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The Fifth District economy expanded at a more moderate pace in late October and November, though the level of economic activity remained high. Retail sales growth tapered off during much of November, but regained momentum after Thanksgiving. Services firms reported somewhat slower growth in demand and only modest employment growth. Manufacturing activity remained at a relatively strong level even though output was flat and raw materials prices moved higher. The real estate and financial sectors slowed in part because of recent stock market declines and uncertainty over the outcome of the presidential election. District labor markets remained tight, and wage growth was modestly higher. Price increases remained moderate in the services sector and were little changed in manufacturing, despite a pick-up in raw materials prices in recent months.
District retailers reported that, compared to a year ago, sales growth was weak during the first three weeks of November, but was moderately stronger after Thanksgiving. Retailers said that colder weather in some areas boosted sales of their winter lines, helping push sales above last year's post-Thanksgiving levels. A manager at a large department store in Columbia, Md., for example, reported that his post-Thanksgiving sales were brisk, even in light of the recent opening of a new shopping mall nearby. Looking forward, most retailers we spoke with expected good holiday sales gains, and they told us that they had stocked higher inventory levels in anticipation. Nevertheless, many retailers look for the growth rate of sales to be more modest this holiday season than in the last two years. On the employment front, some stores were having trouble finding holiday help. Retail wages continued to grow at a fairly brisk pace, and the growth of retail prices accelerated.
Services firms in the District reported that their revenues grew sluggishly in recent weeks. A hotel manager in southeastern North Carolina, for example, said that demand for hotel rooms declined in recent weeks, which he attributed to a general slowing of growth in the economy. In Maryland, a financial services firm said that customers were becoming "more cautious" as their concerns with a slowing economy mounted. Employment growth in the services sector eased while wages rose at a moderate pace.
Fifth District manufacturing activity leveled off since our last report. Shipments and new orders were flat in recent weeks; production was particularly soft in the chemicals and instruments industries. An instrument manufacturer in Baltimore, Md., noted that declining revenues and rising costs of raw materials had squeezed profit margins. Several chemical and rubber products manufacturers also reported that raw materials prices moved substantially higher over the last two months, mainly because of higher oil prices. However, according to many contacts, raw material price increases moderated in November. In labor markets, both manufacturing employment and the average workweek slipped, while wages advanced at a more modest pace.
Residential realtors reported slower home sales in late October and November, as a greater proportion of their clients adopted a "wait-and-see" attitude in the face of stock market fluctuations and uncertainty over the outcome of the presidential election. A realtor in Richmond, Va., characterized the local housing market as steady but added, "houses are sitting [on the market] longer." In Baltimore, Md., a realtor reported that the residential market remained healthy, but noted that growth had slowed since late summer. Realtors in Rocky Mount, N.C., and Greensboro, N.C., reported slower sales growth and larger inventories of homes. Home prices were generally steady across the District but several realtors expressed concern that prices could soon decline in markets where inventories are building.
On balance, commercial realtors reported an easing in leasing and construction activity in recent weeks. Realtors in the District of Columbia said that demand for office space had declined slightly, in part because of diminished demand from firms in the telecommunications industry. A realtor in Columbia, S.C., said that the local office and industrial markets had slowed but that the area's retail market remained strong. Contacts in Charlotte, N.C., indicated that retail and office leasing activity was expanding more slowly and that there was less speculative construction underway. On a stronger note, contacts in Richmond, Va., indicated that growth in retail leasing has been steady with a slight upward pressure on rental rates, and a Raleigh, N.C., realtor described markets in that area as "very healthy." Despite some signs of softening demand, the supply of Class A office space remained tight in most metropolitan areas of the District.
District loan officers reported that lending activity grew at a slower pace in recent weeks. Concerns about a slowing economy and diminished corporate profits contributed to more cautious lending by commercial loan officers. A commercial lender in Charlotte, N.C., reported that even though demand for business loans has remained fairly strong, he had become "more selective" in extending credit in recent weeks. A banker in Richmond, Va., expressed similar sentiments noting that she was now a little more "conservative" in lending, because of declining profit margins in cyclical industries such as building products. Growth in residential mortgage lending eased as housing markets cooled. A lender in Greenville, S.C., said that even though mortgage interest rates had declined in recent weeks, borrowers' apprehension about future economic conditions slowed the growth in demand for mortgage loans.
Tourism continued to strengthen in late October and November with most contacts reporting strong Thanksgiving patronage. A manager at a ski resort in West Virginia said that Thanksgiving holiday bookings were above a year ago because ten inches of snow arrived just in time to kick off the resort's ski season. A hotelier on the Outer Banks of North Carolina also reported strong Thanksgiving holiday bookings, in part because a growing number of coastal discount retailers are attracting holiday season shoppers. A contact at a mountain resort in Virginia told us that brilliant fall foliage and the increasing popularity of weekend golf vacations had contributed to stronger-than-expected bookings throughout most of the fall season.
Temporary employment agencies reported that the demand for workers was mixed in the weeks since our last report. Contacts at employment agencies in Raleigh and Gastonia, N.C., and in Charleston, W.V., noted somewhat lower demand from clients. In contrast, a contact in Rockville, Md., said demand for temporary workers in that area remained very strong, stating that in the last two weeks his agency had been "hammered" with requests from marketing and public relations firms. Light industrial and administrative workers continued to be highly sought throughout the District. Contacts indicated that wages were generally steady since our last report.
Light-to-moderate rainfall accompanied by cooler-than-normal temperatures in recent weeks slowed harvesting activity in some areas of the District, but the wet weather helped small grain crops. Harvesting activity was behind schedule in Maryland, though the pace picked up somewhat in recent days. Bottlenecks at grain elevators continued to be a problem in Virginia, causing farmers to alternate between soybean and corn harvesting depending on the availability of storage space. On the brighter side, rainfall helped winter wheat, barley, and oat crops germinate before the onset of winter.