Beige Book Report: Richmond
March 6, 2002
Fifth District economic activity advanced at a moderate pace in January and February, led by somewhat stronger growth in the retail and manufacturing sectors. Services firms reported modest increases in revenues, and sales growth at retail establishments rebounded in February after sagging in January. Manufacturers reported that shipments grew more rapidly and new orders increased substantially. In contrast, activity at residential and commercial real estate firms was little changed. Bankers reported steady demand for residential mortgages but somewhat sluggish growth in commercial lending. Employment fell in the manufacturing and retail sectors, but temporary employment agencies reported that the demand for workers picked up. In agriculture, warm and dry weather aided field preparation but stressed pastures and triggered supplemental feeding of livestock. Retail
District retailers said that seasonally-adjusted revenues fell in
January but rebounded in the first three weeks of February. Big-ticket
sales were generally higher, although automobile dealers gave mixed
reports on customer traffic and vehicle sales in February. A number
of retailers told us that they had trimmed inventories; a big-box
retailer and a manager at a home improvement center said they were
carrying lower inventories because of the sluggish economy. Retail
employment edged downward in recent weeks while average wages increased
at a moderate pace. Prices in the retail sector were reported to
be rising at less than a two percent rate.
Services
Services businesses reported modestly higher revenues in the weeks
since our last report. A manager at a fitness center in Charlotte,
N.C., said customer demand had picked up in recent weeks, while
a travel agent in Greenville, S.C., reported an increase in both
business and pleasure travel. Also in Charlotte, an engineering
firm reported a jump in orders for both government and private sector
projects. But a financial services firm in Baltimore, Md., said
stock market investors were concerned that there may be more bad
news regarding corporate accounting methods and remained "in a holding
pattern." Employment in this sector declined in January but rose
modestly in February.
Manufacturing
District manufacturing activity strengthened in January and February,
led by solid growth in shipments and new orders. Contacts in the
electronics, furniture, paper, tobacco, and transportation industries
generally reported moderate growth in shipments in recent weeks.
A paper company in Richmond, Va., introduced a new product and accordingly,
February appeared to be "a very good month" for orders and shipments.
In addition, a producer of plastic products in North Carolina noted
that January was "a good, active month" and that shipments were
higher. While uncertain whether this was "truly the beginning of
the recovery," he nevertheless anticipated that shipments in coming
months would be higher. The level of manufacturing employment declined
since our last report, but manufacturing wages and the average workweek
rose. Looking forward, most manufacturers remained very optimistic
about business prospects six months from now, expecting higher shipments,
new orders, and capacity utilization.
Finance
District loan officers reported that lending activity was little
changed since our last report. Growth in commercial lending activity
continued to be constrained by sluggish demand for business loans.
Several commercial lenders noted that some of their borrowers continued
to have weak profits and were not looking to expand their business
operations at this time. While commercial lenders reported little
change in credit standards, several said they were taking a closer
look at financial statements before extending loans, particularly
for companies restating earnings. Residential mortgage lenders said
that refinancing activity had declined in recent weeks, but that
overall demand for mortgages was holding steady. A Greenville, SC,
banker described demand for residential mortgages as "steady, but
not great," despite a dip in mortgage interest rates in recent weeks.
Real Estate
Residential real estate activity was mixed since our last report.
Several realtors reported that home sales were exceptionally strong
in their areas. A contact in Chevy Chase, Md., said that sales in
his area were "hot"--he had an "enormous number of buyers" but not
enough inventory. A realtor in Richmond, Va., reported that houses
were selling quickly there and that the "spring market" had begun
earlier than usual this year. In addition, a homebuilder in the
Tidewater, Va., area said the market was the most robust he had
seen in his 25 years in the business. But other contacts described
slowing home sales. A Realtor in Baltimore, Md., noted a "slight
softening" in the market there, while a Realtor in Columbia, SC,
characterized home sales as "quiet." While most Realtors continued
to report that sales were strongest in the lower price ranges, a
builder of homes in the Carolinas said that the upper-end market
was "making a comeback."
Commercial Realtors across the District reported little change in leasing and construction activity since our last report. Leasing activity rose slightly in the industrial sector, but was flat in the office and retail sectors. Vacancy rates continued to edge up across all sectors and a number of District contacts noted the persistence of a "wait and see" attitude among clients. Rents stabilized in the retail and industrial sectors, but declined further in the office sector. The rate of new sublease space coming onto the market declined across the office and retail markets. A Northern Virginia Realtor reported that the office-sublet market was finally starting to "firm up" and that vacant space was being absorbed by "a variety of users." Although a smattering of new projects were reported, new construction activity remained generally flat across the District.
Tourism
District tourist activity continued to be mixed in recent weeks.
A manager at a ski resort in West Virginia told us that the pace
of business had picked up considerably in February and that record
attendance was expected in March. A counterpart at a resort in Virginia,
however, reported that business was off 30 percent from a year ago--unseasonably
warm and dry weather had caused a shortage of water reserves essential
for making snow. But mild weather boosted tourist activity at coastal
resorts. A contact on the Outer Banks of North Carolina said that
bookings during Valentine's Day and the Presidents' Day holiday
weekend were much better than a year ago, which she attributed in
part to patrons taking holidays closer to home because of ongoing
concerns with air safety. Looking ahead, tourism industry contacts
were encouraged by the strong pace of spring bookings, with some
areas being booked to capacity through June.
Temporary Employment
Temporary employment agencies in the District reported continued
strengthening in the demand for workers in recent weeks. Employment
agents in Northern Virginia, Richmond, Va., and Rockville, Md.,
told us that demand for workers had risen in recent weeks and that
they expected demand to continue to rise over the next six months
as the economy rebounds. A contact in Hagerstown, Md., said that
demand was "somewhat weak" at her firm, but noted that she was beginning
to see "hopeful signs of increased customer activity." Light industrial
workers and customer service representatives were among the most
highly sought employees in the District.
Agriculture
Mild weather in January and much of February allowed District farmers
to make good progress in field preparation. Dry conditions, however,
persisted in many areas of the District. Some areas of North Carolina
and Virginia will require several months of above-normal rainfall
to fully replenish soil moisture. In North Carolina and West Virginia,
sparse rainfall prompted earlier feeding of livestock and hauling
of water in some areas, while in South Carolina supplemental feeding
of livestock continued because of poor pasture conditions. Small
grains in most areas of the District were reported to be progressing
well despite the arid soil conditions. Agricultural analysts noted,
however, that additional precipitation was needed to keep small
grain crops in good condition.