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The Fifth District economy expanded at a quicker pace than in our last report,
led by firmer conditions in manufacturing and an increase in retail activity
in late December. District retailers generally reported that sales growth picked
up the pace after mid December and was particularly strong in the final week
of the month. Services providers reported moderate growth in both revenues and
employment, and major services sectors such as real estate and tourism remained
strong. Despite continued contraction in textiles, overall District manufacturing
output was little changed in December after having dipped in November. Bank
lending was also generally steady in the period since our last report. There
were fewer reports of spiraling raw materials prices in the manufacturing sector
and prices of manufactured goods rose only modestly. In agriculture, small grains
and livestock were in good condition in most areas of the District.
District retailers reported that a surge in sales in the final week of the month
offset sluggish activity early in the month, boosting their December revenues.
A manager at a department store in central North Carolina said holiday revenues
were strong. Sales at building supply stores were notably higher--a contact
in Richmond, Va., said customer traffic picked up in December while a retailer
in Columbia, S.C., reported record sales for the month. Most automobile dealers
in the District indicated revenues were about the same as a month earlier. Stronger
sales led retailers to increase hiring, and wage growth accelerated. Respondents
said that prices rose only modestly at stores in December.
Demand at services firms was somewhat stronger since our last report. A financial
services contact in Baltimore, Md., said the general outlook of "the man on
the street" had brightened. A commercial and residential landscaper in coastal
North Carolina said his business had "done a 180" in the last four weeks, and
that sharply higher customer demand was helping to rein in excess inventory
accumulated earlier in the season. Despite the pickup in demand, services employment
rose at a slower pace in December, though wage growth gained strength. Prices
in the services sector grew at a slightly slower pace in December.
District manufacturing activity stabilized in December after slipping somewhat
in November. Factory shipments and new orders were flat while manufacturing
employment edged higher. Several sectors reported generally higher levels of
manufacturing activity but these gains were tempered by continued weakness in
the textile and apparel sectors. A rubber products manufacturer in South Carolina,
for example, told us that December sales were "better than forecast" and added
that sales "looked good for the next 30 to 60 days." A plastics manufacturer
in North Carolina reported "activity is good" and that "backlog, sales and work
activity" were all up at his company. But textile and apparel producers reported
softer new orders and lower employment in December. Textile and apparel firms
expressed concern that the removal of textile and apparel quotas on China could
constrain orders in 2005. Prices of raw materials and finished goods rose at
a slower pace in December. Looking ahead, though some manufacturers expressed
skepticism about the sustainability of the U.S. economic recovery, many said
they planned to increase capital spending over the next six to 12 months.
District bankers reported that loan demand changed little since our last report.
Lenders said that demand for commercial loans slowed in December, but the slowdown
was about normal for the holiday season. Several commercial bankers noted modestly
higher capital spending by their clients, particularly for new equipment, and
expressed optimism that increased capital spending would drive commercial lending
activity higher in 2005. In addition, there were scattered reports of stronger
commercial real estate lending in Virginia. Residential mortgage lending was
only modestly higher, however; new mortgage originations rose, but refinancing
activity dwindled. Bankers reported little change in loan standards for creditworthiness
since our last report.
Fifth District real estate agents continued to report generally strong housing
markets. In Fairfax, Va., an agent said properties were being "snapped up" as
soon as they hit the market, adding that she expected an even stronger market
in the spring. A Fredericksburg, Va., agent reported a "still crazy" market
there, noting that business at her agency was double year-ago levels. In Greensboro,
N.C., an agent reported an "active market" and said that the future was expected
to be even brighter as a new computer manufacturing facility brought additional
jobs to the area. There were a few softer markets, however; agents in Odenton,
Md., and Greenville, S.C., for example, reported some slowing in the pace of
home sales. Home prices continue to rise in most areas of the District.
Commercial real estate agents reported that commercial leasing activity strengthened
over the final six weeks of 2004. "We ended the year on a very strong note and
are quite optimistic we can maintain that momentum well into 2005," noted a
contact in Charlotte, N.C. Office leasing was the driving force behind the recent
surge in activity as retail and industrial leasing were generally flat. An agent
in the Washington, D.C., metropolitan area reported that the uptick in office
leasing was due primarily to the expansion of "large companies into large spaces."
There were scattered reports of increased office construction across the District,
while the pace of retail construction was reported to be moderating. Rents and
vacancy rates in the commercial sector were little changed.
Tourist activity picked up in the weeks since our last report. A contact on
the Outer Banks of North Carolina noted that unseasonably warm weather in late
December and early January had boosted their business. A contact in Myrtle Beach,
S.C., reported that some hotels were booked to capacity and were turning tourists
away during the week after Christmas. Reports from mountain areas were generally
upbeat as well. Contacts at mountain resorts in Virginia said that declining
gasoline prices in December had helped their business and also noted that they
were seeing more visitors from outside the United States.
Employment agents in the District generally reported flat demand for temporary
workers since our last report. An agent in Raleigh, N.C., said that demand for
workers had been slowed by the holidays in December; however, he looked for
a pickup in hiring in 2005. An agent in Hagerstown, Md., also expected demand
for workers at his agency to strengthen as the economy continued to grow. Workers
with administrative and sales skills and those with production or distribution
center experience were most highly sought.
Warm weather in early December accelerated the growth of late-planted winter
grains and extended the grazing period for livestock in Virginia and West Virginia.
Small grain crops were reported to be in mostly good condition in most areas
of the District. But the last week of December brought very cold temperatures
across the District and a snow storm along the Atlantic Coast, leading to unusually
large amounts of supplemental feeding of livestock in Virginia and West Virginia.