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The Fifth District economy continued to expand at a solid pace in October and the first three weeks of November, despite evidence of slowing automobile and home sales. District services businesses generally reported strong revenue gains and steady advances in employment. Growth in the manufacturing sector remained on track as well; shipments and new orders expanded briskly. District retailers, however, reported only moderate sales gains during the period as a slump in automobile and light truck sales weighed on the sector. In addition, real estate agents said that while the residential market remained strong, home sales slowed in a number of areas and sales price gains moderated. In the financial sector, growth in lending activity was constrained by a slowdown in residential mortgage lending. Business contacts generally reported that prices for their products and services rose at a somewhat quicker pace since our last report, as higher energy prices continued to work through the economy. In agriculture, harvesting was underway and proceeding a little faster than normal in many areas thanks to generally warm and dry weather. Yields were generally good.
Service-producing businesses continued to report relatively strong revenue growth in the weeks since our last report. Investment services firms in Richmond, Va., and Baltimore, Md., said that revenues continued to grow at a solid pace, while revenue growth moved higher at professional, scientific, and technical businesses. In addition, contacts at hospitals and residential care facilities said that customer demand grew more rapidly during recent weeks, and they expected the momentum to continue in the weeks ahead. Hiring and wage growth at services firms remained strong. Prices in the sector advanced at a somewhat stronger pace in October, but growth eased in November.
Retail sales growth tapered off since our last report as big-ticket sales slipped in November. Automobile and light truck dealers throughout the District reported that sales weakened substantially after "employee pricing" and similar incentive programs ended. The owner of a sporting goods store in central West Virginia reported that holiday sales were starting slowly, and the manager of a large department store in central North Carolina told us warm weather damped sales of winter apparel. In contrast, grocery and home improvement stores reported rising sales. Retail prices rose more quickly in October--in part because of higher gasoline prices--but the pace slowed somewhat in November. Hiring in the sector continued to contract.
Growth in the District's manufacturing sector picked up in October and the first half of November. Factory shipments and new orders expanded at a solid pace in both months. Food, paper, and electronics manufacturers reported particularly strong activity; an electronics producer in Baltimore, Md., said, "Business took off in September and continues at a brisk pace." A plastics producer was also upbeat, noting, "We are still very busy; new orders and backlogs are up," and a chemical manufacturer in Charlotte, N.C., told us, "Customer demand remains robust." In contrast, a furniture manufacturer in North Carolina indicated that business was "softer" than a year ago, and said that attendance at the Furniture Market in High Point, N.C., was down 10 percent this fall. Prices for both raw materials and final goods sold rose at a quicker pace in October and November.
District bankers reported that growth in lending activity edged lower in the weeks since our last report. Residential mortgage lenders said that a rise in mortgage interest rates trimmed the pace of lending in recent weeks. Commercial lending was characterized as generally flat. Several bankers reported that business clients were a little more reluctant to borrow because of increasing concerns about future sales prospects. A banker in Charleston, W.V., for example, reported that his clients were hesitant to borrow to finance capital spending, despite modest growth in demand for their products.
Real estate agents reported that while residential markets remained generally strong, the pace of housing activity continued to slow in some areas. An agent in Washington, D.C., told us that sales at his agency had fallen 7 percent below year-ago levels, and that traffic at open houses was "awfully slow." A contact in Richmond, Va., reported that higher-priced homes were staying on the market longer, and that sellers had become more willing to pay closing costs. In Odenton, Md., an agent said that multiple offers on properties for sale were becoming less common. Homebuilders reported that construction materials prices, particularly those of lumber and drywall, continued to escalate rapidly. In contrast, home prices softened in a number of areas. A Fairfax, Va., agent told us that she had seen more price reductions in the past month than in the past 3 years, while an agent in Fredericksburg, Va., said that markets were undergoing "a healthy adjustment" toward lower prices.
Commercial real estate agents reported that the pace of leasing activity in the District remained generally strong in October and November. Office and retail markets continued to be more active than industrial and warehouse markets. Commercial construction activity was generally flat, as substantially higher construction costs slowed demand for new commercial space in a number of areas. An agent in the District of Columbia said that construction costs were rising at a rate of about 1.5 percent per month, and the pace of new construction was beginning to slow as a result. Vacancy rates in most areas of the Fifth District remained low, while rents firmed. In Columbia, S.C., an agent said that lower vacancy rates were resulting in fewer concessions from property owners in contract negotiations.
Tourist activity strengthened since our last report. Contacts on the Outer Banks of North Carolina and in Myrtle Beach, S.C., said bookings for Veterans' Day weekend were somewhat stronger than a year ago, which they attributed primarily to fair weather and earlier-than-normal holiday promotions. Reports from mountain resorts were also upbeat. A manager at a resort in western Virginia noted record-breaking time-share sales--up 10 percent over last year--and a contact in West Virginia indicated that group bookings had increased markedly.
Temporary employment agencies in the District reported a pickup in demand for workers since our last report. An agent in Northern Virginia said that business openings and expansions had boosted demand for her firm's services. A contact in Hagerstown, Md., told us that demand for temporary workers was very strong and that qualified workers remained in short supply. Skilled manufacturing, administrative, and customer service employees were among the most highly sought temporary workers across the District.
Generally warm and dry weather contributed to ideal harvest conditions in most areas of the Fifth District. In Virginia, good progress was made in harvesting soybeans and corn, although limited grain elevator capacity slowed activity in some counties. In South Carolina, the soybean harvest was reaching the halfway mark and yields were generally good. Harvests of cotton, peanuts, sweet potatoes, sorghum, and soybeans were nearing completion in North Carolina, and Christmas tree producers in that state reported that they were preparing for the holiday season.