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Economic activity in the Fifth District expanded at a moderate pace in late
August and September, as firmer factory output and somewhat stronger store sales
were balanced against a continued weakening in housing markets. Manufacturing
shipments and new orders rebounded in September following a soft patch in August.
Retail sales increased more quickly outside of housing-related categories and
domestic automobiles. Revenues at services firms continued to expand on pace
with a notable pickup at computer-related businesses. Both construction and
sales of houses softened further in most markets, though activity edged higher
in a few areas. In banking, mortgage lending weakened, while commercial lending
was steady. Tourist activity was temporarily dented in early September by Hurricane
Ernesto, but held up in areas away from the coast. Labor markets remained generally
tight, with hiring increasing modestly at factories and services firms. Skilled
workers remained difficult to find, and some upward wage pressures were noted.
Price pressures were more pronounced in manufacturing, but the pace of increase
moderated in the services sector. In agriculture, substantial crop damage was
inflicted by Hurricane Ernesto in early September, but subsequent weather conditions
have been favorable for harvesting activity.
District contacts reported that home-related sales slowed, though retailers
in other categories said their sales grew more quickly in late August and September.
Executives at two building supply chains told us sales growth at District stores
eased as new residential construction softened. The pace of sales also cooled
at furniture and home accessories stores in central Virginia, according to an
industry contact in Richmond, Va. In contrast, a contact at a chain department
store reported increased sales growth at District locations. Additionally, the
manager of a chain department store near Charlotte, N.C., said sales at his
store have been "going strong," as area manufacturing jobs expanded.
In the eastern panhandle of West Virginia, the manager of a discount department
store told us that the pace of sales has picked up since our last report. District
automobile dealers said the overall pace of sales steadied during the last four
weeks despite softer domestic automobile sales in some areas. In labor markets,
retailers continued to trim employee levels, although retail wages rose sharply
in the last four weeks. Contacts indicated that price growth in retail was moderate.
Revenues at service-producing firms grew more quickly since our last report.
Contacts at professional, scientific, and technical firms indicated that demand
strengthened over the period, particularly at computer and web-related businesses.
An executive at a financial services firm in Baltimore, Md., attributed his
clients' bullishness in part to the recent drops in energy prices. In addition,
District airports recorded an increase in air travel, although one airport manager
said more people are driving instead of flying for short trips because of the
"hassle factor" of security related to air travel. Hiring at services
firms picked up slightly in recent weeks; wage and price growth moderated.
Manufacturing activity picked up in September. Manufacturers told us that shipments
grew briskly following a contraction in August, while new orders gained momentum
and employment growth remained on pace. Contacts in the electronic, plastics,
and printing and publishing industries reported particularly strong growth in
demand since our last report. A printing and publishing manufacturer in South
Carolina, for example, said that some firming of local economic and employment
conditions helped boost their revenues. A plastics producer reported that they
were "still busy with good projects," and an electronic equipment
manufacturer in Maryland indicated that their sales were notably stronger than
a year ago. In contrast, a producer of residential doors in North Carolina reported
a substantial decrease in orders. Factory hiring expanded on pace with recent
months and wages increased somewhat more quickly. Manufacturers told us that
raw material prices jumped higher in September and that prices for finished
goods rose moderately.
District bankers reported some softening in lending activity in September. Mortgage
lending was particularly weak. A banker from Charleston, S.C., noted that "September
loan volume looks like it is going to be about the same as August. Typically,
we see a pickup in September, but not this year." Commercial lending,
however, held up since our last report. A banker from Charleston, W.Va., for
example, said that his bank was able to maintain its lending volume by competing
harder. "There is a lot of hunger out there for the good deals, and we
have to be more aggressive to get the new deals and keep the old deals,"
Residential real estate agents across the District noted generally slower home
sales in September. A Washington, D.C., agent described that area's housing
market as "horrible," adding that sales volume was down 25 percent
from a year earlier. Additionally, he reported that home inventories had risen
sharply and that some sellers were trimming asking prices. In Virginia Beach,
Va., an agent also noted weaker home sales, saying that buyers were being more
selective. Many District agents told us that inventories in their housing markets
continued to rise and that buyer traffic had slowed. In contrast, contacts described
the Charlotte, N.C., market as strong, and an agent in Greenville, S.C., reported
good local housing market conditions. Also, a Fairfax, Va., agent reported renewed
sales activity in September, though he was not optimistic that it would hold
through year's end. He noted more interest by investors in purchasing
properties to hold, "for a while." Modest decreases in home prices
were noted by contacts in many areas, and an agent in Richmond, Va., told us
that sellers were offering more incentives to prospective buyers.
Commercial real estate agents across the Fifth District reported that leasing
activity remained steady in recent weeks. An agent in Richmond, Va., said that
client interest and inquiries increased, though actual activity had yet to improve.
A contact in Washington, D.C., however, noted a slowdown in retail leasing.
He speculated that a reduction of consumers' wealth had forced area retailers
to curb their expansion plans. On balance, there was little change in new construction
reported across the District. In addition, little change in vacancy and rental
rates was noted.
Tourist activity changed little on balance since our last report. Contacts in
coastal areas said that bookings declined in early September in the wake of
Hurricane Ernesto, but that activity rebounded later in the month. A contact
on North Carolina's Outer Banks said that the construction of rental homes
had leveled off but noted continued brisk remodeling activity. She also indicated
that consumer spending had increased as gas prices declined. Contacts at mountain
resorts in Virginia told us business had picked up and that timeshare sales
were particularly strong.
Temporary employment agencies in the District generally reported firmer demand
for workers. An agent in the metropolitan Washington, D.C., area indicated continued
strong demand for temporary workers in all skill areas--especially in the warehouse,
distribution, and manufacturing industries. In Richmond, Va., an agent reported
that some additional strengthening in the area's economy helped boost
demand for employees fluent in Spanish, especially in the transportation and
healthcare industries. Most agents continued to have difficulty finding skilled
workers. Temporary workers' wages remained steady across much of the District.
Tropical storm Ernesto brought much-needed rainfall to the Fifth District in
early September, but hindered field work and damaged crops in low-lying fields
in coastal regions. Analysts in North Carolina told us that tobacco farmers
in the state lost 25 percent of their crops because of flooding from Ernesto,
and incurred $76 million of crop damage across 19 counties. In South Carolina,
crop and other farm damage from Ernesto was estimated at $11.5 million. In contrast,
drier weather returned to the District during the latter part of September,
allowing farmers to keep harvesting activity on schedule. In Maryland, farmers
were beginning to harvest their soybean crops; the harvesting of corn and sowing
of barley were progressing well in Virginia, and the apple harvest was ahead
of schedule in West Virginia.