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Economic activity in the Fifth District continued to expand modestly since our last report, with further softness in big-ticket sales and manufacturing shipments offset by stronger growth in services activity. Retail sales weakened in recent weeks, partly because of lackluster sales of domestic automobiles. Gauges of manufacturing activity again softened, with textiles and furniture firms reporting notably weaker demand. In contrast, activity at District services firms expanded at a quicker pace, and contacts were a bit more optimistic about their prospects going forward. District housing markets showed broader signs of firming, with sales edging higher in many areas. Home prices, however, generally continued to be flat to slightly lower. District labor markets remained tight, with skilled workers in short supply and some evidence of higher wages. Price pressures were mixed, with higher energy prices a concern. In agriculture, livestock were in generally good condition as were winter small-grain crops.
Retail sales weakened since our last report, pulled down in part by declining big-ticket sales. Contacts at apparel stores in Charleston, W.Va., and in Columbia, Md., said the pace of clothing sales slowed. Sales also slowed at some pharmacies in the Carolinas. In contrast, several District grocers reported that revenues grew more quickly over the period. Reports on furniture sales were mixed--sales increased at a store in central Maryland, while the owner of a West Virginia furniture store said sales were flat in recent weeks. Automobile dealers told us that domestic brands continued to lose market share to imports. However, a central West Virginia dealer said he had increased his inventory of U.S.-made minivans; he expected demand for the vehicles to exceed local supply as manufacturers phase out production of those vehicles. Retail wages grew more quickly, although retailers continued to trim jobs. Retail price growth edged higher.
Revenue growth rose sharply at District services firms in recent weeks. Contacts at some construction-related services businesses, such as floor finishing and HVAC firms, told us that demand for their services remained strong. Demand for accounting and legal services strengthened and hospitals in central Virginia and in Maryland also reported increased demand for their services. Employment at service-producing businesses grew on pace with our last report, while growth in wages escalated. Prices in the sector also grew more quickly.
District manufacturing activity continued to lose momentum in January and February after contracting modestly in December. Manufacturers told us that the decline in factory shipments, new orders and employment deepened since our last report. Product demand was notably weaker in the apparel and textiles, fabricated metals, furniture and paper industries. A furniture manufacturer in North Carolina said the industry was in dire straits, and that price cutting was rampant. A textile manufacturer in North Carolina expressed similar sentiments. He told us that his firm had sold part of its business and was in the process of shuttering a plant in Virginia. In contrast, a producer of electrical components in Maryland indicated that business at his firm was off to a good start--noting strong sales during the first two months of 2007. Energy and other raw material prices rose in recent weeks after tapering off in January, while finished goods prices continued their downward trend.
District bankers reported little change in lending activity in recent weeks. Residential mortgage loan demand was characterized as steady throughout the District. A Charleston, S.C., contact noted that interest rates "popped up" a bit in January, which he speculated may have constrained activity somewhat. A Charlotte, N.C., banker said that a pickup in the demand for second homes was largely offset by a fall in speculative demand. A few contacts noted that borrowers were moving from adjustable rate loans to fixed rate loans. In addition, there were scattered reports of slight increases in late payments and delinquent mortgage loans throughout the District. Commercial lending remained strong.
Residential real estate agents reported that housing markets generally held up since our last report. A number of respondents said residential sales were steady. However, an agent in Washington, D.C., told us that sales in her area had been more active and that she had recently seen multiple offers on a few properties. Contacts also reported that condominium sales and listings rose in the Washington, D.C., area. Likewise, contacts in that area and in Asheville, N.C., reported that condominiums had become hot commodities, in part because builders were aggressively offering incentives to attract buyers. House prices held steady across much of the District, although contacts in some areas reported somewhat lower prices. While low- to middle-price homes remained the best sellers Districtwide, a contact in Washington, D.C., told us that finding houses in this category was difficult because of a lack of inventory.
Commercial real estate agents gave generally mixed reports. A Washington, D.C., contact said that retail leasing activity slowed in recent weeks due to "some resistance to high rents and less optimism going forward." A northern Virginia agent noted softer demand for office space, though he said that rental rates remained strong despite recently higher vacancy rates. In contrast, the Raleigh commercial market continued to strengthen since our last report. The office and industrial segments were particularly active with lower vacancies and higher rents. Most other areas in the District reported little change in recent weeks.
Tourist activity was somewhat weaker since our last report. A manager at a ski resort in Virginia told us that his business was experiencing the worst ski season in 16 years. He attributed the decline in the number of skiers to unusually warm weather in January, noting that even with colder weather in February, it was virtually impossible to catch up. Tourism along the coast was mixed. A contact in Myrtle Beach, S.C., reported that bookings for the Presidents' Day weekend were somewhat stronger than last year, while a respondent from the Outer Banks of North Carolina indicated that holiday bookings were flat.
Temporary employment agencies in the District reported generally strong demand for workers in recent weeks. An agent in Raleigh, N.C., expected demand for workers to rise over the next few months because of both business relocations as well as expansions of existing businesses. In Richmond, Va., an agent told us that she anticipated a stronger need for temporary workers because of the area's low unemployment rate. Workers with customer service, sales, accounting, bilingual and admin skills remained highly sought across the District.
Weather conditions varied widely during most of January and February as warmer-than-normal periods of mild, dry weather were followed by ice and snow. A contact in Maryland noted that the generally mild winter had been positive for livestock, and a contact in Virginia said that although some livestock were grazing pastures, most farmers continued the feeding of hay. In addition, contacts reported that small grain crops were in good condition in most areas of the District.