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The Fifth District economy expanded at a moderate pace in late October through
mid November though there were increasing signs that retail sales and manufacturing
were losing momentum. District services businesses generally reported solid
revenue growth since our last report but retailers said sales barely increased
and employment in the sector was flat. Manufacturers said both shipments and
new orders expanded somewhat more slowly in October and softened in early November.
Housing markets continued to show healthy growth since our last report, although
the pace of expansion was less robust than in late summer. In contrast, commercial
real estate conditions brightened considerably from the lackluster pace seen
earlier in the year. District manufacturers continued to face higher prices
for some raw materials, notably oil, gas, and steel, and contacts said that
they were not able to fully pass along the higher costs. Business contacts generally
reported that prices for their products and services continued to rise only
modestly. In agriculture, heavy rainfall hampered harvesting activity, but contacts
expected near-record corn and soybean crops.
Services firms in the District continued to report increased customer demand
in recent weeks, though the pace of growth slackened somewhat. A contact at
a North Carolina freight company said business was steady despite their charging
higher freight rates to offset increased gasoline costs. A physical therapist
in Goldsboro, N.C., noted that revenues at her organization had declined in
part because of a continued slow economy in that area of North Carolina. But
some contacts were relatively upbeat. A financial services business in central
Virginia told us clients became more optimistic as the uncertainty surrounding
the timely conclusion of the U.S. presidential election was removed. In labor
markets services employment expanded at a slower pace.
Reports from District retailers indicated that sales growth softened in October
and early November and contacts were less optimistic about holiday revenues.
A furniture store in central North Carolina and a lumber retailer in Columbia,
S.C., reported slower growth in their sales since our last report. Automobile
dealerships in the District generally reported little change in sales although
a dealer in Norfolk, Va., and a dealer in Orangeburg, S.C., reported that sales
declined in early November. On a brighter note, a manager at a large North Carolina
bookstore said holiday purchases began about a week earlier than usual while
a contact at a department store in the lowlands of South Carolina said current-store
sales goals had been "easily met."
Growth slowed in the District's manufacturing sector in October and in early-to-mid
November. Factory shipments and new orders expanded at a somewhat slower pace
and manufacturing employment was flat. A number of firms in the District suggested
that sales were little changed from previous months; a packaging manufacturer
in North Carolina said that their business was holding its own though a furniture
manufacturer in North Carolina was a little more upbeat, noting that new orders
were "coming in on a more steady basis." But a plastics manufacturer in North
Carolina noted a "dip" in manufacturing activity and a textile producer there
said business was "very seasonally slow." Prices for raw materials rose at a
quicker pace in recent weeks although continued competition from abroad led
many District manufacturers to hold the line on prices. An electric equipment
manufacturer in Greenville, S.C., reported moderately higher prices for raw
materials, noting that rapid economic development in China had spurred sharply
higher demand for steel and the types of metal castings and machined parts used
in his business.
District loan officers reported a modest uptick in loan demand from late October
through mid November. Lenders said that demand for commercial loans picked up
after the presidential election in November as uncertainty regarding the election
outcome dissipated. Bankers in Charlottesville, Va., told us that borrowing
to finance construction and real estate purchases strengthened considerably.
Residential mortgage lending was stable in most areas of the District. A Charleston,
W.V., banker reported fairly strong mortgage demand for new home purchases as
the housing market there "rocked right along," but the contact said that mortgage
refinancing activity remained light. District bankers reported little change
in credit standards for borrowers.
District real estate agents reported generally strong housing markets in recent
weeks, but said that growth in home sales continued to tail off. An agent in
Asheville, N.C., told us his office set a record for home sales in October and
a real estate analyst in the Carolinas noted that the resort and retirement
markets remained strong. A contact in Odenton, Md., however, told us that homes
in the low to middle-price range were staying on the market a "tad" longer.
An agent in Fairfax County, Va., also reported slower growth in home sales but
said that homes priced below $400 thousand still received multiple offers. Confirming
strength in the Northern Virginia market, a real estate agent in Vienna, Va.,
said housing markets remained "hot" in all price ranges. On the price front,
District homebuilders reported that increases in materials costs had slowed
in recent weeks.
Commercial real estate conditions brightened throughout the Fifth District
during the past six weeks. Agents stated that the recent improvement had been
driven primarily by increased leasing of new retail and office space--much of
it by expanding small businesses. "The calls we are getting are from people
who want to take their businesses out of their homes and other small spaces
and move to somewhere they can grow," noted a contact in Raleigh, N.C. Contacts
also noticed "some early signals" of a recovery in industrial leasing. Realtors
in Charleston, W.V., Charlotte and Greensboro, N.C., Columbia, S.C., and Washington,
D.C., mentioned a rise in industrial activity. The leasing of smaller spaces
called "warehouse condos" was particularly strong. Adding to the recent upbeat
tone, vacancies across all sectors edged lower and rents held steady. Despite
firmer demand, office and industrial construction remained stagnant while retail
construction maintained its steady pace.
District tourist activity was mixed since our last report. Contacts on the Outer
Banks of North Carolina and in Virginia Beach, Va., reported little change in
tourism in November. A contact in Virginia Beach said that corporate travel
budgets appeared to have tightened and that customers at her hotel were increasingly
making last minute reservations as a result. In contrast, a contact in Myrtle
Beach, S.C., reported somewhat stronger business and indicated that tourist
spending continued to grow. Reports from mountain areas were also mixed. A manager
at a resort in western Virginia said that holiday bookings were above year-ago
levels, while a contact in West Virginia said bookings were under pressure from
higher gasoline prices which kept travelers closer to home.
Contacts at employment agencies reported firmer demand for temporary employees
in recent weeks. A manager in Raleigh, N.C., said that continued economic recovery,
a pick up in jobs creation, and "relief that the political process was done
for this year" all led to stronger demand for temporary workers. He expected
his temporary, temp-to-hire, and direct-placement business to continue to prosper.
An agent in Morrisville, N.C., told us that increased marketing efforts were
paying off and that placement of temporary workers was picking up there.
Heavy precipitation coupled with cooler weather in November delayed field work
and hindered harvesting activity in some areas of the District. Cotton and soybean
harvesting in South Carolina and in Virginia in particular were slowed by rainfall.
Despite the interruptions, analysts expected near-record yields of corn and
soybeans. Small grain crops were reported to be in mostly good condition in
Maryland, South Carolina and West Virginia. In addition, the harvesting of apples
and sweet potatoes was nearing completion in South Carolina. Christmas tree
producers in North Carolina reported that they were in full swing for the upcoming