March 3, 2004 Federal Reserve Districts Fifth District--Richmond

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The pace of Fifth District economic growth quickened somewhat in January and the first three weeks of February as the expansion of manufacturing picked up and growth in other sectors remained moderate. Factory shipments and new orders expanded faster at many manufacturing firms, including some in the beleaguered textile and furniture industries. Outside of manufacturing, District retail and services firms recorded moderately higher revenues and employment in recent weeks. In real estate markets, residential activity remained at an elevated level and commercial leasing activity was flat in most markets. District bankers reported only modestly higher loan demand as businesses' capital spending remained light. In agriculture, unusually cold and icy weather slowed the development of small grain crops and pastures in some areas of the District. Retail District retailers generally reported stronger sales growth since our last report, despite periods of snowy weather. A general merchandise retailer with stores throughout the District said sales growth was at the high end of their projected range. Electronics and spring apparel sold briskly and shoppers who redeemed gift cards typically spent more than the card amount. According to a contact at a large home-improvement chain, their sales growth continued to exhibit momentum. A hardware store contact in central Virginia said he had also seen an increase in demand. But contacts in some areas noted sluggish activity. Sales at department stores in central North Carolina and coastal South Carolina were unchanged over the last six weeks. Services District services firms reported steady to somewhat improved business conditions in recent weeks. Contacts at two North Carolina healthcare organizations said demand had been unchanged over the past six weeks; one described the local economy as "steady, but tenuous" because of the large number of unemployed textile workers in the region. Information technology businesses in South Carolina and West Virginia reported a slight increase in business, while an IT firm in Maryland characterized demand as flat. Adding to the positive tone, nationwide freight haulers headquartered in the Fifth District reported some increase in demand. Although most services businesses said they had not increased hiring in recent weeks, professional recruitment firms in the Washington, D.C., area reported boosting their staffs because their clients were "coming out of hibernation." Manufacturing District manufacturing activity picked up in January and early February. Shipments rose at a quicker pace and new orders expanded further, led by increases in the chemicals, furniture, industrial machinery and textile industries. A textile producer in North Carolina said that business improved in January noting that--despite operating their plants six days a week--his firm's inventories could not keep pace with orders. A furniture manufacturer in North Carolina told us that orders for residential furniture were somewhat stronger, but noted that commercial business remained soft. Despite a general rise in factory output in January, manufacturing employment in the District declined again. On the price front, several textiles and apparel producers indicated that raw materials prices were rising, but said their ability to pass on price increase to customers was limited because of import price competition. Finance District bankers reported only modest growth in loan demand in January through mid-February. Demand for commercial loans picked up in a few areas, but bankers noted that with lackluster capital spending, businesses continued to have little need to borrow. A Richmond, Va., banker, however, reported increased borrowing for merger and acquisition activity and noted that borrowing by defense contractors had increased appreciably. A dip in mortgage interest rates stimulated residential mortgage lending, including some refinancing activity. A mortgage lender in Richmond, Va., reported that loan demand was fairly strong in recent weeks and that housing was "doing well" in the area. A banker in Greenville, S.C., however, was less upbeat, noting that recent job layoffs had cooled mortgage lending in that market. Real Estate District realtors continued to report a generally strong housing market, although the pace of growth in some areas slowed since our last report. A realtor in Odenton, Md., said home sales had been brisk, albeit a "little quieter than before," while a contact in Greenville, S.C., characterized sales as "slowing, but still above average." In contrast, several markets in Virginia remained exceptionally strong. A realtor in Virginia Beach, Va., said the market was "still hot" and an agent in Fairfax, Va., reported that houses for sale continued to receive multiple offers; in one case 30 offers for a single listing. In Fairfax County, Va., prices "shot up another 5 percent" in just the past few weeks. Residential builders in the Baltimore, Md., and the Tidewater, Va., areas noted that land prices were rising rapidly and said that area builders were searching for more affordable land outside their primary markets. A contact in Charlotte, N.C., said new infrastructure had to be added to allow home construction in some areas, causing land prices to increase. According to commercial realtors, leasing activity in the Fifth District was flat outside of a couple of metropolitan markets. Contacts in Baltimore, Md., Charlotte and Raleigh, N.C., and Richmond, Va., reported no significant change in industrial, office, or retail leasing during recent weeks. In contrast, realtors in the Washington, D.C., metropolitan area said they had been "extremely busy" since the holidays. Office leasing was particularly brisk in the D.C. metropolitan area, driven largely by firms undertaking long-awaited expansions. Commercial realtors in Roanoke, Va., also enjoyed a busy beginning to 2004. A contact there reported that "office activity was up for the first time in fifteen months" and that retail leasing had been particularly strong. Overall in the District, rents for all types of commercial space were stable and vacancies generally unchanged. Tourism Tourism strengthened further since our last report. Contacts at several District ski resorts told us that unusually frigid weather in January and February resulted in a wonderful ski season. They said that bookings for the Presidents' Day weekend were somewhat stronger than last year and noted increased spending at restaurants and for recreational equipment. Tourism along the coast was also stronger. A hotelier at Virginia Beach reported that they were completely booked over the holiday weekend. A contact in Myrtle Beach, S.C., added that hotels there were at 90 percent capacity even with the bad weather and that the local airport had its busiest January ever. Temporary Employment District temporary employment agencies generally reported modest increases in the demand for workers since our last report. Agents in Raleigh, N.C., and Hagerstown, Md., said that demand for customer service and sales staff was particularly high and that demand for workers would likely rise over the next few weeks because of an improving economy. The Hagerstown, Md., contact expected upward pressure on wages for temporary workers if economic growth continues to strengthen. Agriculture Frigid temperatures coupled with ice and snow limited grazing on District pastures during late January and early February. As a result, farmers in Maryland and Virginia increased the feeding of hay and grain to their livestock. Hay supplies were described as sufficient but the quality was below average. In Virginia, contacts noted that late planting, inadequate topsoil moisture, and extremely cold temperatures impeded the growth of small grain crops. In contrast, small grains were generally in fair to good condition in Maryland and the Carolinas. Return to top Cleveland Atlanta