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The pace of expansion of the Fifth District's economy quickened in the weeks since our last report, with evidence of growth broadening into almost all sectors. Retailers and services firms reported stronger revenue growth in April and May and manufacturers said that factory output expanded further. Although hiring gains were limited at most District retailers and services firms in recent weeks, manufacturers expanded their payrolls more rapidly, providing further evidence of a turnaround in that sector. In the financial sector, activity was somewhat subdued. Commercial lending was sluggish, and higher mortgage interest rates crimped residential mortgage lending growth. In contrast, home sales in the Fifth District continued strong and commercial realtors reported a slight pickup in leasing activity in April and May. Although prices for some construction materials such as lumber and concrete moved sharply higher, overall price increases for raw materials used in manufacturing moderated somewhat in May. In agriculture, hot and dry weather in May stressed crops in some areas, but scattered rainfall in late May and early June helped alleviate hot, dry conditions in many areas.
Fifth District retailers reported that their sales grew moderately since our last report. A manager at a department store in the Washington, D.C., area reported that sales growth was "a little bit better" than six weeks ago, while another manager in the lowlands of South Carolina said, "We're holding our own." District grocery and specialty food stores reported increased sales, while automobile dealers gave mixed reports on sales. Some lumber and building supply businesses raised their prices to offset continued higher wholesale costs for selected wood or steel products. Despite generally better sales, retail hiring remained soft. Many retailers reduced staff and those hiring were only filling vacated or seasonal positions.
Services firms reported improved demand in recent weeks. Brokerage and financial
services firms in Baltimore, Md., central North Carolina, the South Carolina
midlands, and several areas of Virginia all reported increases in customer demand.
Transportation firms also said that customer demand had increased, even though
shipping rates have risen to reflect higher gasoline costs. In contrast, demand
for healthcare services across the District was mixed. Services sector hiring
was mixed--many businesses said they were not adding employees, but a contact
at a Washington, D.C., executive search firm said "things are really picking
District manufacturing activity continued strong in April and May. Manufacturers told us that shipments and new orders rose in both months; output growth was particularly strong in the food, paper, lumber and textiles industries. A North Carolina-based producer of plastics noted they were seeing "good activity," which he attributed to a generally improved economic picture. The furniture industry remained one of the sector's softer spots--one District manufacturer said war news and stock market declines had slowed the demand for furniture. Reinforcing the generally positive tone of the sector, manufacturing employment and production workers' average workweek continued to expand in recent weeks. On the price front, raw materials and finished goods price increases moderated since our last report.
District bankers reported only modest growth in loan demand in recent weeks. Demand for commercial loans was said to be lukewarm; several contacts noted that new loans were resulting only from more exhaustive marketing efforts. A lender in Richmond, Va., said his clients were showing more confidence in the economy and were borrowing more for capital investment and mergers and acquisitions activity. Residential mortgage lenders reported a further slowing of home refinancing activity as mortgage interest rates moved higher in May. In contrast, contacts indicated that lending for new home mortgages was holding up. Most lenders said that credit quality remained good.
District realtors reported continued robust housing markets since our last report. Realtors described sales as exceptionally strong, and a contact in Richmond, Va., noted that he had received 11 contracts on a single property. A Fairfax, Va., agent also reported multiple contracts on some properties and added that buyers were frequently waiving inspections and appraisals, as well as offering to pay a portion of sellers' closing costs. A Greensboro, N.C., realtor said that rising mortgage interest rates in April and May had sparked a pickup in sales there, prompting fence sitters to commit to a home purchase ahead of anticipated higher mortgage interest rates. Builders throughout the District reported substantially higher costs of lumber, concrete, and asphalt. A builder in North Carolina also reported shortages of insulation, wallboard, cement, and plywood.
Fifth District commercial realtors reported a slight uptick in leasing activity in April and May. Contacts in Raleigh, N.C., Columbia, S.C., and Richmond, Va., observed small increases in leasing. "Things have improved, but not enough to really celebrate," noted a realtor in Cary, N.C. In comparison, leasing activity in the Washington, D.C., metropolitan area increased substantially in recent weeks and that market remained the District's busiest. By sector, retail leasing remained strong in all markets, while office and industrial leasing generally continued to be sluggish. Rents across all sectors were generally flat. Outside of the Washington, D.C., metro area, realtors reported relatively little new construction over the past two months.
Tourist activity picked up in May despite gloomy weather in some areas during the Memorial Day weekend. Hotel managers in Virginia Beach, Va., and Myrtle Beach, S.C., reported that their bookings rose substantially in recent weeks. Special events also boosted District tourism. In Washington, D.C., the dedication of the National World War II Memorial drew large crowds from outside the region and hotels across the city reported 100 percent occupancy rates. In addition, a contact at a mountain resort said that the announcement of plans for expanded resort facilities had boosted timeshare sales there.
District temporary employment agencies generally reported stronger demand for workers in recent weeks, attributing the increase to an improved economic environment. Production and distribution center employees and administrative, financial, and customer service workers were widely sought. Agents expected the demand for temporary workers to remain brisk over the next few months. An agent in Raleigh, N.C., said that some companies were starting to reinvest in their businesses, which he expected would lead to stronger hiring in that area in coming months.
Sporadic rainfall across the District in recent weeks led to a wide variation in soil moisture levels and crop development. Unseasonably hot and dry weather in May depleted soil moisture levels in much of North Carolina, but rain in early June improved soil conditions. In that state, cotton, peanut, and soybean plantings were generally ahead of schedule. In Virginia, the corn crop exhibited heat stress in some areas in May. In Maryland, field conditions were generally good and the planting of corn and harvesting of green peas and strawberries were progressing ahead of schedule.