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The Fifth District economy expanded at a solid pace in September and October, though growth was less rapid than in our previous report. Retail sales
remained strong; activity at department stores and "big-box" retailers throughout the District expanded somewhat faster in recent weeks. Revenue growth at District services firms, however, softened, as did the growth of manufacturing shipments. Activity in the real estate and financial sectors increased more slowly as contacts said demand was tempered by concerns about economic growth prospects. In labor markets, skilled workers generally remained scarce. Wage growth picked up in retail but eased slightly in manufacturing. Price increases remained generally modest in manufacturing, and they were only slightly more pronounced in services. In agriculture, unusually favorable weather accommodated crop harvesting.
Most District retailers reported that sales grew at a somewhat faster pace in September and October. At big-box stores in the South Carolina Midlands and in Richmond, Va., for instance, contacts reported that sales rose substantially in recent weeks. In addition, the manager of a large department store in Charleston, S.C., said that customer traffic was up and that his store had added salespeople as a result. A department store contact in Virginia Beach, Va., also reported an increase in staff, in part because the local labor market had "loosened a bit." In contrast, a department store manager in southern West Virginia reported slowing customer traffic, and noted, "People aren't buying early for Christmas." Retail wages rose at a quicker pace in September while prices were little changed.
Firms in the District reported that they encountered somewhat lower demand in recent weeks. A contact at a Maryland brokerage firm, for example, said he had detected a more cautious tone among investors in the wake of stock market fluctuations in recent weeks. A manager at a hotel in Fayetteville, N.C., reported a slight softening of bookings and increased competition, but another hotelier in North Carolina noted only a seasonal slackening in demand. Most contacts said there had been little change in hiring practices or wage offers. However, there were some exceptions. A manager at an engineering services firm in central North Carolina reported that his firm recently increased salaries "astronomically" to attract and retain professional employees.
Fifth District manufacturing activity expanded at a more modest pace since our last report. Shipments increased more slowly in September, although new orders expanded at a solid rate--fueled by stronger orders for fabricated metals, industrial machinery, and electronic equipment. An industrial machinery and equipment manufacturer told us that his business picked up after a summer slowdown and that the business climate remained good. At District factories, employment levels were little changed while the average workweek pulled back and wages grew more slowly. Prices for manufactured goods rose only slightly, according to respondents.
District loan officers reported that lending activity growth slackened in September and October, amid borrowers' worries about the strength of future economic growth. A commercial banker in Charlottesville, Va., said that higher oil prices and a sharp drop in the value of the euro had contributed to "more caution among borrowers." Several commercial lenders reported that they were monitoring commercial real estate and hotel loans more closely because they believed these sectors could be particularly vulnerable in a slowing economy. Nevertheless, a Richmond, Va., banker stressed that she would continue to lend to strong companies in these industries. A mortgage lender in Greenville, S.C., noted weaker demand for residential mortgages, despite continued strong residential building activity. He reported "lots of competition" from lenders affiliated with large home building companies.
District residential realtors and homebuilders reported steady to slower activity in real estate activity in September and October. Home sales received a boost from modestly lower home mortgage rates during much of the period. A realtor in Bel Air, Md., noted that sales of single family homes were stronger there as "lower mortgage rates put life back into the market." A homebuilder in Tidewater, Va., said that customer traffic through new homes was holding steady, "but there was more looking than buying." In addition, homebuilders in Charlotte, N.C., and Myrtle Beach, S.C., reported that previously strong sales of upper-end homes had slowed. Building materials costs eased, led by declines in lumber and sheetrock prices.
Commercial realtors reported that growth moderated in recent weeks. Several contacts described buyers as having a "wait and see attitude" until after the presidential election in November. Still, commercial realtors in Virginia and West Virginia reported steady demand for office and industrial space. Supplies of Class A office space remained tight in most metro areas of the District and a contact in Charleston, S.C., noted a shortage of warehouse space. Looking forward, realtors in Virginia anticipated a stronger commercial office market in light of the recently announced major expansion of a credit card company located there.
Tourism activity was somewhat stronger in September. A hotelier on the Outer Banks of North Carolina said that nearly perfect weather in recent weeks had contributed to strong fall bookings. She indicated that the increasing popularity of rockfish and blue marlin fishing tournaments had also been a factor. Resorts in mountain areas also experienced stronger tourist activity. Looking ahead, however, several contacts cautioned that higher gasoline prices could trim their revenues in coming months.
Demand for temporary workers generally remained strong since our last report. Light industrial workers and administrative workers with computer skills continued to be in high demand across the District. A contact in Rockville, Md., said that the health care industry was increasingly seeking administrative workers with computer skills. He added that suitable employees remain hard to find, noting that he could add only one worker last week, leaving most vacancies unfilled. Temporary workers placed by agencies continued to be hired for permanent positions by firms looking for dependable employees. Wages for temporary workers generally remained steady since the last report. Most contacts expected demand to outstrip supply during the next six months.
Cool temperatures and sunny skies in most areas of the District provided favorable harvest conditions in recent weeks. Farmers in North Carolina and Virginia made good progress harvesting the peanut and cotton crops, but corn shelling was slowed in some areas of Maryland and Virginia as near-record yields caused bottlenecks at grain storage elevators. Some scattered frost damage was reported for soybean and cotton crops in the Carolinas. Pasture and livestock conditions ranged from fair to excellent in West Virginia, but dry weather hampered plans for extended pasture grazing in North Carolina.