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Feedback on economic activity in the Fifth District continued to be mixed since our last report. Activity at retail and services firms was, on balance, flat to down. Manufacturing activity also edged down over the last month, while port contacts gave mixed reports. Both residential and commercial real estate activity was mostly unchanged from the weak levels of the recent past, and several contacts stated that property values had stabilized. Activity in the banking sector improved modestly, however, led by gains in business lending and home refinancing. Tourism continued to strengthen in the District, with bookings increasing over the last month. Reports on labor markets varied, with permanent hiring flat to down and temporary employment picking up slightly. Price and wage growth in the services and manufacturing sectors remained subdued since our last report.
Retail activity generally softened since our last report, although a few contacts reported an uptick in sales. Several building supply retailers reported declining sales revenues, while a central North Carolina discount department store manager described sales revenues as "steady." A store manager in West Virginia indicated that back-to-school sales were "good, but not shooting off rockets," and a North Carolina department store wholesaler said business had picked up. However, a North Carolina furniture store manager said that local unemployment was causing him to sell at close to cost. Indeed, big-ticket sales, particularly among automobile dealers, fell sharply in our most recent survey. One exception was a car dealer in West Virginia, who reported that sales rose modestly. Recently polled retailers noted flat or declining customer traffic, although a representative of central Virginia merchants reported a modest increase in credit card use. Price growth strengthened somewhat at retail establishments, according to our District survey, while growth in average wages was little changed.
Business activity at services firms weakened overall, although several services providers reported rising revenues. Demand for construction-related services was particularly soft, according to recent survey returns. A contractor commented that he was taking jobs without overhead or profit just to hold on to his subcontractors, while awaiting a pick-up in business. According to contacts at healthcare systems that we recently polled, consumer demand was steady, while changes required by healthcare reform had mixed effects on their budgets. In contrast, several high-tech firms reported stronger demand; executives expressed concern about the stability of the economy, however. Price change at services firms remained modest over the last month, according to our latest District survey, and average wages grew slightly. A couple of services providers stated that their wage increases were directed toward keeping key employees rather than toward standard, across-the-board increases.
District manufacturing edged down in September after expanding for the last seven months, with reports of sharp declines that were partially offset by pockets of strength. Several textile and apparel contacts described their business as having "no depth" and noted that their customers expressed uncertainty about the direction of their business. A tire manufacturer reported that a backlog of orders had "tanked" and the company had cut production, noting that he did not expect any improvement for the rest of the year. A manufacturer of exterior doors for residential housing said that his firm had seen a sharp drop-off in orders and shipments over the last several months, with no indication that the trend might reverse. He anticipated that the housing and building products sector would be anemic in 2011. However, a furniture manufacturer reported an increase in orders and noted that his customers said that Labor Day sales were better than anticipated and held up throughout September. In addition, an auto parts supplier stated that orders remained strong and had increased slightly over the last month. Finally, our survey contacts reported that raw materials and finished goods prices, as well as wages, increased at a slower pace than in our last report.
Port activity in the District over the last three months was mixed, with imports generally outperforming exports. Several port officials stated that imports at their facilities were up slightly in recent months, but exports had, at best, stabilized over the last few months. However, exports of commodities were up, according to one port authority, partly due to increased grain shipments to Russia and Pakistan. Several sources stated that the peak season had come and gone, with businesses ordering earlier than in past years and now becoming cautious about building inventory until they have a better sense of underlying demand over the remainder of the year. Some softness in shipping rates was noted at several ports, but one shipper reported that utilization rates of both ships and containers were "getting back to full capacity."
Lending activity around the District improved slightly, according to most bank contacts. Several bankers reported that the volume of new mortgage loans increased slightly in September, although one banking executive noted that most home loans went to people moving into the area. New mortgage activity at a major regional bank in the District, however, was reported as flat in recent weeks. Most bankers said that the bulk of mortgage lending was for refinancing, and one loan officer noted that refinancing activity stopped abruptly whenever the smallest uptick in mortgage rates occurred. Industrial loans were up slightly for equipment as well as inventory, according to one lender, while another banker reported very little commercial real estate lending. Several bankers stated that the competition among banks for quality loans was increasing. An officer reported that his bank had lowered rates to recapture auto dealer floor plan loans that had been lost to larger, more aggressive banks. An increase in merger and acquisition activity was widely reported. Several bankers cited examples of companies with strong balance sheets that were buying weaker competitors. Most bank officials reported improved credit quality, with a decline in both the number of foreclosures and late payments.
Residential real estate activity remained soft overall since our last report, despite some signs of a modest improvement. Several brokers reported that markets in their area were extremely slow, although they cited prices as generally stable. A market analyst reported that the number of houses that were under contract in Eastern Virginia was down more than 20 percent from a year ago, while active listings were up in excess of 10 percent. Moreover, the length of time needed to close a sale was increasing sharply. In contrast, a Realtor specializing in high-end properties noted that luxury homes in his area were selling, but only among properties that had been heavily discounted. And a broker from the Baltimore area reported a slight increase recently in the number of mortgage applications.
Commercial real estate activity continued to be quite weak throughout most of the District since our last report, with most contacts reporting difficulty in obtaining loans for new projects. Several commercial Realtors indicated that financing was not only difficult, but also applications took an exceptionally long time to be processed. Moreover, local companies needed to be well funded to get loan approvals from banks. A Realtor in Central Virginia stated that both local and nationally based companies were less confident about expanding than they were a month ago. Leasing rates remained on a downward trend, according to several Realtors, with some firms trying to take advantage of lower rates to upgrade their office or retail location. In contrast to most other areas, the D.C. area showed signs of improvement, with one Realtor noting a pickup in office leasing activity. Another Realtor in that area reported that retailers were cautiously revisiting development plans that had been abandoned a year ago.
Tourist activity strengthened since our last report. A contact along the District's coast reported solid bookings in recent weeks, with modest increases in the length of stay and the level of discretionary spending over the last month. A Myrtle Beach contact attributed the boost in visitations to increased spending on tourism promotion and infrastructure. In Virginia Beach, a hotel manager credited the gains in business at her hotel to recent renovations and increased group bookings. A contact on the Outer Banks of North Carolina indicated that discounting, coupled with a "few value items thrown in", had boosted tourism in her area and noted that restaurants and recreation venues were doing well. A manager at a mountain lodge in Virginia reported that sales of time shares rose and bookings had increased over the last month.
Assessments of Fifth District labor market activity were varied. In the service sector, survey respondents reported moderate hiring at their firms. A contact at a central North Carolina healthcare system cited plans to hire a significant number of nurses and high-tech workers. Employment agencies reported somewhat stronger demand for temporary help in recent weeks, particularly in automotive and other manufacturing sectors. A branch manager of a temp agency in Raleigh, N.C., stated that manufacturing companies had openings for skilled positions, but the employee pools for those positions were weak enough to limit hiring. Moreover, survey respondents from most manufacturing industries indicated that employment generally edged down, while the average workweek flattened and wage growth slowed. Several retailers reported cutting positions in early September, but other merchants indicated that they were making no changes to employment.