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Federal Reserve Districts

Fifth District--Richmond

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Economic activity improved across the Fifth District since our last assessment. Retail sales improved, despite weak sales of big-ticket items. Manufacturing activity continued to advance, as evidenced by further increases in shipments and orders. House sales showed some improvement, although prices continued to edge downward, and commercial leasing also experienced a slight uptick over the last six weeks. Tourist activity improved, with bookings showing moderate strength at both mountain and coastal resorts. While activity in both the service and banking sectors remained mixed, positive reports were more prevalent than in our last assessment. Labor markets were weak throughout the District, with steady employment in manufacturing and falling employment on the retail side of the service sector. Moderate price increases were reported in both manufacturing and service sectors. Finally, excessive dampness delayed the planting of crops in most areas of the District.

Retail sales rebounded since our last report, owing in part to a slower decline in big-ticket sales. The store manager at a central North Carolina chain department store said sales were "coming out of the doldrums," and Easter sales were especially strong this year. Weakness in big-ticket sales was mitigated by early tax refunds, as consumers bought furniture and flat screen televisions. Also, as the unusually snowy winter ended, sales of seasonal outdoor items such as lawn mowers, improved. A contact at a Washington, D.C., beltway department store reported that sales were 6 percent above a year ago and that his counterparts at local mall stores also saw improved sales growth in recent weeks. The pace of District grocery sales rose in recent weeks, although a Virginia food distributor noted rapid increases in input prices for many product categories. Sales of automobiles and light trucks were mixed; in the Carolinas and West Virginia, dealers reported stronger business, while sales remained tepid elsewhere in the District. In contrast, a few contacts were less confident a retailer in West Virginia told us that customers remained cautious about spending. Retail prices edged up slightly since our last report.

Reports from non-retail services firms were mixed. A contact at an advertising business reported, "We expect to bounce along the bottom for some time," and an executive at a North Carolina property management business said, "The repo man is busy." While a hospital in the Piedmont area cut employees, blaming the weak economy, another North Carolina hospital executive said previously planned capital projects were going forward. In addition, professional, scientific, and technical firms across the District indicated that business had picked up in recent weeks. Price change at services-providing firms was virtually flat.

District manufacturing advanced somewhat faster since our last report. A majority of the contacts reported that shipments posted gains and new orders continued to increase, while employment stabilized. A producer of electronic components reported that his company had seen a nice order "bump" in March, providing a strong order backlog going into April. Moreover, a manufacturer of door components noted an unusual confluence of events currently driving his business. "The earthquake in Chile and subsequent halt on shipment of products from that country has resulted in a sharp run-up of demand for domestically produced wood products, with pricing escalating dramatically as well." Similarly, a ball bearings manufacturer indicated that demand from the automotive industry continued to be very strong, but noted that steel pricing was growing at an alarming rate and freight costs, particularly on ocean freight, were up dramatically. Accordingly, most contacts reported that both raw materials and finished goods prices increased at a quicker pace since our last report.

Port activity over the last few months was up slightly. Both imports and exports posted moderate gains, although exports tended to outperform import gains. While the dollar was seen as a contributing factor, most contacts attributed gains in exports primarily to improvements in overseas markets. One contact stated that exports would have been even stronger if the right mix of containers had been available. However, shipping costs increased in recent months, which discouraged some companies from exporting. One contact also reported that total tonnage so far this year was down from the fourth quarter of last year, partly due to adverse weather that prevented producers from getting their goods to the docks.

Banking activity was generally mixed, but with more signs of improvements than in our last assessment. On the commercial and industrial side, weak loan demand prevailed in most local markets, although several bankers reported modest improvements. Upticks in loans for new equipment, especially upgrades by professional services, were also noted, and one banker cited an increase in SBA loans. Auto dealers, however, continued to struggle to get floor-plan financing, and construction loans were down. On the mortgage side, reports of loan demand varied between no change and modest increases. Refinancing activity was important in some markets, but rising mortgage rates were curtailing refinancing in others. First-time buyers continued to dominate loan applications. One banker reported an increase in lending on foreclosed homes, and added that very few home loan applications were for upgrades. Credit quality was little changed in recent months, and banks were about evenly split between reporting increases and decreases in delinquent payments.

Real Estate
Residential Realtors in the District gave generally upbeat reports on house sales. While the tax credit program remained the single most important motivating factor, one Realtor told us that sales over the past three months had outweighed all of his 2009 sales and that only 18-20 percent of the buyers had taken advantage of the tax credit. House prices were mixed across the District. For example, prices rose in Fairfax and Greensboro, held steady in Greenville, and were relatively flat in Richmond. Notable decreases in prices were reported in Washington, D.C., where a significant increase in sales of lower-priced properties were reported, and in Fredericksburg, where a Realtor stated that, "banks seem to be willing to take anything within reason to reduce their holdings of foreclosed properties."

Commercial real estate activity picked up slightly since our last report. Most contacts generally reported an uptick in leasing activity, particularly in the office and industrial sectors, while activity in the retail sector remained sluggish. Effective rental rates decreased somewhat as landlords became more aggressive in offering concessions. Vacancy rates were generally high, although vacancy rates in some local markets did improve. Sales activity continued to be hampered by stringent bank requirements and a scarcity of creditworthy buyers. However, one contact reported that property sales increased somewhat due to foreclosed properties being purchased at very low prices. While contacts reported very little new construction over the past few weeks, some activity was reported on the industrial side for some build-to-suit projects and some bidders continued to submit proposals at low or no profit just to keep their doors open.

Assessments of tourist activity improved somewhat since our last report. Along the coast, contacts noted somewhat stronger bookings, compared to our last survey. An analyst on the Outer Banks of North Carolina said that bookings for the Easter weekend were looking good with advanced rentals up 10 percent over last year. A manager from Myrtle Beach indicated that last-minute bookings had picked up, which he attributed to the recent warm weather and steep discounts on special packages at most hotels. Managers at mountain resorts throughout the District reported one of their best ski seasons ever--both in terms of business activity and revenues--and mentioned that vacationers were booking early and staying close to home. Finally, the 98th annual National Cherry Blossom Festival in Washington, D.C., is off to a good start and is expected to attract record crowds.

Labor Market
Fifth District labor markets remained soft over the past several weeks, but declines in some sectors eased. Job cuts subsided at retail businesses, and employment was unchanged at most other services firms as well as in manufacturing. A West Virginia automobile dealer increased hiring, and a retailer reported that he was only replacing workers, but continued to give raises. Average wages edged higher in March in the service sector, but declined slightly in manufacturing. Contacts at temporary employment agencies reported generally stronger demand for temporary help since our last report. Reports from some agency clients indicated that, while they saw an increase in business, they remained unsure how long it would last and opted to continue using contingent labor. However, one temporary agency reported that clients were now filling positions that had been eliminated at the depth of the economic downturn.

Although drier weather prevailed in recent weeks, wet fields continued to hinder plantings and field preparation in many areas of the District. Indications of delayed fertilization of winter grains and forage seeding were evident in some areas. In Virginia, grain farmers attempted to fertilize their wheat and barley fields, but were forced to wait for drier weather. In addition, hay was still being fed to livestock in many areas of the state. Nevertheless, winter wheat was reported to be in mostly fair-to-good condition in South Carolina and West Virginia. In addition, drier weather during the first week of April allowed farmers in South Carolina to plant corn at a rapid pace. Finally, results of our recent survey of agricultural credit conditions indicated that farmland values were above the previous quarter and year-ago levels.

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Last update: April 14, 2010