October 15, 2003
Federal Reserve Districts
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Despite disruptions from Hurricane Isabel, economic growth advanced at a modest pace in the Fifth District in late August and September as ongoing moderate expansion in the services sector was partially offset by continued contraction in the manufacturing sector. Hurricane Isabel disrupted retail and services businesses in several District states in mid-to-late September, although relatively few establishments outside of coastal regions experienced significant property damage. Along the coast, tourists were on the move in advance of Isabel's arrival on September 18, but decreases in tourism activity in those areas were partly offset by increases at inland locations as tourists relocated and out-of-region utility crews arrived for repair and clean-up efforts. With the exception of hurricane-related purchases, such as generators, plywood, and batteries, retail sales were generally flat in September. District manufacturing activity weakened since our last report as shipments declined again and employment at factories contracted. Adding to the weaker tone, a small number of manufacturers reported prolonged shutdowns and/or substantial damage resulting from the hurricane. In the housing sector, growth in home sales slowed, but realtors said that activity remained at a high level. In agriculture and fishing, heavy rain and high winds from the hurricane damaged fishing boats and crops and disrupted the feeding of livestock in areas lying in the storm's path.Retail
Fifth District retailers reported generally steady sales over the last six weeks. Only a few contacts, however, reported increased hiring. Many retailers in North Carolina, Virginia, and Washington, D.C., closed on September 18 and for several days thereafter because of power outages in the aftermath of the hurricane. Hardware stores in those areas saw increased sales of chain saws and generators after the storm, and grocers did brisk business as a result of lengthy power outages. Most retailers said that sales lost because of the storm were quickly made up and that the hurricane caused just "a blip" in their monthly sales figures. Services
Services businesses reported moderately higher revenues in the weeks since our last report. Executive search firms in the Washington, D.C., area said demand for their services picked up, and a contact at a Baltimore financial services firm said customer demand was strong enough to warrant increased hiring. Effects of Hurricane Isabel were specific to particular services businesses-electric utilities brought in thousands of workers, tree removal companies in central Virginia gained "phenomenal" business, and insurance companies brought in disaster-relief specialists to assess and settle claims. Restaurants were busier than usual as households waited days for electric power to be restored. Also, air traffic and trucking were disrupted by the storm. In the public sector, federal government offices closed for two days because of the hurricane. Manufacturing
The District's manufacturing sector contracted in September: shipments, new orders, capacity utilization and employment fell. Contacts in the chemicals, lumber, and textiles and apparel industries noted particularly sharp declines in shipments. A machinery manufacturer said that they were already half way through September and hadn't put enough [sales] on the book to make the payroll much less pay other expenses. Several textile and apparel manufacturers told us that foreign manufacturers continued to gain market share to the detriment of U.S. textile and apparel companies. Manufacturers overall noted a substantial decline in hiring and modest wage growth.
Hurricane Isabel caused relatively few disruptions to manufacturing operations, though adverse impacts were noted by some District lumber mills. A contact at a North Carolina lumber mill told us that their plant shut down for several days and noted that there would be much lower volumes of standing timber available for sale for years to come. On a brighter note, a counterpart at a Virginia lumber mill said that while his company's orders had dropped because of the storm he felt that there would be a surge in business after roads were cleared and power was restored to the area.Finance
District loan officers said that growth in overall lending activity declined as residential mortgage refinancings slowed in the weeks since our last report. Residential mortgage refinancing dropped substantially in August and early September as mortgage interest rates climbed well above 6 percent. In addition, new home loan originations grew more slowly as the pace of house sales cooled. Commercial lending, however, showed signs of picking up in some areas. A Richmond, Va., banker, for example, said that businesses were beginning to expand their capital spending and borrowing funds again. In her words, businesses had "put off spending long enough." Commercial lenders in other areas, however, suggested that most business decision makers continued to keep expansion plans on hold, "waiting to see what will happen to the economy." Real Estate
Although growth in home sales slowed somewhat in several areas of the Fifth District residential realtors continued to report generally strong housing markets. A realtor in Odenton, Md., reported slower growth, but added that the market had been "so insane" in recent months that the slowdown was welcomed. A contact in Washington, D.C., said that the market there was still robust, as was the neighboring market in Prince George's County, Md., where increased gentrification was driving house prices higher. A North Carolina contact reported that although the Greensboro real estate market was still doing relatively well, customer interest had ebbed somewhat in recent weeks. Home prices were reported to be rising moderately in most areas of the District.
District realtors reported no major changes in commercial real estate conditions in recent weeks. While there continued to be pockets of improvement, contacts said that the lack of job growth had made many companies cautious and hesitant to commit to new projects. By sector, the leasing of retail space remained steady in most markets, while activity continued to be flat in office and industrial space. Commercial rents dipped and vacancies held firm. Commercial construction activity continued to be "very slow." Looking ahead, realtors expected stronger growth in the fourth quarter--a contact in Columbia, S.C., said he was "cautiously optimistic" regarding activity for the remainder of the year.Tourism
Tourist activity remained mixed in September. Hurricane Isabel battered coastal areas along the Outer Banks of North Carolina and much of Virginia in mid-September causing damage to some coastal hotels and widespread cancellations of hotel reservations. However, one hotel's loss was another's gain in some cases as tourists relocated out of the storm's path. A contact at Emerald Isle, N.C., on the southern Outer Banks told us that bookings there had picked up as the storm passed further to the north. A hotelier at Virginia Beach said that Isabel caused severe damage to some oceanfront resorts resulting in increased business in the better-protected inlet area. Mountainous areas in Virginia and West Virginia also fared well as thousands of people headed west after evacuating from the Virginia Beach and Williamsburg, Va., areas. Temporary Employment
District temporary employment agencies reported increased demand for workers since our last report. Contacts in Hagerstown, Md., and Northern Virginia reported a definite upturn in business activity. Likewise, a Raleigh, N.C., agent reported an increase in corporate confidence and a better response to his agency's marketing efforts. Administrative assistants and customer service representatives were among the occupations in highest demand. There was also a large influx of temporary workers involved in repair and cleanup in the aftermath of the hurricane. Agriculture and Fishing
Hurricane Isabel brought heavy rain, strong winds, and flooding in low-lying areas in the storm's path. With the exceptions of South Carolina and Washington, D.C., farmers in most areas of the District incurred varying degrees of storm-related crop damage. In Maryland, corn, fruit trees, and soybeans were damaged from flooding. Corn, tobacco, tomatoes, and strawberries were damaged by both water and high winds in northeast North Carolina and in Virginia. Sustained power outages and lack of water were a concern in North Carolina as farmers tried to dry corn, cure tobacco, and provide feed and water to livestock. Scattered losses of cattle were reported and thousands of chickens were lost because of wind damage to poultry houses and a lack of power. District orchards were also hard hit--agricultural officials estimate that a sizeable proportion of the apple crop in Virginia was destroyed. The hurricane-related wind and storm surge also damaged fishing boats, nets, and other equipment along coastal areas. Contacts in the fishing industry expect some long-term damage to the crab and fish populations as a result of the storm.