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The Fifth District economy expanded at a quicker pace in the weeks since our
last report as growth in the services sector edged up. District services businesses
reported moderately higher revenue growth in June and early July. Retail sales
gained momentum throughout the period, boosted by brisk automobile and light
truck sales in recent weeks. District manufacturing activity edged lower in
June but strengthened substantially in the first half of July. District real
estate agents continued to report robustness in housing markets and relatively
strong demand for office and retail space in the commercial sector. In the financial
sector, bank lending moved moderately higher as demand for residential mortgages
strengthened. When asked about prices, most of our business contacts responded
that price pressures remained generally mild. In agriculture, remnants of two
tropical storms brought substantial rainfall to the District in July, helping
to alleviate dry soil conditions and boost crop and pasture conditions.
Retail sales rose at a moderate pace in the weeks since our last report. Automobile
and light truck sales, which languished in the spring, picked up in June and
the first half of July. Furniture sales also strengthened in recent weeks--a
manager at a department store in North Carolina noted that customer response
to an expansion of the store's furniture product line had been "very
positive." In addition, other retailers generally reported higher shopper
traffic and big-ticket sales in early July. District bookstores noted particularly
brisk customer traffic in mid July in advance of the latest release in the Harry
Potter series of children's books. Retailers reported that their hiring
picked up in June but eased in the first two weeks of July. Retail price growth
was moderate in both months.
District services firms reported stronger revenue growth since our last report.
Contacts at business-to-business firms in central West Virginia and at financial
services firms in Richmond, Va., and eastern North Carolina told us that customer
demand rose at a quicker pace in recent weeks. In contrast, most contacts at
healthcare facilities in the District said demand, while strong, had shown little
additional growth. Services sector firms reported moderate increases in hiring
and noted that information technology workers, truck drivers, and registered
nurses were more widely sought. Prices in the services sector rose at a moderate
pace in June and July.
District manufacturing activity softened in June but picked up the pace in early
July. Manufacturers told us that shipments, new orders, and capacity utilization
expanded at a solid clip in July. Manufacturers in the electronics, food, and
plastic products industries reported particularly strong growth in output during
the month. A plastics manufacturer in North Carolina, for example, reported
being "very busy right now...We have some good new orders in-house
and pending, so I'm optimistic about the next few months." Despite
higher output, manufacturing employment continued to drift lower. Textiles firms,
in particular, said they continued to trim payrolls. District manufacturers
told us that raw material price increases eased in June and July and that prices
for final goods manufactured rose only modestly.
District bankers said lending activity rose at a moderate pace in June and early
July as demand for residential mortgages picked up. A mortgage lender in Greenville,
S.C., told us that residential mortgage applications and closings in his office
in June were the best this year, and that while the year started off slowly,
they were now "turning the corner." Several lenders said that the
pickup in mortgage lending was due in part to uncertainty regarding future mortgage
interest rates--borrowers were committing to mortgages now in anticipation
of higher interest rates ahead. Commercial lending activity was little changed.
A commercial banker in Richmond, Va., reported "a lot of renegotiation
of existing loans, but little new business" in recent weeks. A lender
in Charlottesville, Va., told us there were new loans in the pipeline, but noted
that many of his commercial clients appeared reluctant to draw down their lines
of credit until business strengthened further.
While a few residential real estate agents reported somewhat slower growth in
home sales, most told us that both home sales and prices strengthened since
our last report. Housing markets in Virginia were particularly robust; a Richmond
agent reported "great" home sales in July, while a contact in Virginia
Beach said he had never seen a stronger market. Residential real estate markets
in the Washington, D.C., metropolitan area showed continued strength as well,
although the pace of activity was not as frenzied as in the spring. An agent
in Washington, D.C., said that multiple offers on homes for sale were still
common, and that condominiums selling for prices in excess of $500,000 were
moving particularly well. A contact in Fredericksburg, Va., however, noted that
while the market there remained busy, it was taking "maybe a bit longer
to sell properties." Real estate agents in several towns in the Carolinas
said that housing markets were generally stable; a Greenville, S.C., agent said
there were lots of homes on the market and they were being sold relatively quickly.
House prices continued to move higher in most areas of the District.
Commercial real estate agents reported little change in Fifth District leasing
activity in June and early July. Demand for office and retail space remained
strong in most areas but the onset of summer vacations made closing deals a
little more difficult. "There is still a lot of business going on out
here; it just takes a little longer to get stuff done when summer rolls around,"
noted a contact in Columbia, S.C. Despite robust demand for lease space and
investment properties, agents said that price increases for both had begun to
moderate during the last six weeks, and most contacts said they expected only
modest increases in rents in the near future.
Tourist activity was somewhat stronger in recent weeks. Hoteliers along the
coast reported solid bookings for July. A contact at Myrtle Beach, S.C., noted
that hotel bookings were particularly strong around the July 4th holiday. In
addition, July 4th holiday celebrations attracted lots of visitors to the nation's
capital--the city's Metro subway ridership on the holiday was about
25 percent higher than a year ago. Tourism officials noted that the return of
professional baseball to Washington, D.C., had also boosted tourism in the city.
Temporary employment agencies in the District reported continued strong demand
for workers since our last report. Warehouse, production, sales, administrative,
and software skills in particular were widely sought. A Raleigh, N.C., contact
told us that renewed confidence in business growth strengthened demand for his
agency's services. An agent in Baltimore, Md., said that he expected demand
for services to rise further in coming weeks, and noted that he was seeing better
qualified applicants for temporary positions.
Remnants of tropical storms Cindy and Dennis brought much-needed rainfall to
crops and pastures in the Fifth District in early July. While some eastern parts
of the District remained generally dry, substantial rainfall greatly improved
soil conditions and yield prospects for corn and soybeans, and "greened-up"
pastureland in most of the District. Heavy rains in South Carolina, however,
caused some flooding and damaged crops in low-lying areas. On a brighter note,
small grain harvesting neared completion in the Carolinas, and peach crops in
Maryland and South Carolina remained in good-to-excellent condition.