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Economic activity in the Fifth District increased modestly in April and May, but the pace of expansion was uneven across sectors. Manufacturing activity grew briskly, with shipments and new orders posting sizeable gains. Outside of stronger automobile sales, however, retail sales were generally flat and District services firms reported that their revenues softened in May, after posting gains in April. The news was brighter in the real estate sector--home sales rose in most areas of the District and commercial leasing activity picked up. In the finance sector, overall loan volume was flat as solid growth in new home mortgages offset sluggishness in commercial lending. Activity remained mixed in District labor markets, with employment stabilizing in manufacturing for the first time in two years, but contracting at services firms. Prices rose at a modest rate in most sectors. In agriculture, a cold snap in late May caused frost damage in some areas, but crop development was generally ahead of schedule.
District retailers reported that sales generally remained at weak levels across the District in April and May. Retailers said that shopper traffic slowed somewhat over the last four to six weeks, and department store wholesalers said big-ticket sales edged lower. A department store manager in North Carolina and a discounter in West Virginia told us that their sales were flat. The one bright spot in the retail sector was automobile sales, which continued to be boosted by dealer financing incentives. Retailers indicated that little seasonal hiring was underway and most said they were not replacing employees lost through attrition. Overall retail prices rose at a moderate rate since our last report.
Many District services firms said that demand softened somewhat over the last four to six weeks though demand for travel-related services strengthened. Computer-related services firms said their demand continued to weaken and hiring plans were scaled back. A network systems company near the Research Triangle in North Carolina, for example, saw flat revenues because of the "glut of available information technology talent created by downsizings" in that region. A financial services firm in Baltimore said their customers faced lingering uncertainty from last year's terrorist attacks and more recent corporate scandals. While hospital and healthcare firms in North Carolina reported steady business, they reported little hiring except for desperately needed nursing staff. But business picked up at some hospitality and travel firms. Hotels and conference centers reported steady demand, but unlike most firms, they were adding workers beyond those needed for normal seasonal requirements. In the South Carolina low country, a corporate travel agent said demand had rebounded to about 90 percent of what it was before September 11 and suggested that their firm had "turned the corner" since the terrorist attacks last September.
District manufacturing activity expanded at a solid pace in both April and May. Contacts reported strong growth in shipments and new orders, especially in the textiles and chemical industries. A textiles producer in North Carolina said that business had improved noticeably in recent weeks as consumers bought more clothing and home furnishings. He believed that the industry was finally "coming off the bottom of the textile depression." District manufacturers told us that employment stabilized in April and May, after two years of general decline. Although there were reports of higher steel and polyethylene prices, overall prices in the manufacturing sector continued to advance only slightly.
District loan officers reported little change in lending activity in the weeks since our last report. Commercial lenders said that loan demand continued to be sluggish, as many potential borrowers remained cautious. A banker in Charleston, S.C., told us that while a few clients were beginning to move forward with capital expansion plans, most were taking a "wait and see" attitude. A Richmond lender said that he was seeing an increase in loan requests to expand working capital, but few requests for loans to finance major capital expenditures. Residential mortgage lenders reported that loan demand was little changed, as an increase in borrowing for home purchases was offset by dwindling mortgage refinancing activity. A banker in Greenville, S.C., said that layoffs in the area had cooled demand for housing but lenders in other areas reported that housing markets generally remained strong.
Residential real estate activity rose at a moderate pace since our last report. A realtor in Washington, D.C., reported strong house sales. He said homeowners continued to receive multiple offers, often substantially higher than the listing price. Home prices, he noted, are "bumped up" each time a property comes on the market. Likewise, a Maryland agent said sales were up dramatically and business was "booming." An Asheville, N.C., agent reported that sales were about 15 percent higher than a year ago. But home sales were less buoyant in other areas. A realtor in Rocky Mount, N.C., said prices were stable and the inventory of homes abundant, but a high unemployment rate had slowed housing there. In addition, a Richmond, Va., agent reported slower home sales, stating that everyone seems to be "staying put."
Commercial realtors noted a marked increase in leasing activity across the Fifth District in recent weeks. The bulk of activity was centered in the office sector, and the available supply of class A office space decreased across many District jurisdictions. The retail sector also experienced a healthy pick-up, but demand for industrial space rose only slightly. A contact in Charleston, W.V., noted that although a "discernable jump" in activity had occurred, a considerable amount of vacant commercial space remained on the market. Vacancy rates stabilized in the office sector, but continued to move higher in the retail and industrial markets. Likewise, rents firmed for office space, but edged lower for retail and industrial space. Construction in the commercial real estate sector was generally flat, although a smattering of "build to suit" projects were reported.
Tourist activity strengthened in April and May, boosted in part by pleasant weather during the Memorial Day weekend. A contact on the Outer Banks of North Carolina told us that his hotel was completely booked over the holiday weekend while a hotel manager in Virginia Beach reported that business during the holiday was better than a year ago. In Washington, D.C., renewed patriotism invigorated tourist activity. During the Memorial Day weekend, thousands of motorcyclists roared through the city to honor soldiers of the Vietnam War. In addition, a respondent from Myrtle Beach, S.C., noted that a "biker weekend" in that city had also brought increased tourist activity to the area.
District employment agencies reported that demand for temporary workers picked up in recent weeks. A contact in Raleigh, N.C., said clients were starting new projects and initiating hiring that had been put on hold for a long time. An agent in Charlotte, N.C., reported stronger demand for workers and expected demand to continue to strengthen in coming weeks as Charlotte's economy picked up steam. Light industrial and administrative workers were the most highly sought. Wages for temporary workers remained generally steady across the District.
Cold weather in late May stunted crop development in some areas, but crops generally progressed on schedule in District states. Farmers in both Maryland and Virginia reported frost damage to corn; in some Virginia counties the damage was extensive, leading farmers in those areas to replant. Dry weather during much of May exacerbated drought conditions in North Carolina, but planting was generally ahead of schedule in the state; cotton and peanut planting was nearly complete. Corn and soybean planting was proceeding ahead of schedule in Maryland, South Carolina, and Virginia. Livestock was reported to be in good condition across the District and hay feed supplies were adequate, but a lack of rain limited pasture development in areas of North Carolina.