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Beige Book logo links to Beige Book home page for year currently displayed October 24, 2001

Federal Reserve Districts

Fifth District - Richmond

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Fifth District economic activity contracted slightly in September and early October, as consumers pulled back in the wake of terrorist attacks on September 11. Services and retail businesses felt the strongest impact. District hotels, airlines, and travel agencies reported sharply lower revenues. Retailers said that big-ticket sales tumbled in September, though they rebounded somewhat in October, as consumers began returning to stores and automobile dealerships. Manufacturing shipments and new orders were generally steady in September. Growth in the housing market slowed modestly in the weeks since our last report, while leasing of commercial properties continued to trend downward. Price increases remained generally modest at District businesses. In agriculture, cool, dry weather was favorable for corn and soybean harvesting, and both were ahead of schedule.

District retailers reported sharply lower sales in September, particularly in the week following the September 11 terrorist attacks, but a number of contacts noted that their sales rebounded somewhat in early October. Both shopper traffic and big-ticket sales declined in September. Automobile dealers said customer traffic dropped by as much as 50 percent immediately after the attacks. However, customers have returned in the last few weeks, and sales are now running a little above early September levels, boosted by price and financing incentives. Big-box retailers told us that their business was back to normal by the end of September, and some indicated that sales of basic durable goods had picked up in recent weeks. District grocery stores noted stronger sales of canned goods and bottled water. In contrast to rebounding retail activity in many areas, several retailers in the Charlotte, N.C., area said they were continuing to see a reduction in customer traffic as banking and airline layoffs continued in the area. Employment in the retail sector fell moderately in September, while prices were little changed.

Service providers reported somewhat lower revenues in the weeks since our last report. Many hotels and travel firms reported sharp declines in business and vacation travel immediately following last month's terrorist attacks. They said that while travel has rebounded in recent days, bookings are still below pre-September 11 levels. At healthcare organizations in the District, contacts told us that activity has remained normal since our last report, but several noted that they were paying more attention to building security and emergency preparedness. A manager at a trucking firm with operations throughout the District told us that demand facing the company was below expectations, leading the firm to decrease employee hours, although they have avoided layoffs.

Activity in the manufacturing sector was steady in recent weeks. Shipments edged higher in September, while new orders matched summer levels. Contacts in the textiles, electronics, and plastics industries noted scattered signs of stronger demand for their products. A textile manufacturer in Virginia told us that capacity utilization improved due to new products rolled out for discount retailers, while a counterpart in North Carolina said that his company was encouraged by heightened consumer interest in "Made in the U.S.A." products. Several industries, however, reported weaker sales as a result of the September 11 attacks. A furniture manufacturer in North Carolina, for example, indicated that his business was just beginning to pick up when the attacks occurred, but then orders fell dramatically. Prices for manufactured goods were little changed from our last report.

District loan officers said that while residential mortgage lending continued to be bolstered by declining mortgage rates, commercial lending activity slowed in recent weeks. Growth in residential mortgage lending continued to be fueled by refinancing--a Greenville, S.C., lender said that homeowners were jumping to lock in mortgage rates below 7 percent. In contrast, several commercial lenders reported that business borrowers had trimmed expansion plans in September. A lender in Greenville, S.C., described local businesses as having "hunkered-down" and noted that he did not expect to see a pickup in commercial loan demand in the next few months. A banker in Charleston, W.V., also reported weak commercial loan demand and expected lending in the retail and hospitality sectors to be particularly sluggish for a while.

Real Estate
Residential realtors and homebuilders reported generally slower growth in home sales in September and early October. The uncertainty created by events of September 11 reduced buyer enthusiasm in some markets. Realtors in Bel Air, Md., and Beckley, W.V., for example, said that "everything stopped" on September 11, while a realtor in Greenville, S.C., said that his agency had 19 home sales "fall through" after the attacks. But home sales in many areas continued to hold or even rise, in part because of lower mortgage rates. A homebuilder in Landover, Md., said that her agency had been very busy, while a realtor in Asheville, N.C., told us that sales contracts had been steady, and that lower mortgage rates had "kept them alive." Respondents from several areas stated that sales of expensive homes had virtually halted. They said buyers appeared to have downsized their expectations, and that lower and mid priced homes continued to sell well. Most builders reported little change in subcontractor costs or wage rates.

Commercial realtors across the District reported that leasing activity was almost "non-existent" during the week after the attacks. Since then, leasing activity has gradually regained momentum, but remains below early September levels. The District's industrial sector remained sluggish and industrial leasing activity continued to soften--a Northern Virginia realtor noted that many firms utilizing industrial space were "belt-tightening" and trying to "right-size." The office and retail sectors, meanwhile, have shown resilience in recent weeks. A contact in Columbia, S.C., reported that despite a "depressed" attitude within the business community, business firms continued to move forward with their office leasing plans. The demand for Class A office space was generally flat across the District. In Washington, D.C., and Northern Virginia, however, office space was being acquired for displaced Pentagon employees and for other federal government workers.

Tourism in the District declined sharply in the wake of the terrorist attacks of September 11, but by early October signs of a rebound had emerged in most areas. Contacts throughout the District reported widespread cancellations of conventions in September, in part because of airport shutdowns and flight cancellations. A contact at a hotel in Myrtle Beach, S.C., told us that his business had lost about $40-45 million since the attacks, primarily because of the cancellation of 30 large conventions. He noted, however, that two-thirds of the parties that canceled subsequently rebooked and that business was almost "back to normal." Respondents in Washington, D.C., said that area's tourism and hospitality businesses lost about $10 million a day in revenues in September and that they expected below par revenues in coming months.

Temporary Employment
Contacts at temporary employment agencies reported that the demand for workers had weakened somewhat in recent weeks. While several employment agents were optimistic that hiring would strengthen over the next few months, others were skeptical. A contact in Rockville, Md., stated that greater economic uncertainty in light of terrorist attacks and fears of recession led him to expect lower demand for his agency's services in the coming months. However, a contact in Raleigh, N.C., said he was seeing a "ready to get back to work" attitude at many firms in his area and he expected the demand for workers to strengthen soon. Wages for temporary workers were generally steady throughout the District.

Dry weather and cooler-than-normal temperatures provided ideal conditions for crop harvesting in recent weeks. Corn harvesting was ahead of schedule in Maryland, North Carolina, and West Virginia, and was drawing to a close in South Carolina and Virginia, where better-than-expected yields were reported. The soybean harvest was ahead of schedule in Maryland but behind schedule in West Virginia. District agricultural analysts reported that continued dry conditions were stressing pastures in Virginia, resulting in an earlier-than-normal feeding of hay to livestock in some counties.

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Last update: October 24, 2001