April 24, 2002 Federal Reserve Districts Fifth District - Richmond

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The Fifth District economy expanded at a modest pace in March and early April, led by solid growth in the manufacturing and retail sectors. At District manufacturing plants, shipments and new orders expanded for the third consecutive month in March. In addition, shopper traffic picked up and sales grew moderately at retail establishments, despite continued softness in big-ticket purchases. The services sector lost some traction in recent weeks--revenues and employment were little changed since our last report. Home sales remained strong in most areas of the District and office and retail leasing activity picked up. Bankers reported that loan demand was generally stable but noted that residential mortgage refinancing activity waned as mortgage interest rates ticked up. Employment continued to trend downward in manufacturing, and grew at only a modest pace in most other sectors. In agriculture, spring rainfall brought relief to parched cropland, but unusually cold weather damaged small grains in some areas. Retail Retail sales rose at a moderate pace in March and early April, while employment in the sector held steady. Automobile dealers reported that sales were generally flat to modestly higher. An auto dealer in the Tidewater area of Virginia, however, said that the departure of military personnel from the area had reduced his sales. Retail stores, including big-box and smaller department stores, reported modest revenue growth, despite somewhat sluggish sales of big-ticket items. Employment in the retail sector stabilized in recent weeks, after having fallen in February. Services Services businesses reported little net change in revenues and employment in the weeks since our last report, although individual businesses' experiences differed. Contacts at several hotels in the District said that demand for hotel rooms for business travel had increased and that they had hired additional staff. A hotel manager in Charlotte, N.C., said that conference bookings were substantially higher. A caterer in Charleston, W.V., reported demand for catering services for business functions had increased, resulting in more hiring and equipment purchases. Along a different line, a contact at a North Carolina media company reported growth in advertising revenue for the first time in a year--a situation he described as, "too good to be true." Not all reports were rosy, however. A healthcare services organization in central North Carolina said hiring was flat, other than for difficult-to-fill high-tech positions. Businesses dependent on federal government contracts also reported little additional hiring, in part because of uncertainty regarding federal budgets. Manufacturing District manufacturing activity expanded in March for the third straight month. Manufacturing contacts reported strong growth in shipments and new orders--the textiles and apparel, paper, and printing industries reported that shipments growth was particularly strong. A textiles manufacturer in North Carolina said that his company's shipments and new orders were higher in March and noted that its plants were operating "seven days a week, 24 hours a day." He said demand was boosted partly by a resurgent economy but also by the bankruptcies of several competitors, giving his company more market share. Textile industry contacts who produce upholstery also noted that demand had been higher than expected in recent months--a North Carolina respondent said that his plants had been "running more hours" as demand for home furnishings picked up. A contact at a paper company in Charlotte, N.C., said that his business activity had picked up as many of his customers reported increased product demand. Manufacturing employment declined in recent weeks, but at a slower pace than earlier in the year. Finance District loan officers reported generally steady lending activity in the weeks since our last report. According to commercial lenders loan demand remained sluggish in March and early April, but they were somewhat more optimistic about lending prospects in coming months. A commercial lender in Charleston, S.C., told us that his clients continued to curtail or delay capital spending plans, although he said that in recent weeks there were signs of an increase in planned capital spending. A banker in Richmond, Va., for example, said that companies were reevaluating projects that had been put on hold. She noted also that in the aftermath of September 11, government contractors in Northern Virginia involved with security or national defense increased their borrowings. In mortgage markets, residential lenders said that loan demand continued to be fairly strong; one noted, however, that the "bloom was off the rose" in refinancing. In addition, a Greenville, S.C., banker said that demand had dropped from "extraordinarily strong" to just "strong," because of slackening refinancing activity. Real Estate Residential realtors and homebuilders reported strong growth in home sales since our last report. A Washington, D.C., realtor said his agency was experiencing the best sellers' market ever, particularly for higher-priced homes. A homebuilder in the Tidewater region of Virginia told us that sales were "going gangbusters," with exceptionally strong activity across all price ranges. A real estate agent in Richmond, Va., also reported that home sales were doing well across all price ranges and said that prices were escalating rapidly. A realtor in Greensboro, N.C., however, was less sanguine, noting that while "homes were selling," realtors were cautious about prospects for future home sales if mortgage rates rise further. Several builders reported upward pressure on lumber prices and labor costs. Commercial realtors reported generally stronger leasing activity across the District in recent weeks. The largest gains occurred in the office and retail sectors, while one contact described the industrial sector as just "chugging along." Despite the recent rise in activity, vacancy rates continued to edge up across all commercial sectors; a Cary, N.C., realtor noted that the market was "draining faster than it was filling." Rental rates per square foot weakened across all commercial real estate sectors, and a contact in Greenville, S.C., reported that property owners were still offering brokers incentives such as vacations, golf clubs, and in one instance, a Harley-Davidson motorcycle, to attract interest in their properties. While there were scattered reports of new construction in the office and retail sectors, construction activity remained generally flat in the industrial sector. Tourism Tourism strengthened in March and April. A contact at a mountain resort in West Virginia told us that the ski season broke records for both revenues and visits. Respondents on the Outer Banks of North Carolina and in Myrtle Beach, S.C., reported that tourist activity in recent weeks had been very steady, in part because of warm weather and an early start to the spring tourism season as a result of Easter falling in March. Bookings for summer home rentals in beach areas were reported to be extremely strong. In Washington, D.C., tourism leaders said that the city's hospitality industry was showing signs of recovery. They noted that the hotel occupancy rate in March was 85 percent--only 4 percentage points below the rate of a year ago. In addition, the National Cherry Blossom Festival held in March and early April in Washington, D.C., attracted approximately 700,000 visitors, about the same as last year's attendance. Temporary Employment District temporary employment agencies reported somewhat stronger demand for workers since our last report and generally expected demand to strengthen further over the next few months. A contact in Charlotte, N.C., noted that a rebound in the local economy had prompted some area companies to rehire staff. Likewise, an agency contact in Hagerstown, Md., said he was "seeing signs of improvement" in the demand for workers because of a stronger economy there. Most agency contacts, however, continued to report some difficulty in securing clients. Agriculture After a mild, dry winter, moderate rainfall in late March and early April improved soil moisture conditions in most areas of the District. Corn planting was underway and on schedule in some counties in Virginia and nearly completed in parts of South Carolina. Pastures responded to rainfall in North Carolina, reducing the need for supplemental feeding in that state. Cool and windy conditions in Virginia, however, slowed pasture growth causing farmers to continue supplemental feedings. But some weather-related problems persisted. A cold snap in early April slowed the development of peaches, apples, and strawberries in Maryland, and injured small grains in Virginia. Return to top Cleveland Atlanta