September 8, 2004
Federal Reserve Districts
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The Fifth District economy expanded more modestly in late July and August as retail sales and service sector activity weakened. Retail sales declined somewhat, automobile sales were sluggish, and shopper traffic tapered off in August. Services firms also reported weaker customer demand in August. In contrast, manufacturing continued to exhibit solid growth in recent weeks, with factory shipments and new orders picking up since our last report. Housing market activity remained at a generally high level, but homebuilding and sales activity slowed from the frenetic pace of last spring. In the District's labor markets, employment growth was modest in July and contacts told us that fewer employees were added to payrolls in August. While prices for manufacturing and construction materials moved moderately higher, overall price inflation in the District remained low. In agriculture, strong winds and heavy rain from Hurricane Charley and Tropical Storm Gaston damaged crops in some coastal areas. Despite the damage though, crop development was ahead of schedule across most of the District.
Services firms reported generally weaker customer demand in recent weeks. A central West Virginia caterer said she was not seeing the usual number of advance bookings and she passed along the comments of her food supplier who was also seeing slower business. In South Carolina, a utility contact said that unusually mild summer weather had lowered electric consumption in that area. Trucking firms in Maryland and North Carolina reported little change in revenue growth in recent weeks. In contrast, a contact at an executive search firm in Washington, D.C., said demand for upper level executives was firming, particularly from associations and nonprofit organizations.
District retailers reported somewhat softer sales during the last six weeks. Automobile dealers said sales were flat to lower and that customer traffic in showrooms was light. A contact at an apparel store in Charleston, W.V., told us his back-to-school price discounts failed to move much merchandise. A department store manager in central North Carolina said that while his store was still "riding the back-to-school wave," he expected a lull once school started. Retail contacts indicated that employment edged lower in July and August and said that prices in the sector were rising at a moderate pace.
District manufacturing activity grew solidly since our last report. New orders expanded at a brisk clip throughout July and August. Manufacturing employment and the average workweek expanded in July, but slipped somewhat in August. Producers of electrical equipment, fabricated metal products, and industrial machinery generally reported higher output in recent weeks. An electrical manufacturer in Maryland told us that they had received new orders from a major discount store which expected shorter lead time for deliveries. In contrast, several apparel manufacturers in North Carolina noted that their new orders had declined. Contacts in the sector told us that some raw material prices continued to increase--particularly those of oil, lumber, and steel--but they indicated that overall raw material prices were increasing only modestly.
District bankers reported that loan demand increased somewhat in July and August. Commercial loan demand was spurred by increased merger and acquisition activity and greater commercial real estate investment activity in some areas. A North Carolina banker said that commercial lending had been fairly strong in recent weeks and he expected demand for commercial loans to "surprise people on the upside" in coming months because he expected a pickup in the region's economy. Residential mortgage lending expanded at a moderate pace as attractive mortgage interest rates continued to underpin continued strong demand for both primary and second homes.
Fifth District Realtors reported that while housing activity remained generally strong, home sales slowed in some areas. A Richmond, Va., agent told us the market in his area was vibrant and that homes in all price ranges were selling well. A Realtor in Odenton, Md., said that market was strong as well, with "lots of wonderful inventory," while an agent in Asheville, N.C., noted "good" markets with "a lot of out-of-town as well as local buyers." In contrast, a Realtor in Greensboro, N.C., reported slowing home sales, which he attributed to fewer new businesses relocating to the area, and an agent in Fairfax, Va., said that homes seemed to be staying on the market a little longer.
Commercial leasing activity was generally flat in recent weeks as a typical summer slowdown continued in some Fifth District markets. "Conditions are about the same here, but we expect things to pick up in early September," noted a contact in Raleigh, N.C. However, the seasonal lull didn't persist everywhere. Leasing activity in the Washington metropolitan area picked up dramatically in recent weeks. "Businesses are gearing up to take more space, lots of deals are getting done, and the demand is forcing up rents," reported a D.C. area Realtor. The Columbia, S.C., market was also active and remained one of the hottest markets in the Fifth District. "There is a great energy here in Columbia, leasing continues to pick up, there has even been a recent uptick in industrial and warehouse activity," noted a contact in that area.
District tourist activity was mixed in recent weeks. Hurricane Charley forced evacuations in some coastal areas of the Carolinas in mid August, denting tourism revenues in the region. A contact at Myrtle Beach, S.C., estimated a loss of $30 million because of evacuations resulting from Hurricane Charley in that area. Tropical Storm Gaston also slowed tourism in South Carolina but the effect was minimal because the brunt of the storm went west of the coast. A real estate agent on Emerald Isle, N.C., said that beach cottage rentals had been slow all summer and that he had taken the unusual step of lowering rents to attract more business. He noted that people were taking shorter vacations this summer and seemed less inclined to rent cottages for an entire week. In contrast, a hotelier at Virginia Beach, Va., reported somewhat stronger bookings in July and August and a 98 percent occupancy rate. A manager at a mountain resort in Virginia was also upbeat, noting that customers were spending more and that bookings were strong through October.
Contacts at Fifth District temporary employment agencies continued to report stronger demand for workers in recent weeks. A contact in Hagerstown, Md., said that solid growth in the local economy was creating strong demand for temporary manufacturing and warehouse workers. Most temporary employment agents said that they expected a further strengthening in demand for their workers in the months ahead. Workers with administrative or industrial skills were most widely sought.
Although storms and excessive moisture have led to problems in some areas, District crops are generally in excellent shape. Crops in some coastal regions of the District were buffeted by winds and rainfall from Hurricane Charley and Tropical Storm Gaston in August, but damage was not widespread. Farmers in coastal South Carolina reported some damage to tobacco and corn crops from heavy winds and extremely wet fields. In addition, excessive moisture contributed to higher incidences of diseased fruits and vegetables in Maryland and reduced the quality of tobacco in some areas of North Carolina. Despite the weather-related problems, field crop development was ahead of schedule and pasture and livestock conditions were generally good in most areas. In addition, because of ample rainfall, farmers in many areas anticipated bumper crop yields. But bumper crops may not translate into record revenues; crop producers expressed concern that lower prices could trim their crop receipts at harvest time.