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Federal Reserve Districts


Fifth District--Richmond

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The Fifth District economy expanded at a moderate pace in late October through mid November though there were increasing signs that retail sales and manufacturing were losing momentum. District services businesses generally reported solid revenue growth since our last report but retailers said sales barely increased and employment in the sector was flat. Manufacturers said both shipments and new orders expanded somewhat more slowly in October and softened in early November. Housing markets continued to show healthy growth since our last report, although the pace of expansion was less robust than in late summer. In contrast, commercial real estate conditions brightened considerably from the lackluster pace seen earlier in the year. District manufacturers continued to face higher prices for some raw materials, notably oil, gas, and steel, and contacts said that they were not able to fully pass along the higher costs. Business contacts generally reported that prices for their products and services continued to rise only modestly. In agriculture, heavy rainfall hampered harvesting activity, but contacts expected near-record corn and soybean crops.

Services
Services firms in the District continued to report increased customer demand in recent weeks, though the pace of growth slackened somewhat. A contact at a North Carolina freight company said business was steady despite their charging higher freight rates to offset increased gasoline costs. A physical therapist in Goldsboro, N.C., noted that revenues at her organization had declined in part because of a continued slow economy in that area of North Carolina. But some contacts were relatively upbeat. A financial services business in central Virginia told us clients became more optimistic as the uncertainty surrounding the timely conclusion of the U.S. presidential election was removed. In labor markets services employment expanded at a slower pace.

Retail
Reports from District retailers indicated that sales growth softened in October and early November and contacts were less optimistic about holiday revenues. A furniture store in central North Carolina and a lumber retailer in Columbia, S.C., reported slower growth in their sales since our last report. Automobile dealerships in the District generally reported little change in sales although a dealer in Norfolk, Va., and a dealer in Orangeburg, S.C., reported that sales declined in early November. On a brighter note, a manager at a large North Carolina bookstore said holiday purchases began about a week earlier than usual while a contact at a department store in the lowlands of South Carolina said current-store sales goals had been "easily met."

Manufacturing
Growth slowed in the District's manufacturing sector in October and in early-to-mid November. Factory shipments and new orders expanded at a somewhat slower pace and manufacturing employment was flat. A number of firms in the District suggested that sales were little changed from previous months; a packaging manufacturer in North Carolina said that their business was holding its own though a furniture manufacturer in North Carolina was a little more upbeat, noting that new orders were "coming in on a more steady basis." But a plastics manufacturer in North Carolina noted a "dip" in manufacturing activity and a textile producer there said business was "very seasonally slow." Prices for raw materials rose at a quicker pace in recent weeks although continued competition from abroad led many District manufacturers to hold the line on prices. An electric equipment manufacturer in Greenville, S.C., reported moderately higher prices for raw materials, noting that rapid economic development in China had spurred sharply higher demand for steel and the types of metal castings and machined parts used in his business.

Finance
District loan officers reported a modest uptick in loan demand from late October through mid November. Lenders said that demand for commercial loans picked up after the presidential election in November as uncertainty regarding the election outcome dissipated. Bankers in Charlottesville, Va., told us that borrowing to finance construction and real estate purchases strengthened considerably. Residential mortgage lending was stable in most areas of the District. A Charleston, W.V., banker reported fairly strong mortgage demand for new home purchases as the housing market there "rocked right along," but the contact said that mortgage refinancing activity remained light. District bankers reported little change in credit standards for borrowers.

Real Estate
District real estate agents reported generally strong housing markets in recent weeks, but said that growth in home sales continued to tail off. An agent in Asheville, N.C., told us his office set a record for home sales in October and a real estate analyst in the Carolinas noted that the resort and retirement markets remained strong. A contact in Odenton, Md., however, told us that homes in the low to middle-price range were staying on the market a "tad" longer. An agent in Fairfax County, Va., also reported slower growth in home sales but said that homes priced below $400 thousand still received multiple offers. Confirming strength in the Northern Virginia market, a real estate agent in Vienna, Va., said housing markets remained "hot" in all price ranges. On the price front, District homebuilders reported that increases in materials costs had slowed in recent weeks.

Commercial real estate conditions brightened throughout the Fifth District during the past six weeks. Agents stated that the recent improvement had been driven primarily by increased leasing of new retail and office space--much of it by expanding small businesses. "The calls we are getting are from people who want to take their businesses out of their homes and other small spaces and move to somewhere they can grow," noted a contact in Raleigh, N.C. Contacts also noticed "some early signals" of a recovery in industrial leasing. Realtors in Charleston, W.V., Charlotte and Greensboro, N.C., Columbia, S.C., and Washington, D.C., mentioned a rise in industrial activity. The leasing of smaller spaces called "warehouse condos" was particularly strong. Adding to the recent upbeat tone, vacancies across all sectors edged lower and rents held steady. Despite firmer demand, office and industrial construction remained stagnant while retail construction maintained its steady pace.

Tourism
District tourist activity was mixed since our last report. Contacts on the Outer Banks of North Carolina and in Virginia Beach, Va., reported little change in tourism in November. A contact in Virginia Beach said that corporate travel budgets appeared to have tightened and that customers at her hotel were increasingly making last minute reservations as a result. In contrast, a contact in Myrtle Beach, S.C., reported somewhat stronger business and indicated that tourist spending continued to grow. Reports from mountain areas were also mixed. A manager at a resort in western Virginia said that holiday bookings were above year-ago levels, while a contact in West Virginia said bookings were under pressure from higher gasoline prices which kept travelers closer to home.

Temporary Employment
Contacts at employment agencies reported firmer demand for temporary employees in recent weeks. A manager in Raleigh, N.C., said that continued economic recovery, a pick up in jobs creation, and "relief that the political process was done for this year" all led to stronger demand for temporary workers. He expected his temporary, temp-to-hire, and direct-placement business to continue to prosper. An agent in Morrisville, N.C., told us that increased marketing efforts were paying off and that placement of temporary workers was picking up there.

Agriculture
Heavy precipitation coupled with cooler weather in November delayed field work and hindered harvesting activity in some areas of the District. Cotton and soybean harvesting in South Carolina and in Virginia in particular were slowed by rainfall. Despite the interruptions, analysts expected near-record yields of corn and soybeans. Small grain crops were reported to be in mostly good condition in Maryland, South Carolina and West Virginia. In addition, the harvesting of apples and sweet potatoes was nearing completion in South Carolina. Christmas tree producers in North Carolina reported that they were in full swing for the upcoming holiday season.

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