Fifth District economic
activity expanded at a slightly faster rate
in the last six weeks, although the retail
and housing sectors showed signs of
slower growth. Manufacturing shipments
expanded somewhat faster, and the service
sector grew more quickly. Tourism
improved, spurred largely by a recovery in
the coastal areas. Loan activity edged up,
and state tax revenues accelerated
modestly. Tight labor markets and wage
pressures persisted, but contacts noted
only modest price pressures. The
commercial real estate market continued
to strengthen at a healthy pace, and fall
harvesting and planting activity picked up
The pace of activity in the retail
sector moderated in October. District
retailers reported that sales grew more
slowly and that shopper traffic and big-ticket
sales declined. Employment fell
slightly, but wage growth accelerated.
Retailers continued to indicate that the
federal minimum wage increase was
leading them to reduce their workforce.
Respondents noted that retail prices rose
more slowly in October. Contacts
continued to expect slightly higher prices
and modestly lower demand for their
products over the next six months.
Service sector activity
expanded at a faster rate in October as
revenues, average wages, and employment
grew more rapidly than in September.
Several contacts to a survey noted that the
minimum wage hike would cause them to
trim employment in coming months.
Service prices rose more slowly in
October, and respondents expected larger
price increases and greater product
demand over the next six months.
Growth in the
manufacturing sector increased slightly in
October. Respondents to a survey
indicated that, compared to September,
shipments edged higher and new orders strengthened
somewhat. Employment growth changed
little, and contacts indicated that labor
shortages were somewhat more
widespread. Several firms reported that
they had difficulty finding workers to
replace those lost through normal attrition.
Manufacturers indicated that prices for
finished goods and raw materials grew at
slightly faster rates than in September.
However, some textile and primary metal
manufacturers reported that foreign
competition, aided by a strong dollar,
caused them to lower their prices.
Respondents continued to expect finished
goods and raw materials prices to rise
slightly during the next six months.
Tourist activity rebounded in
coastal areas, and continued to show
strength at mountain resorts in October. A
Virginia Beach hotelier noted that his
business improved from last year, when
federal furloughs hampered tourism. A
respondent from a popular mountain
resort in Virginia stated that tourist
spending in October surpassed the levels of
previous years and remained strong
during early November. Contacts reported
that fall bookings were about the same as
those of last year.
Representatives at District
ports indicated that import and export
levels were higher in October than in
September. Most port contacts expected
import levels to rise during the next six
months, but expected little change in
Reports of strong
demand for contingent workers persisted,
and agencies indicated that employers
were now seeking workers across a
broader range of job categories and skill
levels. Contacts to a phone survey noted
that wage pressures were more
pronounced than in September.
Respondents indicated that it had become
increasingly difficult to find "decent" help,
even with offers of higher wages.
District banks reported steady
consumer lending and modest gains in
commercial and mortgage lending. An
increase in company acquisitions pushed
commercial loan demand higher. Lower
interest rates led many borrowers to
refinance their home loans. Several
contacts attributed the increase in
refinancings to homeowners switching
from adjustable-rate to fixed-rate
mortgages. One respondent reported that
fixed-rate mortgages now represented
three-quarters of his lending activity--up
from one half. Lenders faced increased
nonbank competition for consumer
financing; one respondent said that she
couldn't match the low interest rates
offered by auto dealers.
Residential Real Estate
Residential real estate
activity fell slightly during October and
early November. Customer traffic, as well
as home sales and prices, declined; housing
starts and permits were steady. Many
contacts across the District reported that
lumber prices soared. Some builders in
competitive markets like the Washington,
D.C., suburbs reported that these higher
prices squeezed their profit margins. In
less competitive areas such as
Charlottesville, Va., builders indicated that
they were able to pass the price increases
through to homebuyers. Builders
continued to report skilled-labor shortages.
Commercial Real Estate
estate activity accelerated in recent weeks.
Office, industrial, and retail leasing
activity remained at a high level, except in
North Carolina, where activity escalated.
One commercial leasing agent there
reported that business was "incredible."
Commercial vacancy rates declined
further, and rents rose throughout most of
the District. The availability of prime
office space continued to tighten. Many
contacts reported increases in speculative
office construction in their areas.
State tax collections
generally increased faster in
October than in September. Individual
estimated payments rose at a faster rate
and real estate recordation tax receipts
increased in all jurisdictions except West
Virginia. In contrast, sales tax collections
decreased and withholding and corporate
income tax collections grew more slowly.
The pace of harvesting and
small grain planting activity picked up
during late October and early November.
In the Carolinas and Maryland, drier
weather allowed farmers to get planting
and harvesting activity back on schedule.
However, in Virginia and West Virginia,
harvesting progress continued to lag
somewhat behind the five-year averages
because of unfavorable weather.