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Federal Reserve Districts

Fifth District--Richmond

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The Fifth District economy, on balance, was more mixed than in our last assessment, with housing, retail, and banking activity marginally increasing and most other sectors little changed or contracting. An uptick in retail sales activity was reported, even though most big-ticket sales (with the exception of new and used vehicles) were still down. Service sector revenue declines were less widespread. Manufacturing activity, which was increasing in our last two reports, stalled over the last month, with several contacts concerned that tight credit was limiting the ability of their customers to place orders. Financial sector contacts reported little change in overall lending, but noted some increases in both consumer and small business lending activity. The residential real estate sector continued to benefit from tax credits for home buyers. Commercial real estate saw an increase in business downsizing activity, but that was offset by weakness in other segments of that market. Finally, recent severe weather disrupted tourism, causing widespread hotel cancellations along the Atlantic coast. Flooding also damaged crops and delayed planting. While prices were flat or declining in most sectors, manufacturers noted some increases in commodity based prices.

Sales ticked up in recent weeks, according to most District retailers. Although big-ticket sales were down overall, new and used vehicle sales edged up, particularly for foreign nameplates. One automobile dealer described the change in his sales as "trickles of improvement," and most dealers indicated that their inventory was too low because factory production was down. Store managers at discount department stores also reported that sales had picked up slightly--especially sales of toys and electronics--although customer traffic was generally flat. A majority of retailers indicated that they hired their standard number of seasonal employees or were adding hours for current employees. District merchants reported that their inventory levels were about right for expected holiday sales of two percent above a year ago. Merchants anticipated flat sales of gift cards; one store manager expected redemption of gift cards to occur earlier than usual because of the economy. The pace of job cuts generally slowed and average retail wages were little changed, while retail prices edged higher.

Contacts at services firms reported that revenue contraction was less widespread in recent weeks. An executive at a freight trucking establishment said, "We're seeing some green sprigs out there; we just don't know yet if it's grass or weeds." Demand for healthcare services remained strong, despite a decline in the number of flu cases being treated. A contact at a financial services firm remarked that his clients were "feeling better but there remains an underlying wariness about the markets." Contacts in the professional, scientific, and technical services sector gave mixed reports on revenues, while sources at administrative and support services firms indicated that revenues were either unchanged or down. Employment, average wage growth, and price change were virtually flat, according to contacts.

District manufacturing activity flattened in October and the first half of November. Contacts reported that shipments and new orders grew more slowly since our last report, and employment indicators returned to negative territory after being positive for the last two months. Several contacts noted that their customers were having difficulty obtaining credit. A furniture manufacturer reported that his retail customers continued to have credit problems, which was a major concern for his company. Similarly, a textile mill producer said that he had not yet seen reorders from retailers and that credit was very tight for his customers, and a manufacturer noted that his customers could not get financing for wind turbine projects. A producer of machinery indicated that he was starting to see material-based price increases (such as in steel- and petroleum-based goods), while a producer of automobile upholstery said that the increase in demand for automotive parts had consumed much of the excess capacity for raw material production. A door manufacturer observed that competitors continued to fight over any piece of business, resulting in an inability to raise prices to cover higher material costs. Accordingly, contacts reported that prices paid increased at a quicker pace, while finished goods prices changed little.

Lending activity in the Fifth District was virtually unchanged from our last report, with the residential sector still providing most of the positive news. However, there was also a smattering of encouraging reports from the consumer and commercial sectors. Residential lending continued to be bolstered largely by first-time homebuyers seeking tax credits, with gains often limited to the low end of the housing market. One banker also noted an increase in home equity loan use over the last several months and another reported some improvement in consumer loan delinquencies. A major regional bank reported an uptick in small business loan demand, mostly for financing inventory, but also for a limited amount of plant and equipment spending. Loan demand from large businesses, however, remained mostly stable. Finally, most banks reported no change in credit standards, while a few cited modest tightening.

Real Estate
Real estate agents across much of the District reported further improvements in house sales in recent weeks, and most cited the government's tax credit program as the driving force. A Virginia agent reported very good sales and expected this trend to continue as a result of the extension and expansion of the tax credit program. Likewise, agents in North and South Carolina reported year-over-year sales increases. In contrast, a Richmond Realtor reported a significant drop in house sales, due to the concern that loan approvals would not be completed before the government's tax credit program was expected to expire on November 1. House prices generally continued to decline since our last report. Houses priced in the lower bracket remained the best sellers across much of the District. However, at least one Realtor in Asheville, North Carolina reported middle- and higher-priced houses as among the best sellers in his market.

Fifth District contacts reported that demand for commercial real estate remained depressed over the last month. Several agents noted that inquiries from potential clients often "burn out" quickly due to a lack of confidence in the economy. However, few contacts were seeing conditions actually getting worse since our last assessment, and scattered reports of modest increases in leasing activity were noted. Most of such improvement, however, was limited to downsizing of office and retail space, as lower rental prices and weakness in demand motivated tenants to relocate. Vacancy rates remained high throughout the District and were still rising, but several real estate agents noted some reductions in areas dominated by health and education services.

Tourist activity was mixed since our last report, mostly due to severe weather effects in recent weeks. Heavy storms battered coastal areas along the Outer Banks of North Carolina and Virginia during the second week of November, causing damage to some coastal hotels and widespread cancellations of hotel reservations. A contact from the Outer Banks said that a string of approximately 10 oceanfront houses partially collapsed after being pummeled by the surging ocean. Tropical Storm Ida swept away most of the major north-south road on Hatteras Island, which is now accessible only by four-wheel drive vehicles. Bookings on the Outer Banks were expected to be "pretty weak" for the week of the Thanksgiving holiday, as clean-up will require considerable time. In contrast, a manager at a ski resort in Virginia reported that bookings for the Thanksgiving holiday were somewhat stronger than a year ago, and that the recent abundance of rainfall would enhance snowmaking capabilities in early December.

Temporary Employment
Fifth District employment agents reported generally stronger demand for temporary workers in recent weeks. Much of the improvement was based on the anticipation of increased sales over the holidays. In contrast, one contact stated that diminishing company and local government budgets and slower retail demand for merchandise for the upcoming holidays were expected to cause weaker demand for temporary workers. Skills in greatest demand were IT, distribution center workers, sales and office support, and nurses aides/assistants.

Remnants of Tropical Storm Ida coupled with a November "nor'easter" brought heavy rain, strong winds, and flooding over the eastern half of the District. With the exception of West Virginia, fieldwork came to a halt as excessively wet conditions delayed harvest progress in most areas of the District and caused varying degrees of crop damage. In Maryland and North Carolina, wet weather hampered soybean harvesting and wheat planting, while cotton, soybean, and peanut growers in South Carolina expressed concern about quality. In the Virginia Beach area, flooded rivers, ditches, and low-lying fields meant that many recently planted wheat fields needed to be replanted. Virginia health officials closed fishing in all Chesapeake Bay tributaries and temporarily banned harvesting of oysters, clams, and scallops due to potential contamination from storm waters.

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Last update: December 2, 2009