Statement by J. Alfred Broaddus, Jr., President, Federal Reserve Bank of Richmond, before the Committee on Banking, Housing, and Urban Affairs, U.S. Senate, March 10, 1993 - Statements to the Congress - Transcript

Federal Reserve Bulletin, May, 1993

I am pleased to be here today to discuss economic activity in the Fifth Federal Reserve District--the region served by the Federal Reserve Bank of Richmond--and to describe my views on monetary policy. I will begin with some background information on the District economy. Subsequently, I will review some recent regional economic trends, summarize current economic conditions in the District, and conclude with a brief statement of my basic views on monetary policy.

OVERVIEW OF THE DISTRICT ECONOMY

The Fifth District includes Maryland, the District of Columbia, Virginia, North Carolina, South Carolina, and all but the northwestern spur of West Virginia. The Federal Reserve Bank of Richmond has branch offices in Baltimore and Charlotte, regional check processing centers in Charleston, West Virginia, and Columbia, South Carolina, and a special facility in Culpeper, Virginia.

The Fifth District is home for about 10 percent of the U.S. population. The District's fine transportation networks (including its three major seaports: Baltimore, Charleston, and Hampton Roads-Norfolk), favorable climate, and proximity to major domestic markets combine to make the region especially attractive to business. The District is headquarters for several major nonfinancial corporations and some of the nation's largest and most rapidly growing banking organizations. Collectively, the Fifth District ranks fourth among Federal Reserve Districts in terms of both the total assets and the market capitalization of its banking organizations. The District is also the location of thousands of farms and small businesses, many community banks, and an unusually large number of strong colleges and universities.

Our Bank has identified three distinct regional economies in the District. One includes south central Virginia, North Carolina, and South Carolina and is characterized by substantial manufacturing activity. North Carolina leads the nation in the proportion of payroll employment in manufacturing, and South Carolina is close behind. Textiles heads the list in value of output among the manufacturing industries in this region. The area's strong manufacturing base also includes such other industries as chemicals, machinery, electronic equipment, tobacco products, and furniture.

The second regional economy consists of Maryland, most of Virginia, and the District of Columbia. This region is heavily dependent on federal government activity, especially defense purchases. Employment stemming from federal nondefense purchases is also important in this area, as is federal government employment of civilian and military personnel.

The third region is West Virginia. West Virginia's economy is based largely on coal, which explains the state's comparative advantage in the production of chemicals and primary metals. Lumber and wood products are other West Virginia industries that have enjoyed especially rapid growth in recent years.

The economies of these three regions have some elements in common, such as their strong tourist industries. The Fifth District is known for its many scenic and historic areas and for its mountain and seashore resorts. Tobacco is grown in many parts of the District, as it has been since colonial times. Although domestic tobacco consumption has declined, exports of both tobacco leaves and manufactured tobacco products continue to rise. Other agricultural products in the District range from peaches in South Carolina, where the harvest often exceeds Georgia's, to poultry production in North Carolina, Virginia, and Maryland. The Chesapeake Bay usually produces a plentiful harvest of fish, crabs, and oysters, although the oyster harvest has been quite low in recent years.

TRENDS IN EMPLOYMENT AND INCOME

The table accompanying my testimony summarizes the behavior of employment and real personal income in Fifth District states since the early 1980s.(1) The table shows that the decade of the 1980s, after its early recession, brought strong growth in both employment and income to most of the District. This growth was spurred in the northern part of the District by the defense buildup and the concurrent real estate boom and in the southern part by foreign and domestic investment in manufacturing. West Virginia, however, recorded a more modest increase in jobs and very little increase in income during the 1980s, largely because of job losses in the coal industry.

Employment and real personal income declined throughout the District during the 1990-91 recession, as they did in most of the country. Job market conditions have improved since the end of the recession, although only North Carolina and West Virginia experienced significant employment growth through the end of 1992. Employment actually continued to fall sharply in Maryland in this period. Real personal income grew moderately in the District from the recession trough through the third quarter of 1992 (the last quarter for which data are available), and here also the performance of North Carolina and West Virginia was strongest. In agriculture, data on cash receipts suggest that real farm income in the District was virtually unchanged in 1992 from 1991 but higher than in earlier years.