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Federal Reserve Districts

Fifth District--Richmond

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Fifth District economic activity expanded at a somewhat slower pace in January and February as modestly higher growth in manufacturing and tourism was tempered by weaker growth at services firms and nearly flat retail sales. District services firms reported that their revenues rose more slowly since our last report, while retailers said that their sales leveled off. Manufacturing increased at a slightly stronger pace as new orders picked up in January and shipments increased somewhat in February. District real estate agents continued to describe housing markets as vibrant and bankers said lending increased in most categories. Reports on tourism were upbeat, characterizing tourist spending as strong and noting that some District hotels were booked to capacity in February. Turning to prices, contacts indicated that increases for most final goods and services remained modest, despite higher raw material prices in the manufacturing sector. In agriculture, small grains crops were in good condition and land preparation for spring planting was underway in the District's southern reaches.

Services businesses reported that their revenues rose at a more moderate clip in January and February. District freight transportation contacts generally said that their business was steady, while respondents at health systems and hospitals in North Carolina, Virginia, and West Virginia gave mixed reports on the strength of demand for health services. The president of a Washington, D.C., firm providing training in foreign languages reported "some new business, but not much." Contacts at several catering services noted particularly slow business in part because of fewer requests from corporate clients. Wage growth softened at services firms, although our contacts noted that hiring picked up. Prices in the sector continued to rise at a modest pace.

District retailers reported that their sales leveled off in February. A contact at a department store in the Washington, D.C., area said their sales were little changed and indicated that customers were increasingly looking for "clearance deals." A manager at a department store in central North Carolina also described sales as relatively flat. Adding to the dull tone, sales of big-ticket items also remained sluggish. Automobile dealers in southern Maryland and in the Tidewater area of Virginia reported softer sales, while dealers in central North Carolina and western Virginia said their sales were little changed. Retail hiring generally slowed although wage growth picked up somewhat. Prices in the retail sector rose only modestly in January and February.

District manufacturing activity expanded at a somewhat stronger pace since our last report. New orders picked up during the January/February period, and shipments moved higher in February. Among industries, manufacturers of apparel, lumber and wood products, and furniture reported the strongest growth in shipments. A furniture maker in Sumter, S.C., for example, said shipments and new orders were both higher in February, while a counterpart in Hagerstown, Md., told us that their order backlog was "keeping them busy." A plastics manufacturer in North Carolina was also upbeat. "Our level of activity is good and backlog is higher than it's been in years," he noted. But prices of raw materials rose at a quicker pace and several respondents suggested that higher raw materials costs were squeezing their profit margins.

District loan officers reported somewhat stronger loan demand since our last report. Bankers said that commercial lending increased moderately and that lending for capital spending and commercial real estate investment had picked up. A banker in Charlottesville, Va., said that the local economy continued to improve and he expected to "put a lot of [commercial] loans on the books" in the next few weeks. In addition, a Charlotte, N.C., contact reported that commercial lending had been "very strong" in that area. Residential mortgage lending was moderately higher as well, although mortgage refinancing activity was light. A banker in Richmond, Va., said that home mortgage lending rose in recent weeks and that he expected to see a decent market in coming weeks since mortgage interest rates remained "pretty good."

Real Estate
Fifth District real estate agents told us that the demand for housing remained strong. An agent in Odenton, Md., said that the previously "overwhelming" local market was now "more subdued," but noted that people were still waiting in line to grab residential lots as they became available. In Richmond, Va., a real estate agent described January and February sales as "great." He added that the housing market continued to "steam ahead," and complained of a shortage of inventory. In the Washington, D.C., area, a contact reported a very "positive housing market" with multiple offers on properties still common. He predicted home sales in the Anacostia area of the city would rise sharply over the next five years if a proposed new stadium for the Washington Nationals baseball team is constructed there. Home prices continued to rise in most areas of the Fifth District.

Commercial real estate agents reported that leasing activity increased only modestly during the first two months of 2005. "Things have been pretty much status quo since the first of the year. However, we anticipate a busier spring," noted a contact in Raleigh, N.C. Industrial leasing remained a weak spot in January and February, while office and retail leasing was generally flat outside of the Washington, D.C., market. In the Washington, D.C., area, strong job creation continued to underpin brisk growth in office leasing, and contacts reported that demand for investment properties continued to outstrip supply in that area. Commercial leasing agents noted that rents "held steady" during recent weeks and that office and retail vacancies edged lower. While construction activity has been generally quiet throughout the Fifth District since the first of the year, a contact in Charlotte, N.C., reported plans for two new downtown bank buildings.

Tourism activity strengthened since our last report. A manager at a ski resort in West Virginia described the Presidents' Day weekend as the busiest in the history of the resort. A counterpart at a Virginia lodge noted that the number of skiers was down slightly because of the unusually warm weather, but said that sales of time shares were up. Tourism along the coast was also stronger. A contact in Myrtle Beach, S.C., reported significant increases in bookings for both Valentine's and Presidents' Day weekends--he added that many hotels were turning business away because they were booked to capacity. On North Carolina's Outer Banks, spring-like weather boosted holiday bookings and tourist spending.

Temporary Employment
Fifth District temporary employment agencies reported somewhat stronger demand for workers in January and February. An agent in Raleigh, N.C., said continued recovery in the local economy had boosted demand for workers from his agency. A Northern Virginia agent reported that a number of companies in her area were downsizing and would likely need additional temporary employees as substitutes for permanent staff. Across the District, workers with administrative and sales skills and those with distribution and warehouse experience were most highly sought.

Weather conditions across the District varied widely during most of January and February as periods of mild, dry weather were followed by periods of ice and snow. Farming activity in North Carolina and Virginia was limited at times by the cold weather. But warmer weather in parts of South Carolina led to earlier-than-usual land preparation in that area. In addition, respondents reported that small grain crops were in good condition in most areas of the District.

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Last update: March 9, 2005