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While economic reports from Fifth District business contacts continued to indicate a relatively weak economy, continuing signs of improvement were apparent in many sectors. Manufacturers reported solid increases in shipments and new orders, while manufacturing employment stabilized. The rate of change in raw materials and finished goods prices also picked up a bit. Residential real estate agents across the Fifth District observed general improvement in home sales, particularly for low-to-middle priced houses, but reported declines in house prices. Mortgage lenders mentioned a pickup in purchase loans that was concentrated in low-to-middle tier homes. On the other hand, commercial real estate conditions softened further as leasing and sales activity remained weak and vacancy rates continued to rise. Demand for commercial loans remained subdued. Meanwhile, contacts at services firms noted a slight increase in revenues since our last report, while retail firms reported falling sales. Contacts across the service sector observed contracting employment and wages.
The retail sector continued to struggle, although exceptions were also noted. Contacts at home and garden businesses, department stores, and retail establishments said sales declined in recent weeks. In contrast, contacts reported some improvement in sales at grocery stores, a few building supply retailers in South Carolina, and a discount chain department store in central North Carolina. Automobile dealers said the cash-for-clunkers program had increased foot traffic and boosted sales, but most were uncertain about the sustainability of the increase. Two dealers told us that sales had risen so much across all lines of cars and light trucks that they were "scrambling" to rebuild inventory. However, dealers also complained that the delays in processing paperwork had reduced their cash flows. Retail merchants around the District generally continued to reduce inventories and payrolls; they also reported an overall decline in average wages. The moderate pace of increase in retail prices was little changed since our last report.
Revenues at services firms grew slightly in recent weeks. Contacts at financial services firms told us that the improvement in the stock market had helped business. In addition, an executive at a central Virginia airport and executives at professional, scientific, and technical services firms all reported higher revenues since our last report. Despite the recent uptick, most contacts at services-providing firms continued to cut the number of employees. A recruiter of technical professionals in central North Carolina said that he was receiving numerous resumes, but "companies are hiring slowly and selectively." Wages at services businesses continued to decline while prices edged down slightly.
District manufacturers reported that activity continued to expand in late July and August. Contacts reported solid increases in shipments and new orders, and noted that employment stabilized after nearly two years of steady decline. A spark plug producer in West Virginia attributed a "huge increase in new orders" to the cash-for-clunkers program and indicated that his company expects to see continued improvement. Similarly, a manufacturer of automobile seat covers in North Carolina said that business had improved at his firm, and a machinery parts manufacturer in South Carolina observed a pickup in demand for automotive parts and components. Moreover, an aerospace and broadcasting equipment producer in Virginia mentioned an upturn in new orders, which he attributed to increased federal government spending on space and missile defense coupled with heightened demand for commercial satellite-based services. Contacts indicated that both raw materials and finished goods prices increased at a somewhat quicker pace than in our last report.
Activity at District ports generally improved in recent weeks, but remained notably below year-ago levels. Contacts noted an increase in both auto imports and exports in July, as well as strengthening in certain niche products such as power generators. However, port officials stated that retail imports for the holiday shopping season were down from the previous year, and that several ship lines had recently consolidated service routes or reduced vessel capacity.
Residential mortgage lenders reported slow but steady activity in recent weeks. Contacts noted a pickup in new mortgages, while demand for refinances continued to dwindle. Purchase loans were generally for lower-end homes, although some lenders reported an increase in loans for middle-tier homes. Credit standards at a number of District institutions were unchanged, while other institutions tightened guidelines further, increased scrutiny on appraisals, and allowed for "less leniency in gray areas." On the commercial front, recent lending activity was on pace with June and early July. Contacts noted that demand remained soft, with companies hesitant to make capital expenditures and take on additional debt. Loan terms and conditions continued to tighten at some institutions; others reported no recent changes and expressed a "growing appetite" to lend to good-quality customers. Credit quality of existing clients deteriorated further since our last report, although lenders noted the pace of deterioration had abated somewhat.
Residential real estate agents reported generally improved housing market conditions in recent weeks. Realtors in Washington, D.C., Fairfax, Va., and Richmond, Va., reported increased sales since our last report, with the Richmond agent adding that first-time homebuyers and the expiring federal tax credit were driving the increase in his market. Agents in North and South Carolina also reported generally improved housing markets. In Greenville, S.C., a contact reported a "nice surge" in sales, and increased foreclosure sales fueled activity in the Greensboro, N.C., market. While the low-to-middle priced houses sold the fastest overall, contacts in Richmond and Washington, D.C., reported increased house sales in the higher price brackets as well. House prices decreased across much of the District, which an agent in Asheville, N.C., "hoped" would help to reduce inventory in his market.
In commercial real estate, leasing activity remained weak. Agents reported that deals were continuing to be completed, but clients were slow to make decisions. Effective rental rates softened further in recent weeks and asking rates began to decline in the Raleigh, N.C., market. Concessions--particularly free rent--remained prevalent throughout the District, although tenant improvements were less common as landlords reportedly sought to conserve cash. Vacancy rates climbed higher across office, industrial, and retail space in most District markets, while the amount of available office sublease space remained fairly steady since our last report. On the sales side, very little activity was reported in recent weeks. Contacts reiterated that tight credit conditions were dampening sales prospects. Sales price trends were difficult to detect in most markets due to a lack of activity, although prices did reportedly edge lower in Richmond, Va., and Charlotte, N.C. Reports of commercial foreclosures were generally scarce, although agents in Washington, D.C., Richmond, Raleigh, and Charlotte reported a few instances of clients "turning in keys."
Tourist activity was generally stronger since our last report. Along the coast, contacts from Virginia Beach, Va., Myrtle Beach, S.C., and the Outer Banks of North Carolina all noticed an increase in occupancy rates. An hotelier in Virginia Beach told us that they were having an "amazing summer" with 99 percent occupancy, while a contact from Myrtle Beach attributed his increased bookings to continued discounting and aggressive packaging. In contrast, the contact on the Outer Banks of North Carolina reported little discounting at hotels and motels, but noted huge markdowns for rentals. Tourist activity at mountain resorts varied. A manager at a mountain lodge in Virginia reported stronger bookings compared to our last report and to a year ago, and credited the increase to families "staying regional." In contrast, a respondent at a mountain resort in West Virginia reported a 10 percent decline in bookings, noting a very wet summer with record-breaking rainfall.
Agents at temporary employment offices continued to report generally sluggish demand for workers since our last report. A contact in Hagerstown, Md., described demand as "very weak," adding that he did not expect much improvement over the next several weeks. Several contacts, however, noted some improvement and were optimistic about demand over the next few weeks due to the improving economy and an increase in manufacturing orders. In addition to machine operators, experienced supervisors and administrative staff, workers most in demand included those in sales, IT, and other technical disciplines.
Agricultural conditions were mixed since our last report. In South Carolina, climatologists indicated that some areas of the state approached drought-like conditions, and analysts in North Carolina and West Virginia reported that some places were still in need of rain. In other areas however, widespread rainfall significantly improved field crops and hayfields. In Maryland and Virginia, the vegetable harvest was underway and the peach harvest was nearing completion in South Carolina. Moreover, the soybean crops in Maryland and South Carolina were reported to be in good condition.