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Federal Reserve Districts

Fifth District--Richmond

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Economic activity improved in the District over the last four to six weeks. The manufacturing sector posted solid gains in December, with many firms citing strength in both orders and shipments. Retailers in the District reported a spike in December sales, along with a marked increase in foot traffic. Modest revenue growth continued at most services firms. Tourism in the District benefited from an early start to the skiing season. The banking sector reported moderate improvements in business loan demand, particularly for industrial equipment. Contacts at temporary employment agencies stated that demand was flat to up slightly. While residential real estate activity was mixed, several commercial Realtors cited a pickup in sales activity, but commercial construction continued to be weak.

Manufacturing activity posted solid gains in December, building on a pickup in October and November. A chemical producer indicated that shipments continued to improve and he expected his operating rate to be at 95 percent of capacity over the next year. He also expected exports, a major part of his recent business gains, to improve further in 2011. An auto-parts supplier said that demand from auto manufacturers continued to exceed initial forecasts, resulting in material shortages and higher supplier costs. A machinery manufacturer noted that his automotive business remained very strong and he anticipated additional strengthening in 2011. He pointed out that other industrial businesses were also picking up nicely. A building materials manufacturer reported that orders were surprisingly strong compared to three months ago, which he attributed at least in part to inventory restocking. Survey contacts reported that prices of raw materials grew at a somewhat quicker rate than in our last report, while prices of finished goods were little changed.

Port-related activity in the final months of the year was somewhat mixed, but remained generally above year-ago levels. A port contact reported that imports from Asia provided most of December's year-over-year increase in volume traffic, while exports held steady. Another port official stated that exports of both bulk and container goods remained strong and noted that the weak dollar helped support commodity exports to Europe. Overall, however, both imports and exports of commodities and finished goods slowed a bit over the last month. Some of the slowdown on the import side was attributed to weakness in the local economies, with retail goods from China accounting for much of the slowing but apparel goods from South America still holding up well. However, a container shipper described the volume of his goods both into and out of ports as "firm and solid, but not booming." And a railroad official stated that his port-related freight volumes were running a little stronger than a year ago, but noted that he did not see the usual growth in traffic during November over the previous month.

District retailers reported a surge in December sales, particularly for groceries, toys and apparel, according to our recent survey. Several managers at chain discount stores reported solid sales leading up to Christmas. In addition, retailers indicated that Black Friday sales were brisk at big-box stores, as media attention helped pull in customers, but Cyber–Monday also brought a big jump in online sales. One exception was big-ticket sales, which continued to languish particularly for items driven by home sales, such as furniture, according to our latest survey. A central Virginia retailer told us that Black Friday left the local cluster of small shops "looking like a ghost town." However, a new promotion, "Small Business Saturday," bolstered sales that weekend. Retail merchants reported that customer buying patterns have changed; a furniture store owner commented that three out of four of her in-store customers had first browsed the store's website or called for product information. Although snow fell in many areas across the District in mid-December, most roads were clear on the Saturday before Christmas and, thus, the weather did not hinder shoppers. Retail price growth slowed compared to a month ago, according to our latest survey, while average retail wages grew more quickly.

The District's non-retail services firms generally improved in December from a month earlier. Revenues rose at most services firms, according to recently polled contacts. Demand picked up at trucking firms, and Virginia airports reported increased passenger travel. Telecommunications firms also noted stronger revenue growth. However, demand for healthcare services was little changed since our last report. Several contacts cited difficulty getting business loans. According to participants in our latest survey, price growth eased slightly at services firms, and average wages also moderated somewhat.

Loan demand in the District continued to improve at a slow pace across most market segments over the last six weeks. One banker noted an uptick in demand for industrial equipment loans, particularly from auto suppliers in the District. Loan demand for autos (notably from fleet purchasers) also picked up. However, the banker also added that consumer demand--excluding auto loans--was flat at his bank, with most new applications being primarily for home improvement projects. Another banker, who reported an increase in consumer loan demand over third-quarter levels, did not expect demand to fade after the holidays. In Richmond, a loan officer stated that consumers were more confident about submitting loan applications, particularly for renovation loans. A regional commercial banker reported improvement in small business lending, especially for equipment leases; she also noted that her bank experienced an increase in SBA loans. While most lending officials reported strong demand for home refinancing, a Richmond banker also cited an improvement in home purchase applications. Only in West Virginia, which lagged in entering the recession, did a banker report that loan demand around the state was still "awfully soft" across most market segments over the last six weeks, and added that there was very little in the pipeline.

Real Estate
Residential real estate activity around the District was mixed over the last six weeks. A Maryland contact reported that sales were down compared to a year ago, but also noted an increase in permits (mostly multi-family). However, a contact in the Charlotte, North Carolina area stated that real estate was flat across the board. Several contacts said that problems getting appraisals approved on a timely basis had reduced sales by discouraging potential buyers and had also increased transaction costs. Several real estate agents in other areas reported that housing had started to move, although at deeply reduced prices. Sales activity varied by price range around the District, with most contacts indicating that sales were concentrated at the low end of the price range. Contacts generally reported that prices were either stable or still declining, although one contact stated that prices in his area were rising moderately.

While commercial real estate activity remained weak throughout the District, reports of modest improvement increased since our last report. For example, a Realtor in the Research Triangle area of North Carolina reported that property sales were moving briskly, although partly because prices were low. Contacts indicated that leasing activity in the area also improved, particularly at locations that already had relatively high occupancy rates. Apartment construction edged up, according to District reports, particularly in the Washington, DC area. A survey of construction contractors showed an even split among increasing, decreasing and no change in activity over the past six weeks. Most respondents noted little change in credit availability, with many still having difficulty obtaining credit. Moreover, price pressures remained intense, with most indicating that not only were materials prices increasing but also that intense competition, even for small projects, was squeezing profit margins.

Labor Markets
Employment activity in the District was generally stable to somewhat stronger in recent weeks. Several firms reported cautiously hiring back employees as the economy improved. Several small retailers in the Richmond area reported that holiday hiring was limited this year; some hired fewer seasonal employees and extended hours for permanent personnel. However, several contacts noted that fewer staff often meant increased theft. Several employment agencies stated that demand for temporary workers was at least stable or stronger than six weeks ago. A temporary employment agency in the Charlotte area reported an uptick in requests from small- and medium-sized firms, whereas previously only large firms were hiring. In contrast, an executive search firm stated that employment activity had stalled in October and had not yet picked up.

Assessments of tourist activity remained mostly positive since our last report. Managers at ski resorts in Virginia and West Virginia characterized demand as somewhat stronger than at this time a year ago, as unusually cold weather got the ski season off to an early start. A market analyst reported that the Baltimore area was experiencing its best tourist activity in at least three years. A contact in Myrtle Beach reported a modest increase in resort bookings and noted that tourists were spending more at local shops than a year ago. A contact from the Outer Banks of North Carolina, however, described tourist demand as somewhat weaker than a year ago and characterized holiday spending by tourists on gifts and food as flat to down from a year ago.

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Last update: January 12, 2011