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Economic activity in the Fifth District grew modestly in January and the first
three weeks of February, with a slight improvement in services and manufacturing
conditions offsetting a listless retail sector. Services businesses reported
generally steady to slightly higher demand, and some contacts cited higher orders
for coming months. District manufacturing activity expanded somewhat faster,
as shipments and new orders rose sharply in January and early February. In contrast,
retail sales were little changed from our previous report, and retailers continued
to trim payrolls. Price inflation remained modest according to contacts. In
the real estate sector, District home sales rose at a solid rate, but commercial
leasing activity slowed as war prospects unsettled potential lessees. In agriculture,
unusually cold and snowy weather hampered field preparation and led to the abandonment
of still-unharvested crops in some areas of the District.
District retailers reported generally flat sales over the past six weeks. A
major winter storm over the Presidents Day weekend led many District businesses
to close for a day, and lingering snow curtailed sales. According to a department
store manager in Annapolis, Md., sales growth and customer traffic there had
been unchanged in recent weeks. And in Richmond, Va., where the winter storm
closed several malls, a contact said that store sales were off but that some
of the slack might have been made up through increased Internet sales. A manager
at a builders supply store told us even though customer traffic was lower because
of the recent storm, his store experienced a run on duct tape and other items
recommended for use in the event of domestic terrorism. In Virginia Beach, Va.,
retailers reported a slight decrease in customer traffic as military deployments
continued in that area. Car dealers in Washington, D.C., and Charleston, W.Va.,
said business was very slow, with manufacturers incentives shoring up sales.
Most services businesses said customer demand was steady to slightly higher
in January through late February, but firms that do business with the federal
government reported decreased revenues. A contact at a financial services firm
in Baltimore, Md., said business was stable and that there was less of a "negative
feel" in the local economy. In West Virginia, a caterer said her bookings had
been slow the past few weeks but noted that her calendar for late spring and
summer was filling. Most firms indicated that their employment levels have been
steady. An executive search firm in the District of Columbia said they have
had to "market a little harder," and a health club also in District of Columbia,
said they were seeing more clients. An engineering firm in Charlotte, N.C.,
reported a shortage of qualified, licensed engineers in the area but a glut
of business managers.
District manufacturing activity strengthened in January and early February.
Shipments and new orders rose sharply at District factories, led by a pickup
in the chemicals, paper, and textiles industries. A textiles manufacturer in
North Carolina told us that aggressive price reductions were enabling his company
to gain market share. Furniture manufacturers noted that sales were strong in
early January, although inclement weather later in the month tempered growth.
Despite the recent uptick in demand, a number of manufacturers expressed concerns
about rising oil prices and the possibility of war. A producer of plastic products
in North Carolina told us, "Things are very uncertain now; business isn't getting
any worse, but there will likely be no sign of a real pickup in activity until
the Iraq situation is cleared up." A tire manufacturer in Virginia noted that
70 percent of his firm's raw materials were derived from oil. He said that the
rising costs of oil and natural gas were pushing up the prices of raw materials
but that he could not pass the higher costs through to his customers.
Contacts at District financial institutions said that loan demand changed little
in January and February. Commercial lending remained weak, in part because of
the uncertainty over Iraq, but there were some encouraging signs that demand
for commercial loans may be ticking up. A banker in Charlottesville, Va., said
that he had made a few more business loans in recent weeks and noted that some
of his clients were beginning to expand business. In contrast, a lender in Richmond,
Va., reported that commercial lending was "no better, no worse" than it was
late last year and that her clients were "doing well to just keep from losing
business." Residential mortgage lending remained strong as mortgage rates drifted
lower, and most contacts said that the growth in mortgage lending matched December's
pace. Residential refinancing continued strong, accounting for 60 percent to
75 percent of home mortgage lending in many cases. A mortgage lender in Richmond,
Va., said that interest in refinancing was still strong, observing that "every
1/8 percent to 1/4 percent drop in mortgage rates brings in new people."
Residential realtors generally reported that home sales were solid in January
and February. An agent in Greenville, S.C., said local sales were the best he
had seen in forty years. He commented that sales were so good he was afraid
to say too much "for fear of jinxing them." A realtor in Odenton, Md., also
reported strong sales in January, adding that properties put on the market in
her area did not last long. In Richmond, Va., an agent said that the remarkable
string of monthly sales advances in that area remained intact. In a less rosy
assessment, real estate agents in the District of Columbia said sales had been
somewhat slower in recent weeks--in part because of inclement weather in the
region. Across the District, homes in the low-to-middle price range were selling
best, but a few realtors said that interest in higher price homes was picking
up. Home prices were reported to be rising modestly in most locations.
Commercial realtors reported slower growth in leasing activity in recent weeks
as potential lessees in the office sector adopted a "wait and see" attitude
in light of political developments internationally. A realtor in Raleigh, N.C.,
captured the mood of many with the observation that "people are just waiting
on the sidelines." The leasing of retail space picked up--a realtor in Richmond,
Va., for example, experienced "very high" growth over the past six weeks in
retail leasing. But office and industrial space leasing was sluggish. Vacancy
rates for retail space remained low, while office vacancy rates edged higher.
Rents for retail space held firm, but edged lower for office space. Realtors
in Washington, D.C. and Charlotte, N.C., noted that some tenants had recently
renegotiated their leases, obtaining lower rents and other concessions. New
commercial construction was generally flat across sectors--several realtors
in the Carolinas reported a shift to refurbishing older buildings in lieu of
building new ones.
Tourist activity strengthened since our last report. Contacts at several District
ski resorts told us that abundant snow in February rejuvenated interest in skiing.
They noted that bookings over the Presidents Day weekend were much higher than
last year and predicted that the ski season would be extended through late March.
Coastal tourism was also reported to be stronger. A contact from Myrtle Beach,
S.C., said that Presidents Day weekend had been extremely busy, adding that
it was difficult to get into a local restaurant without a reservation. Looking
ahead, contacts expressed concern that rising gas prices and continued talk
of war could hamper the spring tourist season.
Contacts at District temporary employment agencies reported lukewarm demand
for workers in recent weeks. An agent in Washington, D.C., reported that he
had expected a better start to the new year but said, " Business is still very
soft, and demand for extra workers is slower than expected." While overall demand
for temporary workers was flat, continued strong residential mortgage lending
resulted in higher demand for temporary workers in that sector. In addition,
there were scattered reports of a pickup in hiring in manufacturing.
Frigid weather in January and heavy snowfall in early February impeded field
preparation and limited late small-grain plantings in much of the District.
Farmers in Maryland, North Carolina, and Virginia abandoned some remaining corn
and soybean fields in January because of the cold weather and anticipated poor
yields. The cold weather also curtailed development of pastures and winter grazing
crops--farmers were feeding livestock full time and trying to stretch hay supplies.
Although some areas in South Carolina continued to experience moderate drought
conditions, contacts in most areas of the state reported that small-grain crops
were in good condition.