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Economic growth in the Fifth District picked up in late July and August, although manufacturing activity weakened somewhat. Retailers generally reported higher sales, particularly at automobile dealerships and home improvement stores. Services businesses recorded a noticeable improvement in revenues as well, although employment growth in the sector remained subpar. The District's manufacturing sector wobbled, however, weakened by further declines in production and employment, especially in the textiles and furniture industries. In addition, manufacturers trimmed their forecasts for shipments and capacity utilization for the remainder of the year. In housing, rising mortgage interest rates brought a decline in residential mortgage refinancings, but home sales and housing starts continued to be strong. On District farms, incessant rain delayed small grain harvests and thwarted hay production in some areas, but assisted corn and soybean development.
Fifth District retailers generally reported higher revenues in the weeks since our last report. Automobile sales were particularly strong--dealers in Virginia and the Carolinas said business was brisk and they expected sales to remain strong through the end of the year. Home improvement stores also fared well--a contact at a Virginia Beach, Va., location noted a "marked improvement" in sales in recent weeks. Reports generally indicated that retail employment was flat. An exception was in Richmond, Va., where retail hiring was in full swing as two upscale malls were slated to open in September.
Contacts at Fifth District services firms reported a substantial pickup in customer demand in recent weeks but only modest increases in payrolls. A manager at a financial services firm in Baltimore, Md., for example, noted that while demand firmed, hiring remained selective. Trucking and transportation firms in Maryland and West Virginia reported increased revenues during the past six weeks, as did a real estate firm in North Carolina. The pickup wasn't felt in all areas of the District, however. Some services businesses in manufacturing areas of North Carolina reported sluggish activity--a financial services firm there reported feeling negative "ripple effects" from weakness in the textile industry.
District manufacturing activity softened since our last report. Measures of both shipments and new orders moved lower. Textiles manufacturers announced more plant closings and layoffs. Furniture manufacturers also reported layoffs as demand continued to weaken--a contact in North Carolina said furniture retailers were neither ordering stock nor building inventories. Many District manufacturers lowered their sales forecasts for the next six months as demand sagged. Outside of a few reports of higher natural gas prices, overall prices for raw materials and final goods produced were little changed since our last report.
District loan officers said that loan demand dipped in recent weeks as the demand for residential mortgage refinancings dried up. Thirty-year mortgage interest rates rose above 6 percent in August, taking the steam out of the refinancing activity that had surged in June and July. A mortgage banker in Charleston, S.C., said that while residential mortgage lending was strong early in the summer, refinancings had declined dramatically and lenders' "fortunes have reversed." A banker in Greenville, S.C., added that if mortgage rates remained above 6 percent, refinancing activity would grind to a halt. The demand for commercial loans remained weak and most commercial lenders were pessimistic about a pickup in the near future. In the words of a Richmond, Va., banker, "Businessmen are not convinced the slowdown [in business activity] is over."
Real estate agents across the District continued to report strong home sales since our last report. A realtor in Greenville, S.C., told us that business had been "incredible," adding that 2003 was a "banner year" for sales at his firm. Likewise, an agent in Charlotte, N.C., said sales had been "off the charts" in recent weeks. Most agents contacted stated that the recent increase in mortgage interest rates had sparked higher sales in August as fencesitters bought ahead of possible further mortgage interest rate hikes. Homes priced in the low-to-middle range remained the best sellers, while sales of homes in the upper ranges continued to be sluggish. Home prices remained relatively steady across the District.
Fifth District commercial realtors reported that overall leasing activity was generally flat in recent weeks, although signs of life were emerging in some areas. A realtor in Bristol, Va., noted continued strength in retail and office space leasing around a booming interstate exit in the area. Stronger retail leasing activity was also reported in Charleston and Huntington, West Virginia. A contact in Roanoke, Va., was "extremely encouraged" by a sharp increase in sales of commercial tracts, while a contact in Raleigh, N.C., reported that office space absorption was positive for the first time in five quarters. All the news wasn't upbeat, however. Demand for industrial and warehouse space remained weak across most of the District and construction activity was generally flat.
District tourist activity was mixed in recent weeks. Along coastal areas, contacts reported that bookings were somewhat better than a year ago. A manager at a Virginia Beach hotel told us that tourist activity remained strong despite frequent rains in the area. A contact in coastal North Carolina noted that cottage and luxury home rentals were up somewhat but he said that rainy weather had slowed weekend bookings and day trips to the beach. Bookings at mountain resorts were lower, in part because of inclement weather and lingering concerns about the economy and the safety of travel.
Temporary employment firms generally reported modest increases in the demand for placements since our last report. A contact in Hagerstown, Md., reported having a "sense" that his customers were getting busier, which he believed would lead to an increased need for temporary workers. Likewise, an agent in Charleston, W.V., said that he had acquired a $2 million per year contract with a large firm in the area and he expected demand for temporary workers to strengthen further as a result.
Wet conditions persisted in most areas of the District since our last report, delaying harvests of some crops, causing rot and disease in small grains and vegetables and hampering hay production. In many areas of Maryland, North Carolina, and West Virginia, farmers reported that frequent afternoon storms had saturated fields and slowed the tobacco harvest. Excessive moisture caused rot in melons in Virginia and some soybeans in North Carolina. In contrast, corn and soybean crops in Virginia continued to show improvement with few signs of disease. Despite the rains, both the cantaloupe and watermelon harvests were nearing completion in South Carolina.