C., Beltway told us sales were generally slower and customers were not buying home goods. In Virginia Beach, Va., a discount chain store manager said, "People are just not buying." Contacts noted that sales of 2008 automobiles and light trucks remained stable in recent weeks, albeit at low levels, as dealers tried to make room on their lots for 2009 models. A West Virginia dealer said that banks in his area had raised interest rates on car loans, adding downward pressure on sales. Retail price growth edged up since our last report. Retailers continued to cut jobs, though at a slower pace in recent weeks; average retail wages grew a bit more quickly.

District services firms reported generally soft demand since mid-July. Contacts at professional, scientific, and technical firms told us revenues were mostly flat. Executives at financial services firms in Richmond, Va., and Baltimore, Md., said the general sentiment of their clients is concern over the slower economy. Price growth was nearly flat at services-providing firms in recent weeks. Services firms reduced their payrolls slightly, while average wage growth remained stable since our last report. However, a Maryland telecommunications contact said finding and keeping technical talent had been extremely difficult.

District manufacturers reported that shipments, new orders, and employment continued to contract since our last report. A manufacturer at a North Carolina apparel factory reported that export orders were up dramatically while domestic orders remained weak. A furniture maker in North Carolina told us that residential furniture sales had reached record lows and raw material prices had continued to rise. Similarly, a manufacturer of housing products in North Carolina indicated that orders had slowed further, noting that "customers are only purchasing what they need for in-house business and nothing more." Price pressures eased somewhat but respondents remained concerned about elevated energy and transportation costs. A producer of gas turbines in South Carolina reported higher prices of raw materials and higher shipping costs.

Exports at Fifth District ports remained substantially above year-ago levels in recent weeks. Port officials noted particularly strong outbound activity for grains and paper products, although one contact reported a slowdown in automobile exports. Import levels generally remained steady, although several respondents noted a "big drop" in inbound furniture shipments. Fuel surcharges stabilized somewhat in late July and August, and one port contact anticipated that "they'll hold for awhile."

Demand for home mortgages across the Fifth District continued to weaken in late July and August. A Richmond, Va., lender noted that her firm was "feeling a pinch for the first time," while a Charleston, S.C., contact said that loan initiations were down forty percent from the previous month. However, several contacts attributed a portion of the slowdown to seasonal factors. Contacts in Richmond, Va., and the Carolinas reported further tightening of credit standards, but a Washington D.C., lender said his institution had generally held standards unchanged, though loan-to-values had been increased "ever so slightly." Reports on credit quality were mixed.

Commercial loan activity softened a bit in recent weeks as somewhat weaker demand combined with tighter loan standards. A lender in Charlotte, N.C., described activity as generally "healthy, although moderating in growth," while a Washington, D.C., contact said that activity in his market was "continuing to slow." Lenders tightened credit standards further and several noted more "laborious" underwriting and stricter adherence to policies and guidelines. Respondents also reported some deterioration in borrowers' credit quality. In addition, several contacts said that long-standing customers of some banks were being turned down and were shopping around at other institutions.

Real Estate
Residential real estate agents across the District reported continued weakness in home sales. In Asheville, N.C., a contact told us that his housing market was very sluggish overall, noting that a lot of people were "on the fence" waiting to see if prices fall any further. Likewise, a Richmond, Va., agent told us he noticed only a seasonal change in August but was optimistic that September would be a better month for sales with vacations ending. In Washington, D.C., a contact told us that buyers were looking for specific properties and when they can't find them they wait. In contrast, a contact in Greensboro, N.C., reported moderate sales activity and was hopeful that business would pick up when a large trucking firm moves its headquarters to the area in the coming months. Sales held steady in Fairfax, Va., where an agent said that prospective buyers feel the worst is over and prices are as low as they are going to go. Low-to-middle price houses remained the best sellers across much of the District, with little movement in the upper price range, particularly in parts of the Washington, D.C., market.

Commercial real estate conditions varied across the District. Leasing activity slowed in Richmond, Va., Columbia, S.C., and the outlying areas of Washington, D.C., picked up slightly in Charleston, W.Va., and Greensboro, N.C., and remained flat in Raleigh, N.C., and Baltimore, Md. Office vacancy rates were "creeping up" in northern Virginia and Richmond, Va., but were generally unchanged elsewhere. Agents in Baltimore, Md., Washington, D.C., Richmond, Va., and Raleigh, N.C., reported steady rental rates, but an increase in concessions. Only a handful of new construction projects were announced in recent weeks, and all were small and/or entirely pre-leased. While respondents continued to report that obtaining financing from larger banks was challenging, several noted that community banks remained more active in lending.

Assessments of tourist activity were somewhat more positive in recent weeks. Contacts in both coastal and mountainous areas told us that bookings were generally stronger when compared to our last report, which brought business back to year-ago levels. Along the coast, contacts in Virginia Beach, Va., Myrtle Beach, S.C., and the Outer Banks of North Carolina reported an increase in last minute reservations, shorter stays and fewer group conventions. On the western edge of the District, however, managers at mountain resorts in Virginia and West Virginia reported numerous calls for regional group conventions. They also indicated a notable increase in business from neighboring urban areas, which they attributed to their establishments being within a "tank of gas."

Temporary Employment
Temporary employment agencies in the District gave generally mixed accounts since our last report. Demand was somewhat strong in Raleigh, N.C., average in Cary, N.C., and weak in Hagerstown, Md. Some contacts expected demand to strengthen over the next few months due to a general strengthening in the local economy. Preparations for the upcoming holiday season were also expected to increase demand. High-level IT, biotech services, life sciences, sales, and administrative support were among those skills most highly sought after.

Since our last report, most of the District continued to suffer from dry conditions, despite spotty rainfall in a few places. In Maryland and North Carolina, analysts reported that the lack of rain had heightened farmers' concerns about inadequate soil moisture and crop development. Similarly, scattered rainfall brought some relief to parts of Virginia but most of the Commonwealth continued to suffer from dry conditions, reducing potential crop yields. Accordingly, corn silage yields were down and producers also expected corn for grain yield to be below normal. On the other hand, the peach harvest in South Carolina was on schedule, the tomato harvest was completed, and the harvest was near completion for cantaloupes and watermelons.

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Last update: September 3, 2008