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Federal Reserve Districts

Fifth District--Richmond

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Economic activity in the Fifth District declined further in January and the first half of February. Business contacts across the service sector reported decreases in revenues and employment. Demand for manufactured goods also declined, with firms reporting idled or closed plants, excessively high levels of inventories, and falling product prices. Growth in residential lending was the one bright spot in the District, although the expansion was driven by refinancing activity. Meanwhile, commercial lenders observed deterioration in credit quality and commercial leasing activity fell in most areas of the District. Temporary employment agents also described reduced demand for workers, although they were somewhat optimistic about the next six months.

Retailers provided mixed reports on sales, although revenues were generally lower in recent weeks. A manager at a sporting goods store in western West Virginia said his total sales volume was down, despite a boost in apparel sales from severe winter weather. The owner of a chain hardware store in central Virginia noted that customer traffic had dropped, but that the size of the transactions remained steady. In contrast, managers at big box discount stores in Virginia Beach, Va., and central North Carolina told us the weak economy had raised both their customer traffic and their revenues. Contacts also reported a fall in big-ticket sales since our last report. Sales of new domestic automobiles continued to slump at District dealers, with sales of foreign nameplates also down, but to a lesser extent. On the other hand, a few car and light truck dealers observed strong performance in used vehicle sales and increased business in their service departments in recent weeks. Retailers continued to report cuts in jobs and hours. A spokesperson for a group of central Virginia retailers said many constituents were cutting hours and "the owners of smaller stores are more frequently on the floor" to cover the cutbacks. Retail prices grew at a somewhat slower pace. Fuel prices declined, according to contacts, and a grocery executive with store locations in Virginia and surrounding states noted that prices edged down for fresh produce and dairy products. Average retail wages contracted since our last report.

Contacts at services firms saw generally slower demand in recent weeks. Several restaurant owners and managers reported a sharp decline in traffic and revenues. A contact at a national freight trucking firm in the District said freight volume was down and that his firm succumbed to downward rate pressures "to keep in line with competition," while cutting wages for several classes of employees. A hospital administrator in central North Carolina noted that demand for surgeries at that facility had fallen as local layoffs continued. Employment at services firms also declined across the District in recent weeks. A contact at a central North Carolina healthcare system told us that his organization had instituted a hiring freeze; an executive at an environmental services firm in Maryland reported that workers' hours were reduced because of slow demand; and an executive at a commercial property management firm in central North Carolina observed a "constant drumbeat of small layoffs." Average wage growth was little changed since our last report while price growth at services firms slowed.

District manufacturers reported that production activity contracted further with broad weakness across shipments, new orders, and employment. A producer of automotive upholstery fabric in North Carolina said his company was facing deep declines in orders, while a machinery manufacturer in South Carolina noted that many of his suppliers were in dangerously poor financial health. A number of lumber companies also reported continued steep drops in sales, excessively high inventories, and continued price decreases. A contact at a lumber company in West Virginia that is eliminating one shift and disallowing overtime reported that, "This is the worst economic situation since our company began in 1972." A primary metal manufacturer in South Carolina told us that the price for his product had dropped about 50 percent from last August and that without fast improvement, layoffs will deepen and wages and benefits will tighten. Meanwhile, a fabricated metal producer in West Virginia informed us that the company had shuttered a plant with about 700 employees due to the low aluminum price.  Correspondingly, raw materials and finished goods prices were down significantly from our last report.

Activity at District ports weakened further since our last report. Imports declined amid continued concerns about consumer spending and inventory levels, while exports struggled across the board over the last two months. Contacts across the District reported seeing shipping lines scale back operations in recent weeks by delaying or consolidating services.   

Residential lenders reported that activity picked up in January and February. The uptick was centered on firmer demand for refinances, which comprised 65 to 80 percent of applications since our last report. Some contacts noted, however, that refinancing was being constrained by appraisals "coming in at the lower end of the range." Credit standards tightened slightly in recent weeks as lenders reported stricter verification of income and employment, required higher FICO scores, and applied more stringent appraisal standards. In contrast to residential lending, demand for commercial loans remained sluggish. Bankers reported that businesses were increasingly cautious about making new deals, but noted some increase in refinancing activity for commercial properties. Credit standards remained tight with few changes in policy, although lenders reported scrutinizing applications more carefully "with a longer recession than initially thought in mind." Contacts also noted a decline in credit quality since our last report. Bankers reported that year-end statements from their clients showed "continued stress" on balance sheets, especially for middle-market and consumer product-related firms.

Real Estate
Reports from Fifth District residential real estate agencies remained dismal. Most Realtors continued to report very slow house sales in January although there were spotty reports of some pickup in February. A Washington, D.C., agent told us that January and February sales were "extra slow"--prices were down 17 percent from a year ago and the number of units sold was down 40 percent. Business remained "very slow" in Greenville, S.C., and in Richmond, Va., with the Richmond contact reporting rising inventory levels. An agent in Fairfax, Va., told us that he was expecting strong spring sales and that his open houses had been flooded with customer traffic. In contrast, a Greensboro, N.C., Realtor reported low consumer confidence, bankruptcies, and closings among some major builders. However, he was optimistic for a turnaround in the next few months due, in part, to several prominent companies locating in his area by the end of 2009 and early 2010. House prices dropped across much of the District.

District commercial real estate markets remained stagnant from January to mid-February. Leasing activity declined in most areas, although contacts reported some interest in office space in northern Virginia, Norfolk, Va., and Charlotte N.C. While posted rental rates were unchanged in most markets, negotiation was more common and landlord concessions were on the rise. A Baltimore, Md., agent reported that there was "no point asking what the face rent is--it's all about what tenants can afford." Concessions grew in Columbia, S.C., as landlords "scrambled" to renew leases, while tenants in Norfolk and Charlotte sought rent relief to avoid defaulting on contracts. Vacancy rates rose in Baltimore, Washington, D.C., Raleigh, N.C., and Charleston, S.C.,--especially from a glut of big box retail space coming on to those markets--but held steady in Richmond, Va., and Charleston, W.Va. Commercial sales activity was at a standstill in Baltimore, Richmond, Columbia and Charleston, S.C., although bargain hunters with cash were active in the northern Virginia and Norfolk markets. Property prices held steady or decreased slightly as limited financing and soft demand reduced the number of sales transactions.

Although contacts on the Outer Banks of North Carolina and in Virginia Beach, Va., told us that bookings for Valentines' Day weekend were somewhat stronger than a year ago, overall tourist activity along the coast was a bit weaker when compared to our last report and to a year ago. An analyst from Myrtle Beach attributed the weakness to ongoing concerns about the national economy. He also indicated that the reduced bookings had pushed hotels to roll out discounts earlier. In contrast, a manager at a ski resort in Virginia reported that time share sales were running "neck-and-neck" with last year, total bookings were up, and tourist spending was steady. Similarly, a contact at a West Virginia ski resort told us that bookings were somewhat stronger than a year ago, which he attributed to patrons taking advantage of cheaper room rates during the week.

Temporary Employment
Fifth District temporary employment agents reported generally weaker demand for workers since our last report. Contacts cited the difficult economic conditions as reasons for the drop in demand. One agent reported that although business was slower than last year, the past two years were particularly strong, and hiring had continued in the life sciences, pharmaceutical, professional services, and IT industries. A contact from Raleigh, N.C., was optimistic that demand would be stronger over the next six months with new business in the area, recent company acquisitions, and lifted freezes on hiring. In addition, when business improves, the contact expects many companies to hire workers on a contractual rather than a payroll basis, thus increasing demand at staffing companies.

Colder-than-normal temperatures, combined with relatively low precipitation, hindered crop development in some parts of the District. For example, a contact in Virginia reported that colder temperatures and below-average precipitation had slowed small grain growth. At the same time, other farmers benefited from the moderately dry weather, such as farmers in southern areas of the District who were able to get an early start on land preparation.

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Last update: March 4, 2009