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Federal Reserve Districts

Fifth District--Richmond

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Economic activity in the Fifth District expanded at a moderate pace in late August and September, as firmer factory output and somewhat stronger store sales were balanced against a continued weakening in housing markets. Manufacturing shipments and new orders rebounded in September following a soft patch in August. Retail sales increased more quickly outside of housing-related categories and domestic automobiles. Revenues at services firms continued to expand on pace with a notable pickup at computer-related businesses. Both construction and sales of houses softened further in most markets, though activity edged higher in a few areas. In banking, mortgage lending weakened, while commercial lending was steady. Tourist activity was temporarily dented in early September by Hurricane Ernesto, but held up in areas away from the coast. Labor markets remained generally tight, with hiring increasing modestly at factories and services firms. Skilled workers remained difficult to find, and some upward wage pressures were noted. Price pressures were more pronounced in manufacturing, but the pace of increase moderated in the services sector. In agriculture, substantial crop damage was inflicted by Hurricane Ernesto in early September, but subsequent weather conditions have been favorable for harvesting activity.

District contacts reported that home-related sales slowed, though retailers in other categories said their sales grew more quickly in late August and September. Executives at two building supply chains told us sales growth at District stores eased as new residential construction softened. The pace of sales also cooled at furniture and home accessories stores in central Virginia, according to an industry contact in Richmond, Va. In contrast, a contact at a chain department store reported increased sales growth at District locations. Additionally, the manager of a chain department store near Charlotte, N.C., said sales at his store have been "going strong," as area manufacturing jobs expanded. In the eastern panhandle of West Virginia, the manager of a discount department store told us that the pace of sales has picked up since our last report. District automobile dealers said the overall pace of sales steadied during the last four weeks despite softer domestic automobile sales in some areas. In labor markets, retailers continued to trim employee levels, although retail wages rose sharply in the last four weeks. Contacts indicated that price growth in retail was moderate.

Revenues at service-producing firms grew more quickly since our last report. Contacts at professional, scientific, and technical firms indicated that demand strengthened over the period, particularly at computer and web-related businesses. An executive at a financial services firm in Baltimore, Md., attributed his clients' bullishness in part to the recent drops in energy prices. In addition, District airports recorded an increase in air travel, although one airport manager said more people are driving instead of flying for short trips because of the "hassle factor" of security related to air travel. Hiring at services firms picked up slightly in recent weeks; wage and price growth moderated.

Manufacturing activity picked up in September. Manufacturers told us that shipments grew briskly following a contraction in August, while new orders gained momentum and employment growth remained on pace. Contacts in the electronic, plastics, and printing and publishing industries reported particularly strong growth in demand since our last report. A printing and publishing manufacturer in South Carolina, for example, said that some firming of local economic and employment conditions helped boost their revenues. A plastics producer reported that they were "still busy with good projects," and an electronic equipment manufacturer in Maryland indicated that their sales were notably stronger than a year ago. In contrast, a producer of residential doors in North Carolina reported a substantial decrease in orders. Factory hiring expanded on pace with recent months and wages increased somewhat more quickly. Manufacturers told us that raw material prices jumped higher in September and that prices for finished goods rose moderately.

District bankers reported some softening in lending activity in September. Mortgage lending was particularly weak. A banker from Charleston, S.C., noted that "September loan volume looks like it is going to be about the same as August. Typically, we see a pickup in September, but not this year." Commercial lending, however, held up since our last report. A banker from Charleston, W.Va., for example, said that his bank was able to maintain its lending volume by competing harder. "There is a lot of hunger out there for the good deals, and we have to be more aggressive to get the new deals and keep the old deals," he said.

Real Estate
Residential real estate agents across the District noted generally slower home sales in September. A Washington, D.C., agent described that area's housing market as "horrible," adding that sales volume was down 25 percent from a year earlier. Additionally, he reported that home inventories had risen sharply and that some sellers were trimming asking prices. In Virginia Beach, Va., an agent also noted weaker home sales, saying that buyers were being more selective. Many District agents told us that inventories in their housing markets continued to rise and that buyer traffic had slowed. In contrast, contacts described the Charlotte, N.C., market as strong, and an agent in Greenville, S.C., reported good local housing market conditions. Also, a Fairfax, Va., agent reported renewed sales activity in September, though he was not optimistic that it would hold through year's end. He noted more interest by investors in purchasing properties to hold, "for a while." Modest decreases in home prices were noted by contacts in many areas, and an agent in Richmond, Va., told us that sellers were offering more incentives to prospective buyers.

Commercial real estate agents across the Fifth District reported that leasing activity remained steady in recent weeks. An agent in Richmond, Va., said that client interest and inquiries increased, though actual activity had yet to improve. A contact in Washington, D.C., however, noted a slowdown in retail leasing. He speculated that a reduction of consumers' wealth had forced area retailers to curb their expansion plans. On balance, there was little change in new construction reported across the District. In addition, little change in vacancy and rental rates was noted.

Tourist activity changed little on balance since our last report. Contacts in coastal areas said that bookings declined in early September in the wake of Hurricane Ernesto, but that activity rebounded later in the month. A contact on North Carolina's Outer Banks said that the construction of rental homes had leveled off but noted continued brisk remodeling activity. She also indicated that consumer spending had increased as gas prices declined. Contacts at mountain resorts in Virginia told us business had picked up and that timeshare sales were particularly strong.

Temporary Employment
Temporary employment agencies in the District generally reported firmer demand for workers. An agent in the metropolitan Washington, D.C., area indicated continued strong demand for temporary workers in all skill areas--especially in the warehouse, distribution, and manufacturing industries. In Richmond, Va., an agent reported that some additional strengthening in the area's economy helped boost demand for employees fluent in Spanish, especially in the transportation and healthcare industries. Most agents continued to have difficulty finding skilled workers. Temporary workers' wages remained steady across much of the District.

Tropical storm Ernesto brought much-needed rainfall to the Fifth District in early September, but hindered field work and damaged crops in low-lying fields in coastal regions. Analysts in North Carolina told us that tobacco farmers in the state lost 25 percent of their crops because of flooding from Ernesto, and incurred $76 million of crop damage across 19 counties. In South Carolina, crop and other farm damage from Ernesto was estimated at $11.5 million. In contrast, drier weather returned to the District during the latter part of September, allowing farmers to keep harvesting activity on schedule. In Maryland, farmers were beginning to harvest their soybean crops; the harvesting of corn and sowing of barley were progressing well in Virginia, and the apple harvest was ahead of schedule in West Virginia.

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Last update: October 12, 2006