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Fifth District economic activity advanced at a moderate pace in January and February, led by somewhat stronger growth in the retail and manufacturing sectors. Services firms reported modest increases in revenues, and sales growth at retail establishments rebounded in February after sagging in January. Manufacturers reported that shipments grew more rapidly and new orders increased substantially. In contrast, activity at residential and commercial real estate firms was little changed. Bankers reported steady demand for residential mortgages but somewhat sluggish growth in commercial lending. Employment fell in the manufacturing and retail sectors, but temporary employment agencies reported that the demand for workers picked up. In agriculture, warm and dry weather aided field preparation but stressed pastures and triggered supplemental feeding of livestock.
District retailers said that seasonally-adjusted revenues fell in January but rebounded in the first three weeks of February. Big-ticket sales were generally higher, although automobile dealers gave mixed reports on customer traffic and vehicle sales in February. A number of retailers told us that they had trimmed inventories; a big-box retailer and a manager at a home improvement center said they were carrying lower inventories because of the sluggish economy. Retail employment edged downward in recent weeks while average wages increased at a moderate pace. Prices in the retail sector were reported to be rising at less than a two percent rate.
Services businesses reported modestly higher revenues in the weeks since our last report. A manager at a fitness center in Charlotte, N.C., said customer demand had picked up in recent weeks, while a travel agent in Greenville, S.C., reported an increase in both business and pleasure travel. Also in Charlotte, an engineering firm reported a jump in orders for both government and private sector projects. But a financial services firm in Baltimore, Md., said stock market investors were concerned that there may be more bad news regarding corporate accounting methods and remained "in a holding pattern." Employment in this sector declined in January but rose modestly in February.
District manufacturing activity strengthened in January and February, led by solid growth in shipments and new orders. Contacts in the electronics, furniture, paper, tobacco, and transportation industries generally reported moderate growth in shipments in recent weeks. A paper company in Richmond, Va., introduced a new product and accordingly, February appeared to be "a very good month" for orders and shipments. In addition, a producer of plastic products in North Carolina noted that January was "a good, active month" and that shipments were higher. While uncertain whether this was "truly the beginning of the recovery," he nevertheless anticipated that shipments in coming months would be higher. The level of manufacturing employment declined since our last report, but manufacturing wages and the average workweek rose. Looking forward, most manufacturers remained very optimistic about business prospects six months from now, expecting higher shipments, new orders, and capacity utilization.
District loan officers reported that lending activity was little changed since our last report. Growth in commercial lending activity continued to be constrained by sluggish demand for business loans. Several commercial lenders noted that some of their borrowers continued to have weak profits and were not looking to expand their business operations at this time. While commercial lenders reported little change in credit standards, several said they were taking a closer look at financial statements before extending loans, particularly for companies restating earnings. Residential mortgage lenders said that refinancing activity had declined in recent weeks, but that overall demand for mortgages was holding steady. A Greenville, S.C., banker described demand for residential mortgages as "steady, but not great," despite a dip in mortgage interest rates in recent weeks.
Residential real estate activity was mixed since our last report. Several realtors reported that home sales were exceptionally strong in their areas. A contact in Chevy Chase, Md., said that sales in his area were "hot"--he had an "enormous number of buyers" but not enough inventory. A realtor in Richmond, Va., reported that houses were selling quickly there and that the "spring market" had begun earlier than usual this year. In addition, a homebuilder in the Tidewater, Va., area said the market was the most robust he had seen in his 25 years in the business. But other contacts described slowing home sales. A realtor in Baltimore, Md., noted a "slight softening" in the market there, while a realtor in Columbia, S.C., characterized home sales as "quiet." While most realtors continued to report that sales were strongest in the lower price ranges, a builder of homes in the Carolinas said that the upper-end market was "making a comeback."
Commercial realtors across the District reported little change in leasing and construction activity since our last report. Leasing activity rose slightly in the industrial sector, but was flat in the office and retail sectors. Vacancy rates continued to edge up across all sectors and a number of District contacts noted the persistence of a "wait and see" attitude among clients. Rents stabilized in the retail and industrial sectors, but declined further in the office sector. The rate of new sublease space coming onto the market declined across the office and retail markets. A Northern Virginia realtor reported that the office-sublet market was finally starting to "firm up" and that vacant space was being absorbed by "a variety of users." Although a smattering of new projects were reported, new construction activity remained generally flat across the District.
District tourist activity continued to be mixed in recent weeks. A manager at a ski resort in West Virginia told us that the pace of business had picked up considerably in February and that record attendance was expected in March. A counterpart at a resort in Virginia, however, reported that business was off 30 percent from a year ago--unseasonably warm and dry weather had caused a shortage of water reserves essential for making snow. But mild weather boosted tourist activity at coastal resorts. A contact on the Outer Banks of North Carolina said that bookings during Valentine's Day and the Presidents' Day holiday weekend were much better than a year ago, which she attributed in part to patrons taking holidays closer to home because of ongoing concerns with air safety. Looking ahead, tourism industry contacts were encouraged by the strong pace of spring bookings, with some areas being booked to capacity through June.
Temporary employment agencies in the District reported continued strengthening in the demand for workers in recent weeks. Employment agents in Northern Virginia, Richmond, Va., and Rockville, Md., told us that demand for workers had risen in recent weeks and that they expected demand to continue to rise over the next six months as the economy rebounds. A contact in Hagerstown, Md., said that demand was "somewhat weak" at her firm, but noted that she was beginning to see "hopeful signs of increased customer activity." Light industrial workers and customer service representatives were among the most highly sought employees in the District.
Mild weather in January and much of February allowed District farmers to make good progress in field preparation. Dry conditions, however, persisted in many areas of the District. Some areas of North Carolina and Virginia will require several months of above-normal rainfall to fully replenish soil moisture. In North Carolina and West Virginia, sparse rainfall prompted earlier feeding of livestock and hauling of water in some areas, while in South Carolina supplemental feeding of livestock continued because of poor pasture conditions. Small grains in most areas of the District were reported to be progressing well despite the arid soil conditions. Agricultural analysts noted, however, that additional precipitation was needed to keep small grain crops in good condition.