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Federal Reserve Districts

Fifth District--Richmond

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The Fifth District economy expanded at a quicker pace than in our last report, led by firmer conditions in manufacturing and an increase in retail activity in late December. District retailers generally reported that sales growth picked up the pace after mid December and was particularly strong in the final week of the month. Services providers reported moderate growth in both revenues and employment, and major services sectors such as real estate and tourism remained strong. Despite continued contraction in textiles, overall District manufacturing output was little changed in December after having dipped in November. Bank lending was also generally steady in the period since our last report. There were fewer reports of spiraling raw materials prices in the manufacturing sector and prices of manufactured goods rose only modestly. In agriculture, small grains and livestock were in good condition in most areas of the District.

District retailers reported that a surge in sales in the final week of the month offset sluggish activity early in the month, boosting their December revenues. A manager at a department store in central North Carolina said holiday revenues were strong. Sales at building supply stores were notably higher--a contact in Richmond, Va., said customer traffic picked up in December while a retailer in Columbia, S.C., reported record sales for the month. Most automobile dealers in the District indicated revenues were about the same as a month earlier. Stronger sales led retailers to increase hiring, and wage growth accelerated. Respondents said that prices rose only modestly at stores in December.

Demand at services firms was somewhat stronger since our last report. A financial services contact in Baltimore, Md., said the general outlook of "the man on the street" had brightened. A commercial and residential landscaper in coastal North Carolina said his business had "done a 180" in the last four weeks, and that sharply higher customer demand was helping to rein in excess inventory accumulated earlier in the season. Despite the pickup in demand, services employment rose at a slower pace in December, though wage growth gained strength. Prices in the services sector grew at a slightly slower pace in December.

District manufacturing activity stabilized in December after slipping somewhat in November. Factory shipments and new orders were flat while manufacturing employment edged higher. Several sectors reported generally higher levels of manufacturing activity but these gains were tempered by continued weakness in the textile and apparel sectors. A rubber products manufacturer in South Carolina, for example, told us that December sales were "better than forecast" and added that sales "looked good for the next 30 to 60 days." A plastics manufacturer in North Carolina reported "activity is good" and that "backlog, sales and work activity" were all up at his company. But textile and apparel producers reported softer new orders and lower employment in December. Textile and apparel firms expressed concern that the removal of textile and apparel quotas on China could constrain orders in 2005. Prices of raw materials and finished goods rose at a slower pace in December. Looking ahead, though some manufacturers expressed skepticism about the sustainability of the U.S. economic recovery, many said they planned to increase capital spending over the next six to 12 months.

District bankers reported that loan demand changed little since our last report. Lenders said that demand for commercial loans slowed in December, but the slowdown was about normal for the holiday season. Several commercial bankers noted modestly higher capital spending by their clients, particularly for new equipment, and expressed optimism that increased capital spending would drive commercial lending activity higher in 2005. In addition, there were scattered reports of stronger commercial real estate lending in Virginia. Residential mortgage lending was only modestly higher, however; new mortgage originations rose, but refinancing activity dwindled. Bankers reported little change in loan standards for creditworthiness since our last report.

Real Estate
Fifth District real estate agents continued to report generally strong housing markets. In Fairfax, Va., an agent said properties were being "snapped up" as soon as they hit the market, adding that she expected an even stronger market in the spring. A Fredericksburg, Va., agent reported a "still crazy" market there, noting that business at her agency was double year-ago levels. In Greensboro, N.C., an agent reported an "active market" and said that the future was expected to be even brighter as a new computer manufacturing facility brought additional jobs to the area. There were a few softer markets, however; agents in Odenton, Md., and Greenville, S.C., for example, reported some slowing in the pace of home sales. Home prices continue to rise in most areas of the District.

Commercial real estate agents reported that commercial leasing activity strengthened over the final six weeks of 2004. "We ended the year on a very strong note and are quite optimistic we can maintain that momentum well into 2005," noted a contact in Charlotte, N.C. Office leasing was the driving force behind the recent surge in activity as retail and industrial leasing were generally flat. An agent in the Washington, D.C., metropolitan area reported that the uptick in office leasing was due primarily to the expansion of "large companies into large spaces." There were scattered reports of increased office construction across the District, while the pace of retail construction was reported to be moderating. Rents and vacancy rates in the commercial sector were little changed.

Tourist activity picked up in the weeks since our last report. A contact on the Outer Banks of North Carolina noted that unseasonably warm weather in late December and early January had boosted their business. A contact in Myrtle Beach, S.C., reported that some hotels were booked to capacity and were turning tourists away during the week after Christmas. Reports from mountain areas were generally upbeat as well. Contacts at mountain resorts in Virginia said that declining gasoline prices in December had helped their business and also noted that they were seeing more visitors from outside the United States.

Temporary Employment
Employment agents in the District generally reported flat demand for temporary workers since our last report. An agent in Raleigh, N.C., said that demand for workers had been slowed by the holidays in December; however, he looked for a pickup in hiring in 2005. An agent in Hagerstown, Md., also expected demand for workers at his agency to strengthen as the economy continued to grow. Workers with administrative and sales skills and those with production or distribution center experience were most highly sought.

Warm weather in early December accelerated the growth of late-planted winter grains and extended the grazing period for livestock in Virginia and West Virginia. Small grain crops were reported to be in mostly good condition in most areas of the District. But the last week of December brought very cold temperatures across the District and a snow storm along the Atlantic Coast, leading to unusually large amounts of supplemental feeding of livestock in Virginia and West Virginia.

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Last update: January 19, 2005