Beige Book Report: Richmond
October 24, 2001
Fifth District economic activity contracted slightly in September and early October, as consumers pulled back in the wake of terrorist attacks on September 11. Services and retail businesses felt the strongest impact. District hotels, airlines, and travel agencies reported sharply lower revenues. Retailers said that big-ticket sales tumbled in September, though they rebounded somewhat in October, as consumers began returning to stores and automobile dealerships. Manufacturing shipments and new orders were generally steady in September. Growth in the housing market slowed modestly in the weeks since our last report, while leasing of commercial properties continued to trend downward. Price increases remained generally modest at District businesses. In agriculture, cool, dry weather was favorable for corn and soybean harvesting, and both were ahead of schedule.
Retail
District retailers reported sharply lower sales in September, particularly
in the week following the September 11 terrorist attacks, but a
number of contacts noted that their sales rebounded somewhat in
early October. Both shopper traffic and big-ticket sales declined
in September. Automobile dealers said customer traffic dropped by
as much as 50 percent immediately after the attacks. However, customers
have returned in the last few weeks, and sales are now running a
little above early September levels, boosted by price and financing
incentives. Big-box retailers told us that their business was back
to normal by the end of September, and some indicated that sales
of basic durable goods had picked up in recent weeks. District grocery
stores noted stronger sales of canned goods and bottled water. In
contrast to rebounding retail activity in many areas, several retailers
in the Charlotte, N.C., area said they were continuing to see a
reduction in customer traffic as banking and airline layoffs continued
in the area. Employment in the retail sector fell moderately in
September, while prices were little changed.
Services
Service providers reported somewhat lower revenues in the weeks
since our last report. Many hotels and travel firms reported sharp
declines in business and vacation travel immediately following last
month's terrorist attacks. They said that while travel has rebounded
in recent days, bookings are still below pre-September 11 levels.
At healthcare organizations in the District, contacts told us that
activity has remained normal since our last report, but several
noted that they were paying more attention to building security
and emergency preparedness. A manager at a trucking firm with operations
throughout the District told us that demand facing the company was
below expectations, leading the firm to decrease employee hours,
although they have avoided layoffs.
Manufacturing
Activity in the manufacturing sector was steady in recent weeks.
Shipments edged higher in September, while new orders matched summer
levels. Contacts in the textiles, electronics, and plastics industries
noted scattered signs of stronger demand for their products. A textile
manufacturer in Virginia told us that capacity utilization improved
due to new products rolled out for discount retailers, while a counterpart
in North Carolina said that his company was encouraged by heightened
consumer interest in "Made in the U.S.A." products. Several industries,
however, reported weaker sales as a result of the September 11 attacks.
A furniture manufacturer in North Carolina, for example, indicated
that his business was just beginning to pick up when the attacks
occurred, but then orders fell dramatically. Prices for manufactured
goods were little changed from our last report.
Finance
District loan officers said that while residential mortgage lending
continued to be bolstered by declining mortgage rates, commercial
lending activity slowed in recent weeks. Growth in residential mortgage
lending continued to be fueled by refinancing--a Greenville, S.C.,
lender said that homeowners were jumping to lock in mortgage rates
below 7 percent. In contrast, several commercial lenders reported
that business borrowers had trimmed expansion plans in September.
A lender in Greenville, SC, described local businesses as having
"hunkered-down" and noted that he did not expect to see a pickup
in commercial loan demand in the next few months. A banker in Charleston,
W.V., also reported weak commercial loan demand and expected lending
in the retail and hospitality sectors to be particularly sluggish
for a while.
Real Estate
Residential realtors and homebuilders reported generally slower
growth in home sales in September and early October. The uncertainty
created by events of September 11 reduced buyer enthusiasm in some
markets. Realtors in Bel Air, Md., and Beckley, WV, for example,
said that "everything stopped" on September 11, while a realtor
in Greenville, SC, said that his agency had 19 home sales "fall
through" after the attacks. But home sales in many areas continued
to hold or even rise, in part because of lower mortgage rates. A
homebuilder in Landover, Md., said that her agency had been very
busy, while a Realtor in Asheville, NC, told us that sales contracts
had been steady, and that lower mortgage rates had "kept them alive."
Respondents from several areas stated that sales of expensive homes
had virtually halted. They said buyers appeared to have downsized
their expectations, and that lower and mid priced homes continued
to sell well. Most builders reported little change in subcontractor
costs or wage rates.
Commercial Realtors across the District reported that leasing activity was almost "non-existent" during the week after the attacks. Since then, leasing activity has gradually regained momentum, but remains below early September levels. The District's industrial sector remained sluggish and industrial leasing activity continued to soften--a Northern Virginia Realtor noted that many firms utilizing industrial space were "belt-tightening" and trying to "right-size." The office and retail sectors, meanwhile, have shown resilience in recent weeks. A contact in Columbia, SC, reported that despite a "depressed" attitude within the business community, business firms continued to move forward with their office leasing plans. The demand for Class A office space was generally flat across the District. In Washington, D.C., and Northern Virginia, however, office space was being acquired for displaced Pentagon employees and for other federal government workers.
Tourism
Tourism in the District declined sharply in the wake of the terrorist
attacks of September 11, but by early October signs of a rebound
had emerged in most areas. Contacts throughout the District reported
widespread cancellations of conventions in September, in part because
of airport shutdowns and flight cancellations. A contact at a hotel
in Myrtle Beach, SC, told us that his business had lost about $40-45
million since the attacks, primarily because of the cancellation
of 30 large conventions. He noted, however, that two-thirds of the
parties that canceled subsequently rebooked and that business was
almost "back to normal." Respondents in Washington, DC, said that
area's tourism and hospitality businesses lost about $10 million
a day in revenues in September and that they expected below par
revenues in coming months.
Temporary Employment
Contacts at temporary employment agencies reported that the demand
for workers had weakened somewhat in recent weeks. While several
employment agents were optimistic that hiring would strengthen over
the next few months, others were skeptical. A contact in Rockville,
Md., stated that greater economic uncertainty in light of terrorist
attacks and fears of recession led him to expect lower demand for
his agency's services in the coming months. However, a contact in
Raleigh, NC, said he was seeing a "ready to get back to work" attitude
at many firms in his area and he expected the demand for workers
to strengthen soon. Wages for temporary workers were generally steady
throughout the District.
Agriculture
Dry weather and cooler-than-normal temperatures provided ideal conditions
for crop harvesting in recent weeks. Corn harvesting was ahead of
schedule in Maryland, North Carolina, and West Virginia, and was
drawing to a close in South Carolina and Virginia, where better-than-expected
yields were reported. The soybean harvest was ahead of schedule
in Maryland but behind schedule in West Virginia. District agricultural
analysts reported that continued dry conditions were stressing pastures
in Virginia, resulting in an earlier-than-normal feeding of hay
to livestock in some counties.