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Federal Reserve Districts

Fifth District--Richmond

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Although economic activity in the Fifth District remained sluggish in recent weeks, some encouraging trends are beginning to emerge. District manufacturers reported a rise in demand as new orders and shipments grew. Contacts at District ports observed weak conditions, but noted signs of potential improvement. Residential lending activity picked up as contacts noted an increase in purchase loans, while residential real estate agents also reported an overall uptick in sales activity. Commercial real estate contacts observed a modest increase in leasing activity, although vacancy rates inched up in most markets and reports of rent declines and concessions were common. Nonetheless, demand for commercial loans remained weak with some continued deterioration in credit quality. Retail revenues--including big-ticket sales--generally declined since our last report, as did revenues at services firms. Retail price growth slowed, according to contacts, while prices at services firms declined. Temporary employment activity was weak, although some agents expected improvement in the next few months.

Retail sales were generally down in recent weeks, although there were scattered reports of improvement. Most retailers said sales contracted; however, contacts at several grocery stores and executives at two central North Carolina chain department stores said revenues and foot traffic increased in recent weeks. Big-ticket sales, including sales of automobiles and light trucks, fell sharply; however, contacts at a few auto dealerships expressed optimism for sales in the months ahead. Despite losing a franchise contract, a dealership in West Virginia will continue to sell other makes of vehicles, including imports. A Washington, D.C., area automobile dealer told us that his business was "hiring and ramping up inventory." Employment reductions continued at many retail establishments. Average retail wages edged up, although a contact at a chain department store and another at a hardware store chain reported wage freezes for all employees in 2009. Retail price growth slowed since our last report.

Revenues weakened at services-providing firms in recent weeks. Contacts at professional, scientific, and technical services firms said business had slowed; an executive at a northern Virginia telecommunications firm reported "losing business to freelancers who will work for anything." In addition, executives at healthcare systems and hospitals noted steady to slower demand for services, and restaurant owners across the District reported lower year-over-year sales. Services firms cut workers and average wages were lower. Prices fell slightly at services businesses.

District manufacturing activity rebounded in late April and May following 12 months of decline. Contacts reported strong increases in new orders and shipments and noted that the recent weakness in employment had moderated somewhat. In particular, demand was notably stronger for apparel, chemicals, fabricated metal, food, furniture, lumber, and stone manufacturers. A producer of residential doors in North Carolina told us that demand had picked up slightly, which he attributed to customers needing to replenish depleted inventories. A primary metals producer in South Carolina also reported an uptick in sales due to an increase in demand for storm windows and doors used in constructing mobile and modular homes. A contact at a chemical manufacturing firm in South Carolina noted a pickup in orders and was optimistic about the next few months. On the price front, contacts indicated that raw materials prices grew at a quicker pace, while finished goods prices grew more slowly.

Activity at District ports remained weak in recent months, but contacts noted signs of possible improvement. An increased number of empty containers were shipped out of one District port--indicating a potential rise in imports in the near future--while exports at another port were "finally starting to move." Total shipments, however, were still notably below year-ago levels.

Demand for residential mortgages picked up somewhat since our last report. Contacts noted an uptick in purchase loans, which accounted for approximately 50 percent of lending activity. Demand for refinances began to wane in some pockets of the Fifth District in recent weeks as interest rates edged up slightly, while loan officers in other areas reported difficulty keeping up with the continued demand for refinances as purchases took priority. Credit standards were generally unchanged since our April report, but contacts noted some modifications to conform with Freddie and Fannie guidelines. In commercial finance, demand for loans remained weak. Commercial loan rates were flat to slightly higher, with contacts reporting floors added to variable rates. Credit standards in commercial lending were also generally unchanged. Lenders reported continued deterioration in the credit quality of existing clients, although the rate of deterioration had subsided a bit.

Real Estate
District residential real estate agents generally reported an uptick in sales activity in recent weeks, which a few agents attributed to seasonal increases. Agents in Washington, D.C., Charlotte, N.C., and Greensboro, N.C., reported increased foreclosure sales. The Charlotte contact reported foreclosure sales to be "outrageous" and noted that foreclosures accounted for half of his agency's business. Multiple offers on the same properties were observed in the D.C., area. An agent in Fredericksburg, Va., reported that her inventory level had dropped by 10 percent, and a Realtor in Fairfax, Va., noted strengthening sales across the board, which he attributed to low interest rates. Most Realtors mentioned that the low- to middle-priced houses were selling the best and several agents said that first-time homebuyers dominated that market. House prices were reported to be dropping or holding steady across much of the District.

In commercial real estate markets, leasing activity increased modestly since our last report, although it continued at a slow pace. Agents in northern Virginia, Charleston, W.Va., Greensboro, Charlotte, and Columbia, S.C., reported a slight uptick in leasing activity--mostly for office and industrial properties. Elsewhere in the Fifth District, however, contacts reported the pace of leasing activity as unchanged or slower in recent weeks. Rental rates declined across most District markets while concessions remained common. Charleston, W.Va., was an exception, however, as contacts saw no concessions and observed a proposed rent increase for one renegotiation. Vacancy rates inched up across property types in most markets and available sublease space increased in Washington, D.C., Raleigh, N.C., and Charlotte, although the Charlotte contact noted that available space was not near 2001 levels. Commercial sales activity remained subdued. Agents reported some listings and interest, but noted that reduced property values were discouraging sellers from listing properties, and a lack of affordable financing was deterring buyers. Sales prices started to come down in northern Virginia and Charlotte, but a lack of transactions made prices hard to gauge in other markets.

Although tourist activity along the coast was a bit weaker compared to a year ago, contacts on the Outer Banks of North Carolina and in Virginia Beach, Va., told us that bookings over the Memorial Day weekend were somewhat stronger when compared to our last report. A manager at a hotel in Virginia Beach said they were filled to capacity over the Memorial Day weekend and bookings had generally started to look better in recent weeks. A contact from the Outer Banks of North Carolina noted that the wedding industry showed no sign of cutting back, but indicated that rental sales and hotel bookings were somewhat weaker than last year. However, a manager at a mountain resort in Virginia said holiday bookings were somewhat stronger than last year, and time share sales were robust. The contact also expected tourist activity to be equally as strong six months from now.

Temporary Employment
Activity in this sector continued to be generally weak in recent weeks. A Raleigh, N.C., agent told us that demand for his workers would continue to be extremely slow over the next several weeks due, in part, to a slowdown in manufacturing work; however, he expected a substantial pick up in July. Another agent in the Raleigh area anticipated stronger demand due to the improvement in confidence in the business community. Meanwhile, a Richmond, Va., contact observed "somewhat weak" demand, citing the sluggish economy. Workers skilled in IT, management, administrative assistance, and sales were some of the most sought after.

Sunny, dry conditions facilitated planting and field work in many areas of the District. However, rain and below-average temperatures hindered soybean and peanut plantings in South Carolina, while pasture conditions in the state improved notably. In Maryland, North Carolina, and Virginia, farmers were busy planting vegetables and row crops. Peach harvesting had just begun in South Carolina. Peach and apple conditions in West Virginia ranged from fair to excellent, with most orchards in good condition. In addition, hay harvesting was widespread in Maryland, the Carolinas, and Virginia with reports indicating that the first cut looked very good.

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Last update: June 10, 2009