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Economic reports across the Fifth District varied in our latest assessment, with a few major sectors reporting moderate contractions over the last month. On the downside, both retail and services firms reported declining revenues, continuing a pattern that had been in place for some time. Manufacturing activity, which had been edging higher since spring, turned down in December, although furniture and textile makers reported an uptick in demand. On the more positive side, both import and export activity at District ports improved, and banking activity received a modest boost, particularly from increased lending for equipment. Conditions in the real estate sector were little changed from our last report, but some encouraging signs were noted in office and retail leasing. Finally, both tourism and temporary employment services reported mixed results for activity over the past month; temporary employment, however, is expected to improve over the near term.
Revenues generally declined at retail businesses in recent weeks, although a few contacts reported some improvement in sales. Managers at most department stores said sales fell; several grocery store managers also reported a drop in sales even as customer traffic increased. Big-ticket sales languished, notably at automobile dealerships. However, an executive at a hardware chain in central Virginia reported that revenues and customer traffic were up slightly, which he attributed, in part, to "a little movement" in the local housing market. A contact representing several retail establishments also reported revenue growth at small and mid-sized stores despite early discounts, and a manager at a large North Carolina bookstore said customer traffic was "hopping." A severe snowstorm the weekend before Christmas had a mixed effect on holiday sales, with reports of sales activity ranging from "through the roof" to dramatic declines. However, retail job cuts were more widespread since our last report; retail wages were flat, and prices moved up further.
Revenues at most services firms declined since our last report, but contacts at financial services establishments reported a bit of strengthening in mid-December. Managers at hotels and restaurants reported slower business and specialty contractors continued to experience declining revenues, while demand for services was unchanged at most business-to-business services providers. However, several contacts at financial services firms reported an uptick in revenues--one manager described the mood by saying there was a little more optimism about the markets, but his clients were not optimistic about the economy yet. He quipped, "The economy is still in intensive care." Employment and wages edged down slightly at services firms; prices were unchanged since our last report.
District manufacturing slipped in late November and December, although there were some signs of cautious optimism. Contacts reported widespread weakness across shipments, new orders and employment. A window manufacturer said that his business was closing three warehouses and one manufacturing plant in order to align his company to the continued weak economy. A producer of machinery noted that he had experienced the worst month in over a decade and indicated that, if he did not see some improvement after the first of the year, he was not sure how long his company would survive. A textile manufacturer said that, "We have turned the corner," but added that the biggest issue was getting credit for his customers. A furniture manufacturer noted that residential furniture sales had improved somewhat, although commercial sales remained very soft. A producer of electrical components indicated that export business carried his firm during weak domestic demand. Contacts reported that raw materials prices increased at a slower pace and finished goods prices changed little from a month ago.
Port authorities in the District reported moderate but widespread gains in export and import activity in November and early December, compared to earlier months this year. Several port officials reported both an increase in the number of vessels and the amount of cargo being carried per vessel since the start of the fourth quarter. Shipping lines, according to one official, have adapted "super slow" shipping policies (running ships at slower speeds to conserve fuel), because capacity is abundant and fuel costs are high. High-end vehicles led import gains. Other types of heavy cargo, as well as container goods, also crept up from third-quarter levels.
Loan demand was generally described as either unchanged or slightly higher since our last report, with modest gains noted particularly for equipment spending. While consumer and mortgage loan demand was weak, commercial demand increased in some areas of the District. Several bankers cited examples of small businesses replacing and in some cases expanding their purchase of new equipment; in many instances the borrowers were aided by Small Business Administration programs that guaranteed a portion of the loan. One banker reported that increased spending on public infrastructure contributed to a major purchase of heavy equipment by a construction firm. Nonetheless, most bankers reaffirmed that small businesses were still experiencing a large number of loan rejections due to tight credit standards and weak earnings. Indeed, lending activity remained well below year-ago levels, and several bankers in less urban areas of the District stated that demand was weak, continuing the trend of the last several months.
Residential real estate agents gave mixed signals on house sales activity in the Fifth District. The Fredericksburg housing market had steady sales and a local agent noted that the tax credit program was "keeping people in the game." However, in Richmond, a contact reported that while buyers continued to look, few had shown urgencies in making offers. Several respondents expressed concern for their markets once the federal tax credit program ends and interest rates start to rise. One contact noted that some banks anticipated a large number of spring foreclosures and were accepting lower prices on the real estate they owned. House prices remained generally steady across much of the District. However, weak consumer confidence remained a constraint. Contacts across the District reported that houses priced in the low-to-middle range remained their best sellers, while sales in the higher price range were rare.
While the sales side of commercial real estate markets remained anemic, agents in the District reported an uptick in office and retail leasing activity over the last two months. Several agents noted that landlords were lowering their leasing rates in exchange for an extension of the length of the lease. In addition, one agent stated that more businesses were making decisions to either expand or upgrade their current facilities. One agent noted that national retail chains, attracted to the relatively low unemployment rates across the District, were actively seeking new sites in anticipation of an expansion in retail spending when the economy improved. In most cases, demand for retail space was also being driven by bargain hunters trying to take advantage of low rental rates. However, one agent noted that retail space in small strip malls was still suffering from high vacancy rates, while downtown retail space was generally in "good shape." Finally, government agencies were identified by one agent as a key source of leasing demand and, in some cases, were the motivation behind new office construction in the area.
Assessments of tourist activity varied since our last report. Contacts along the coast generally reported that bookings were somewhat weaker, which they attributed to people's lack of confidence in the economy. An hotelier at Virginia Beach and an analyst on the Outer Banks of North Carolina said that tourists were looking for deeply discounted packages. In addition, holiday party bookings were practically nonexistent because groups were having their office Christmas parties on-site. Tourism contacts in Virginia and in the Carolinas characterized consumer spending habits as somewhat weaker than a year ago. They noted that consumers were eating out less than ever before, despite the "specials" offered at area restaurants. On a brighter note, respondents at ski resorts reported an historically high number of bookings, which they credited to significant snow accumulation from a major snowstorm that struck the Atlantic Coast on the last weekend before Christmas. A manager at a ski resort in Virginia said that visits were up 40 percent--the highest number of visits in the last 20 years.
Temporary employment agents gave mixed reports on recent demand for workers across the District, but were upbeat about future demand. Several agents in Raleigh reported generally improving demand and expected even more strengthening in the coming months. One agent reported that many of his customers were both filling vacant positions and expanding hiring. Another agent noted that several manufacturing companies were hiring contract workers. However, other manufacturing clients were very apprehensive about hiring due to concerns over the underlying strength of their order books. In addition, several agents reported weak demand over the past six weeks, but expected stronger demand over the next six months. A Hagerstown agent expected stronger demand for workers due to a slight improvement in the overall economy. Likewise, a Richmond agent was optimistic about stronger demand for workers at her agency in the near future, due also to some signs, albeit slight, of economic recovery as well as actual improvements in selected divisions of the agency. In general, among the most available positions were in warehouse and distribution centers, general and day labor, and administrative, sales, and quality assurance.