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The Fifth District economy expanded at a more moderate pace in June and early July, restrained by softer retail sales and slower growth in manufacturing output. Retailers reported fewer customers in District stores and said that their sales slumped in recent weeks. Manufacturing shipments expanded more slowly in June, and new orders and employment were flat. Services businesses, in contrast, generally reported strong revenue and employment growth, although summer vacation schedules apparently slowed real estate activity in some areas. In finance, commercial lending picked up, but residential mortgage lending was sluggish as refinancing activity dwindled. While a number of contacts reported markedly higher prices for fuel and building materials, prices in the manufacturing and services sectors were said to be rising at an average annual rate of less than 2 percent. In agriculture, summer thunderstorms brought relief to dry fields in Maryland and South Carolina but caused wind damage to crops in some areas of the Carolinas.
District retailers generally reported flat to lower sales in the weeks since our last report. A contact at a large discount chain said that while sales remained relatively solid, higher gasoline prices had trimmed his sales somewhat; in his words, "when gasoline prices go up, there's less money to spend." A contact at a normally busy Washington, D.C., beltway anchor store told us mall traffic was down, and the manager of a clothing store in central West Virginia said apparel sales were "in the doldrums." Retail employment was generally flat in June and July. A department store manager in Gastonia, N.C., for example, said his store increased hours for part-time workers rather than hire additional full-time employees because sales were flat.
Contacts at services firms told us that demand had picked up in recent weeks.
A manager at a Tidewater Virginia rental outlet that specializes in tools said
his revenues were well above a year ago, and a national trucking firm with offices
in North Carolina reported stronger demand for freight transportation services.
There were scattered reports of adverse impacts from higher prices in the services
sector. The owner of an architectural firm in the Baltimore, Md., area, for
example, expressed concern that higher prices of construction materials might
limit the number of new construction projects--potentially reducing his business.
In addition, a trucking firm in North Carolina reported that a run-up in fuel
prices had not been fully passed through to customers, squeezing its profit
District manufacturing activity generally advanced at a somewhat slower pace
in June. For the most part, shipments grew more modestly than in May, while
gauges of new orders and employment were essentially flat. However, manufacturers
in the chemicals, fabricated metal, plastics, and lumber industries reported
that shipments and new orders picked up. A plastics manufacturer in North Carolina
noted that his firm was seeing signs of an expanding economy, citing "longer
lead time on raw materials, raw material price increases, decent new order activity,
and slight increases in wages." In contrast, several District furniture manufacturers
reported continued declines in demand. A furniture manufacturer in Maryland
told us that retail furniture sales were slow. He also noted that the price
of cherry wood had risen sharply in recent months. Overall, however, our contacts
indicated that manufacturing price increases remained generally modest, as prices
rose at an average annual rate of about 2 percent.
District bankers reported a pickup in the demand for commercial loans in recent weeks but said that demand for home mortgage loans was constrained by sluggish refinancing activity. Contacts cited modestly higher demand for commercial loans, supported by increased merger and acquisition activity. Several bankers, however, commented that commercial borrowing activity continued to be hampered by businesses' hesitancy to make capital expenditures. A lender in Richmond, Va., noted that there was "no sense of urgency [on the part of businesses] to borrow for capital expansion." Residential mortgage lenders said that while new home originations remained healthy, mortgage refinancing activity had dried up.
Although realtors reported that interest in home buying had backed off as the
summer vacation season arrived, the pace of home sales in the District remained
fundamentally strong. Contacts in the Washington, D.C., and Fairfax, Va., areas
reported brisk home sales, though they noted some growth in inventory. A contact
in Washington, D.C., told us the market for condominiums and co-ops, however,
remained "plain crazy." Reinforcing the strong tone, a contact in Fredericksburg,
Va., said home sales in her area continued to be robust and a Greensville, S.C.,
realtor said sales there were "unbelievable." A realtor in Northern Virginia
said home prices were still going up but "not stopping a thing." A homebuilder
with operations in both Virginia and the Carolinas, however, said he had noticed
that customer traffic in new homes had diminished somewhat. On the price front,
homebuilders continued to report higher prices for lumber, concrete, sheet metal,
Fifth District realtors reported that commercial leasing activity slowed considerably
during recent weeks, partly because of the normal seasonal lull. "It's the annual
summer routine, everyone is on vacation, it's hard to schedule meetings, and
the deals just don't get done," noted one realtor in Washington, D.C. Despite
the seasonal slowdown in most of the District, a contact in Columbia, S.C.,
reported that the local market had strengthened during the last month as "office
space is hot and retail space is on fire." Rents across all sectors were generally
flat since our last report and new construction activity remained spotty.
Tourist activity was mixed since our last report. Hoteliers at Virginia Beach, Va., and Myrtle Beach, S.C., reported stronger bookings for the Fourth of July holiday weekend compared to a year ago. Furthermore, they noted that because the holiday fell on a Sunday, bookings rose substantially during the weeks before and after the holiday as vacationers stretched out the weekend. In addition, a manager at a mountain resort said that time-share sales were doing extremely well with many buyers paying in full at closing. In contrast, a contact on the Outer Banks of North Carolina indicated somewhat weaker bookings compared to a year ago, which she attributed in part to bargain-hunting vacationers waiting until the last minute to book rooms.
Contacts at District temporary employment agencies reported that stronger economic conditions led to increased demand for workers in recent weeks. A contact in Northern Virginia noticed more interest in administrative assistants from nonprofit agencies and general corporations, and in Raleigh, N.C., workers with engineering, sales, and customer service skills were more widely sought.
Somewhat warmer-than-normal temperatures coupled with scattered thunderstorms
were a mixed blessing for District farmers in recent weeks. Thunderstorms caused
some wind damage to crops in the Carolinas and moisture damage to the hay crop
in West Virginia. But the recent rainfall was welcomed in areas of Maryland
and South Carolina where high temperatures and sporadic precipitation had stressed
corn crops. On a brighter note, the cotton and soybean crops were in excellent
condition in Virginia, and the peach crops in Maryland and South Carolina remained
in good to excellent condition.