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Federal Reserve Districts

Fifth District--Richmond

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District economic activity generally flattened or improved slightly since our last report. Manufacturing activity was little changed in late November through mid December, while port activity slowed. Retail reports were mixed; notably, several car dealers reported higher sales of used and new vehicles. Non-retail services firms also reported stronger revenues in recent weeks. In addition, most tourism contacts indicated bookings were up. In finance, however, loan demand continued to be weak, with the exception of commercial loans. Likewise, residential real estate activity generally declined. We received mixed reports on commercial real estate activity. Manufacturing employment declined somewhat, while the average workweek ticked up and wages advanced in line with our last report. Retailers reduced their payrolls and wages flattened, while non-retail services providers added to their payrolls and average wages increased in that subsector.

District manufacturing activity remained flat since our last report. Our latest survey showed little change in shipments, but a slight increase in new orders. A producer of residential doors reported that business at his firm remained depressed. Similarly, a furniture manufacturer said that demand was generally sluggish across all categories, particularly for residential furniture. In contrast, a fabricated metal producer cited an improvement in December's order volume, which he attributed to customers placing orders in advance of higher basic metals prices. That increase in orders allowed his company to operate at capacity and avoid employee layoffs. Moreover, an automobile parts manufacturer ordered new manufacturing equipment due to increased demand and the need to reduce employee overtime. According to our survey respondents, both raw materials prices and finished goods prices grew at a notably slower pace than a month ago.

Port activity in the Fifth District slowed in recent weeks, with imports coming in below earlier expectations. Several officials reported that imports have turned flat on a year-over-year basis, after modest gains during the summer had raised hopes of continued improvements through the remainder of the year. One analyst stated that the typical autumn "bump" in retail orders did not occur this year. A modest uptick of imports is still expected in January, ahead of Asian plant closings for the Chinese New Year in February. In contrast, most port officials expected robust exports, especially for non-container goods. A late harvest has led to increases in grain exports, according to one official. Nonetheless, shipping rates are low and carriers are losing money, causing several analysts to expect increased pressures among carriers to consolidate.

Retail merchants gave mixed sales reports, while wholesalers generally indicated a pickup. The manager of a chain discount store in North Carolina described sales as "erratic," and a contact in the Tidewater area noted that sales were unchanged, even with increased foot traffic. Unusually warm weather in the District depressed sales of winter apparel. Toys and electronics, particularly televisions, moved briskly in recent weeks. A retailer told us that customers have returned as much as a third of the items previously placed on lay-away before finishing the payments, because, customers said, they "need the money." Although big-ticket sales were down slightly, there were reports of improvement. Jewelers generally reported robust sales. Although higher prices for gold and precious gems damped sales at some stores, other items such as silver remained in demand. Rising cotton prices continued to push up apparel prices. According to several car dealers, strong used-vehicle demand increased trade-in equity. Low interest rates and the rising average age of vehicles on the road also helped move new cars. On the whole, retail price increases were smaller since our last report.

Revenues at non-retail services firms accelerated in recent weeks. Hospital and other healthcare contacts noted that mergers have increased among smaller hospitals and physician practices, as changes in healthcare roll out. Nursing home executives also expressed concern about reduced Medicare payments and the inability of potential resident-care patients to sell their homes. Revenues rose more quickly at medical records management firms, temp staffing agencies, and telecommunications firms. In addition, a pickup in business at engineering firms was noted in recent weeks. An engineering contact in West Virginia commented that old projects that "have been on the shelf" were proceeding. Prices at services firms increased at a somewhat faster pace since our last report.

Loan demand in the District continued to be generally weak. A West Virginia banker reported that local lending was weak, with no increase for some time. A South Carolina banker cited a decline in the number of outstanding loans. Also, several bank officials around the District noted that, except for multi-family building and refinancing, real estate lending continued to be quite soft. Several bank officials attributed weak loan demand to a lack of confidence on the part of businesses. However, a number of commercial developers noted greater difficulty getting their loans approved. In contrast, an analyst for a large bank in the District reported that commercial lending improved slightly over the last few months, led by small business needs for new capital equipment. A lending officer in Richmond also noted improvement in consumer borrowing for autos, home improvement, and debt consolidation. And several small commercial bankers around the District stated that they were picking up loans from customers who were dissatisfied with the service they were getting from large banks. Most bank contacts stated that interest rates were little changed, and the quality of loans continued to improve modestly.

Real Estate
Residential real estate activity softened since our last report, although a few pockets of strength remained. Several Realtors reported that sales fell considerably and housing prices had declined from a month ago. Many agents attributed the drop in sales prices to short/distressed sales being used as comparables. Most Realtors cited sales in the low-price range as faring better than sales in the high-price range. An exception, however, was an agent in the D.C. area who said that sales in the $1,500,000 plus range were up 31 percent. Brokers in Richmond and Charlotte noted that the rental market was heating up. A builder in Charleston, South Carolina described residential construction as very weak, with a rise in the average number of days on the market for new homes, even as the number of homes for sale declined. In central Virginia, a real estate agent indicated most shoppers were serious about buying, although foot traffic had slowed down quite a bit in recent months. He added that, while closed sales were down, pending sales were up from a year ago.

We received mixed signals from commercial real estate and construction markets in the District. A contractor in the Baltimore area reported that commercial permits over the last month were up on a year-over-year basis for the first time this year. Several contractors in Virginia and Maryland experienced a small pickup in demand and were hoping to increase their prices. And, while some architecture firms in the D.C. area had more signs of stress, one firm reported its best backlog of orders since the recession. In contrast, another D.C. contractor said that projects in the area were few, and each had many bids that were too low for most contractors and their subcontractors to make a profit. A contact in West Virginia noted a dramatic slowdown in local leasing activity. In addition, a developer in South Carolina stated that office and retail space was abundant and no new building was needed except for very specialized structures, such as medical facilities. A commercial Realtor in South Carolina also noted that, although office vacancy rates were high, a significant portion of those buildings were obsolete.

Labor Markets
Assessments of labor market activity changed little since our last report. A representative at a Charlotte staffing and recruiting company for accounting and finance reported an increase in corporate hiring. A staffing services contact from Charleston, South Carolina indicated that 2011 has been an exceptionally strong year for temporary placements, but noted the pool of sufficiently qualified candidates was relatively small and many applicants were disqualified by drug tests. Several contacts cited examples of workers who had declined employment opportunities in favor of unemployment benefits. Looking ahead, employment agencies expected stronger demand for temporary workers during the next six months, along with improving economic activity. A Maryland contact said that he expected employers to utilize temp help to a greater extent than last year, because of economic uncertainty. A commercial architect in Charlotte also reported a trend toward the use of contract labor instead of hiring full time employees. A source from a management consulting group in Maryland stated that businesses believe that regulation and tax increases are impeding full-time hiring. According to our latest survey, hiring at non-retail service firms picked up briskly in December and average wages strengthened. In contrast, retailers cut jobs and average retail wages flattened. Manufacturing employment edged lower over the last month, while the average workweek held steady; wages increased on pace with a month ago.

A majority of hotel and resort contacts indicated bookings have been solid since our last report. The manager of a western Virginia hotel and resort described a very busy Thanksgiving weekend. He remarked that they were booked full through the Christmas weekend, even though the unseasonably warm weather limited the number of open ski slopes. A contact on the North Carolina Outer Banks cited good autumn and early winter tourist activity, and added that bookings were equal to or better than a year ago. Owners of vacation rental property there expected a surge in reservations by early January, when people typically act on decisions made during the winter holidays. A hotel manager in central Virginia also reported increased bookings, and a contact at a North Carolina amusement and recreation venue noted a pick-up in revenues. In contrast, a hotelier in the Piedmont region of South Carolina indicated bookings have been flat. In addition, hotel contacts on the Virginia coast reported that bookings have not increased as expected, owing to the difficult economy and cuts in federal government spending on travel. One hotel representative noted that government employees are now sharing rooms rather than booking individually. Rates were generally unchanged.

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Last update: January 11, 2012