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Federal Reserve Districts

Fifth District - Richmond

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The Fifth District economy remained vibrant, but expanded at a slightly slower pace in March and April as growth in services and manufacturing activity eased somewhat. Manufacturing activity remained relatively strong and shipments expanded at a solid clip, although the growth of new orders fell sharply. At District retail establishments, sales gains were robust, but revenue growth at resorts and utilities was sluggish, in part because of higher gasoline prices. Residential real estate activity expanded at a strong pace since our last report while commercial real estate activity held steady. Bank lending generally advanced modestly in recent weeks, despite slack growth in mortgage lending. In District labor markets, employment and wages increased sharply at retail establishments, but grew only moderately in manufacturing. On the prices front, District manufacturers noted higher prices for oil and steel, but business contacts in general continued to report only modest price increases for goods sold.

District retailers reported stronger growth in customer traffic and sales in the weeks since our last report. Improved weather in recent weeks was cited by a Columbia, S.C., retailer as a primary reason for stronger than normal growth in sales of building and garden supplies. Retailers' inventories increased over the period, and retail prices grew more slowly. In labor markets, retail employment bounced back from softness earlier in the year, and wage pressures maintained upward momentum.

Service sector revenues grew at a slower rate since our last report. Higher prices for gasoline and air travel contributed to a decline in hotel bookings, according to a hotelier in the District of Columbia. In addition, revenues at electric and gas utilities also fell as the weather warmed. Employment in the services sector rose at a moderate pace, while average wages grew faster than in the previous two months.

The pace of District manufacturing activity moderated in recent weeks. Manufacturers' shipments continued to expand at a solid rate in March, but new orders growth slowed considerably--particularly in the food, primary metal, and fabricated metals industries. Manufacturing employment was little changed since our last report, while average workweek declined. Wages advanced at a modest pace.

Reports of higher raw materials prices were more widespread in recent weeks. Several tire and rubber manufacturers noted that higher oil prices had driven their costs higher. The director of sales operations at a food processing plant in Virginia said that higher gasoline prices were having a "significant impact" on his distribution costs. In addition, an industrial machinery and equipment manufacturer in Raleigh, N.C., reported steel prices had risen "terribly," contributing to a 25 to 40 percent increase in his costs of raw materials over the last twelve months.

District bankers reported only a modest increase in lending activity since our last report. Commercial lending was moderately higher, bolstered by a generally strong District economy and, in some cases, demand for loans to pay tax bills. A commercial lender in Richmond, Va., reported lending to be "steady as she goes," noting that businesses had "adjusted well" to a higher interest rate environment. Consumer and mortgage lending activity, however, was mixed. A Charlotte, N.C., lender reported that continued robust economic growth had contributed to buoyant consumer loan demand, but a Greenville, S.C., banker noted that sharply higher gasoline prices and high debt levels had damaged consumer confidence. The Greenville, S.C., lender also noted relatively weak demand for home mortgages in his area.

Real Estate
Residential real estate activity advanced at a solid pace in March and April, although, in a few areas, sales lacked the sizzle normally seen at this time of year. Both builders and realtors reported that Northern Virginia continued to be a hotspot, with customer traffic there described as "higher than ever." Real estate activity was also strong in Myrtle Beach, S.C., where contacts said that customer interest in upper-end homes had picked up, and in the eastern panhandle of West Virginia, where builders indicated that speculative building rose in response to strong demand for homes in the lower price ranges. Home sales in Baltimore, Md., however, were reported to be lower, and realtors said that Virginia residential markets were "softer" in Richmond and in the Tidewater area. In contrast, realtors in the District of Columbia and in the surrounding Maryland suburbs reported markedly higher prices for upper-end homes.

Commercial real estate activity changed little since our last report. In Baltimore, Md., Class A office space availability tightened "a bit," while vacancy rates continued to fall. Commercial realtors in Charlotte, N.C., reported little change in leasing volumes and rents, but said that substantial amounts of new office space were being added downtown and that industrial leasing activity had started to pick up. Industrial leasing activity was also active in the Research Triangle area of North Carolina. Class A office space tightened slightly in Raleigh, N.C., and retail rental rates rose. Rental rates for office space were said to be higher in Columbia, S.C., in part because of a "flood" of telecommunications businesses moving into that locality. Commercial markets in Northern Virginia remained strong; a realtor there told us that premiums were being paid by office building tenants in order to secure lease renewals.

Tourist activity strengthened in March and April. Contacts at District resorts reported that bookings for the Easter holiday were much stronger than a year ago. One hotelier on the Outer Banks of North Carolina told us that the beaches were packed, in part because Easter occurred later this year. In addition, contacts attributed increased activity at resorts to the increased popularity of "spring break" vacations that take advantage of the lower, off-season room rates. In Washington, D.C., unseasonably warm weather attracted record crowds of over 700,000 visitors to the National Cherry Blossom Festival in late March and early April.

Temporary Employment
Demand for temporary workers strengthened further in recent weeks. Contacts at temporary employment agencies said that clerical and computer-skilled workers remain at the top of the wish list for most employers. However, in urban markets, contacts said that conditions were so tight and the pool of available temporary workers so thin, that their clients would settle for workers that simply showed up at the job. In the Carolinas, light industry picked up recently, which led to increasing strains on already tight labor markets. In contrast, a contact in a rural area of West Virginia said that there were abundant workers in that area and that they were increasingly computer-savvy. He attributed labor-market slackness to sluggish local economic conditions. In general, wages for temporary workers continued to rise at a moderate rate.

Abundant rain in recent weeks left District farmland in generally good condition for spring tillage and planting. The recent rains delayed activity in some areas, but planting progress of field and vegetable crops was ahead of schedule in most areas. The rainfall also benefited pastures, particularly in Virginia and West Virginia, where livestock producers moved livestock onto pastures earlier than normal. Cold weather in mid-April caused scattered damage to fruit trees in West Virginia but fruit prospects remained generally good; apple trees were in bloom 10-14 days earlier than normal. Although crops were developing well, District agricultural producers remained concerned with low farm commodity prices.

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Last update: May 3, 2000