Read the full text of the report for the Federal Reserve Bank's Fifth District, Richmond, Virginia. Richmond is the fifth of the 12 Federal Reserve districts (Boston, New York, Philadelphia, Cleveland,
Richmond, Atlanta, Chicago, St. Louis, Minneapolis, Kansas City, Dallas and San Francisco). The Beige Book economic report is released 8 times per year. The complete current report including all twelve districts and the introduction, as well as past reports can be found at FederalReserve.gov.
Fifth District--RichmondBusiness contacts indicated that, on balance, Fifth District economic activity weakened towards the end of August and through September. Retail sales and manufacturing activity slowed across most of the District while services firms expressed concerns about the future. One respondent noted reduced credit availability for local retailers. Although export volumes remained strong, activity at District ports cooled a bit as contacts noted some fall off in shipments. Residential real estate activity continued to be weak in most of the District as national economic and financial uncertainty lowered demand for new mortgage lending. Commercial lending also cooled as credit standards continued to tighten, and commercial leasing activity was sluggish, although vacancy rates changed little and rents were mostly stable. Meanwhile, hiring activity contracted across the board. Some input cost pressures remained for manufacturing firms, but overall wage and price pressures abated across District manufacturing and service-sector businesses.
RetailRetail executives and store managers reported that sales slumped in recent weeks, particularly for big-ticket items. The store manager at a chain discount retail establishment in central North Carolina echoed other contacts when he told us gasoline shortages in his region were keeping many shoppers home during the week. An executive at a hardware chain in central Virginia told us that the contraction in sales at his stores had quickened in recent weeks. In addition, the manager of a department store in an upscale mall outside the Washington, D.C., beltway said that business was down dramatically--as much as 12 to 15 percent since our last report. In contrast, a large department store manager in central West Virginia said his store's sales growth was "holding up pretty well," although sales through his government contracts were down slightly. According to a retail spokesperson in central Virginia, local companies that have long-standing relationships with lenders cannot get lines of credit to purchase merchandise for next spring; small retailers are "just petrified." Furniture, appliance, and automobile dealers across the District reported declining sales. Retailers cut back on new hires and wage growth slowed in the last four weeks. Retail prices grew somewhat less quickly since our last report.
ServicesA contact at a community services organization in central North Carolina expressed concern about the effects of recent financial events spreading to both his and other businesses in the region. Executives at financial services businesses in central Virginia, northern West Virginia, and Baltimore, Md., said their clients were nervous, but most contacts said they were not seeing outright panic. One financial services contact described it as, "Everybody's on the edge of their seats." At healthcare organizations, contacts saw little change in customer demand in recent weeks, but were concerned that continued upheaval in financial markets would lead to increases in unpaid bills or a reduction in elective surgeries. A business-campus executive said his plans for expansion have been "shelved." Services firms trimmed payrolls and wages continued to grow about on pace with our last report. Price growth was contained at services businesses.
ManufacturingDistrict manufacturers reported that activity contracted further with broad weakness across shipments, new orders, and employment. A manufacturer at a North Carolina textile plant reported that business at his firm was very slow, noting that his patrons were pessimistic and their customers (retailers) were extremely cautious. Likewise, a manufacturer of housing goods in North Carolina said that business had slowed even further as his customers had trimmed inventories considerably. A furniture maker in North Carolina told us that he had experienced the worst business conditions for residential furniture in 40 years and that the outlook for commercial office furniture was very bleak because of the industry's reliance on financial institutions as clients. Cost pressures remained but were less widespread this month. A producer of housing products in North Carolina reported that he had not incurred additional increases in raw materials prices over the past month. He pointed out, however, that his company was only able to pass on minimal price increases to customers and therefore had not passed on the 10-15 percent jump in input prices of recent months.
Activity at Fifth District ports cooled somewhat in September. Retail imports for the upcoming holiday season were below year-ago-levels at the District's largest container port, and other imports were reported to be "down across the board." Export volumes remained strong but contacts noted some fall off in shipments, especially for lower end commodities--such as grains and scrap materials--due in part to elevated shipping surcharges.
FinanceResidential lending activity remained soft across most of the Fifth District in recent weeks. Contacts in Richmond, Va., Charlotte, N.C., and Hilton Head, S.C., reported steady but subdued levels of new mortgage activity as home "purchase demand stabilized at a very low level," while lenders in Charlottesville, Va., and Greenville, S.C., noted further weakness in demand for mortgage initiations. Contacts mentioned that a brief flurry of refinancing activity occurred in Virginia and the Carolinas, though activity quickly reverted back to a tepid pace after a sudden rise in interest rates. Credit standards tightened a bit further as institutions followed new FHA guidelines. Credit quality varied; some lenders reported higher quality applicants while others noted lower quality as "realtors are bringing anybody in."
In commercial lending, recent activity was stable to weaker. Contacts cited a general "uneasiness" that contributed to "less aggressive lending" practices. Credit standards continued to tighten--some contacts noted that informal guidelines were becoming policy, more due diligence was being exercised for new borrowers, and collateral requirements had increased. Reports on credit quality were mixed. One contact noted improved borrower quality resulting from more intense loan scrutiny, while others observed increased stress on the balance sheets of their business borrowers. Several lenders reported that credit quality was holding steady, but they were "watching it like a hawk."
Real EstateReal estate contacts continued to report weak activity in housing markets across the District. Most contacts reported very slow home sales with a few citing the national financial and economic situation as the reason. A Richmond, Va., Realtor told us that his housing market had become "extremely" slow with only a few buyers due to the uncertainty of the economy. The Realtor also noted that foreclosures were on the rise. Likewise, an agent in Greensboro, N.C., said that his housing market had been "hit really hard" due, in part, to the deteriorating financial condition of a large insurance company in his city and a large local bank. He told us that sales were down "tremendously" in all price ranges. In contrast, an agent in the Washington, D.C., area reported "steady" sales, with good activity in the middle-priced condominiums market. House prices slipped a bit in several areas of the District.
Turning to commercial real estate, leasing activity was sluggish across most of the Fifth District, especially in the Washington, D.C., metro area. Agents in Maryland, Virginia, North Carolina and South Carolina reported generally soft markets across all property types, but a contact in West Virginia noted pockets of healthy activity. A Washington, D.C., agent specializing in Class B office space saw firmer demand--partly from tenants moving down from Class A space. Vacancy rates were mostly unchanged, although reports indicated an uptick in vacancy for smaller blocks of office and retail space in the D.C. market as some tenants moved to home offices. Rents were stable across much of the District, but contacts in Washington, D.C., noted some downward pressure. Sales activity was slow to "non-existent" in Roanoke, Va., Raleigh, N.C., Charlotte, N.C., and Columbia S.C., while commercial property prices were steady. In recent weeks, new construction was limited to smaller specialty-use properties, and contacts reported hesitancy in their markets as "people are putting the brakes on" deals because "there is so much unknown right now."
TourismReports on tourist activity varied since our last survey. Along the coast, contacts in the Outer Banks of N.C., Virginia Beach, Va., and Myrtle Beach, S.C., told us that bookings were weaker compared to our last report and to a year ago. Contacts attributed the softness to Tropical Storm Hannah, which reduced bookings in the first full weekend of September, and then to the "Ike Spike" (gas price hike after Hurricane Ike). They also indicated that economic uncertainties this month had taken a toll on tourism. Looking ahead, a hotelier in Virginia Beach, Va., described expectations for the next six months as, "not pretty." On a brighter note, contacts at mountain resorts in Virginia and West Virginia reported stronger bookings than a year ago, which they credited to group reservations, warm and early fall weather, and regional attractions.
Temporary EmploymentFifth District temporary employment agents reported lackluster demand for temporary workers in recent weeks. The low demand for workers came from agencies' inability to recruit clients as well as the uncertainty and slowdown of the economy. A Raleigh, N.C., agent anticipated a small increase in demand for workers in the coming weeks due to the desire of many companies to increase their headcount before the end of this calendar year. Middle management, IT, administrative, customer service, sales, and certain specialty skills were those most highly sought from industries such as professional services, pharmaceuticals, and retail.
AgricultureRecent weather conditions allowed Fifth District farmers to make steady progress in small grain preparation and harvesting activities. In Virginia, the corn harvest progressed quicker than expected due to the generally dryer weather and lower than average yields. The corn harvest in North Carolina was going strong throughout the state, while winding down in South Carolina. In addition, the apple harvest was seventy percent complete in Maryland, and farmers in Virginia and West Virginia were preparing for the soybean harvest which was in fair to good condition. Hay stocks in Virginia were reported to be short and cattlemen were considering other grazing and feeding options. In some cases, cattlemen were culling their herds in order to compensate for the shortage of feed. In contrast, cattle conditions in West Virginia were rated as mostly good with pasture conditions reported to be in fairly good shape.
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