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Economic activity in the Fifth District expanded at a somewhat stronger pace
from late October through mid November, despite continued sluggishness in housing
markets. Revenues at services firms grew slightly faster, aided by firmer demand
at health care organizations and government contractors. Retail sales grew briskly,
despite sluggishness in most big-ticket categories. Manufacturing reversed its
October dip, posting increased shipments and orders in recent weeks. Commercial
leasing remained strong, while housing activity continued to weaken somewhat,
with softer prices more in evidence. Mortgage lenders, however, noted some firming
in loan demand following several months of weakening activity. Tourism was healthy,
with most areas reporting gains in recent weeks. Labor markets tightened further,
with some reports of higher wages and shortages of skilled workers. Price pressures
were mixed, moderating in retail and services, but ramping up in manufacturing.
Mild temperatures and ample rainfall helped small grains, but limited fieldwork
opportunities for District farmers.
Retail
Contacts reported that retail sales grew at a substantially faster pace in early
November, although weakness remained in most big-ticket categories. Chain department
stores and grocery stores noted stronger sales, and big box retailers said electronics
sales were especially robust. In addition, a contact at a large hardware store
in central Virginia said sales growth had picked up, even with significant price
increases on "anything made with steel or petroleum." In contrast,
sales slowed at home improvement and building supply stores as housing activity
remained sluggish. The pace of automobile and light truck sales was generally
unchanged from a month ago, though a few dealers said their sales declined in
recent weeks. Retailers were upbeat but somewhat guarded about holiday sales
this year; some looked for holiday sales to increase about 4% compared to last
year. Although a few District automobile dealers and furniture stores reduced
staff, hiring picked up at most retail businesses. Wages grew more quickly at
retail establishments, while price growth slowed.
Services
District services firms indicated that their revenues grew slightly faster since
our last report. Customer demand strengthened at healthcare organizations and
utilities, and federal government contractors said that business had picked
up with the new federal fiscal-year budget. Additionally, a financial services
consultant in Virginia characterized demand as steady, and he noted improving
client attitudes regarding the economy. Contacts at services firms said the
pace of hiring moderated this month. Wage and price growth also slowed.
Manufacturing
Activity in the manufacturing sector picked up during the first half of November
following a contraction in October. Contacts told us that factory shipments,
new orders and employment expanded at a solid pace in recent weeks. Activity
was particularly strong at chemicals, food, industrial machinery and transportation
equipment firms; a turbine producer in South Carolina, for example, said that
the oil industry was driving his business. He indicated that they had received
three large turbine contracts for Saudi Arabia. A plastics producer was also
upbeat, noting, "November was a good month; we've had a flurry of new orders
and our backlogs are strong." In contrast, a furniture manufacturer in North
Carolina reported that sales had reached their lowest level since the post September
11, 2001 period. Prices for both raw materials and finished goods picked up
considerably in November after rising moderately in October.
Finance
District bankers reported that loan demand steadied since our last report. Residential
mortgage lending remained weak, but some increased demand in the new homes sector
helped to stabilize loan volume. Some contacts said that builders were slashing
prices which "caused more people to get in on the action." A number of mortgage
lenders reported that loan standards had tightened. A Charleston, S.C., banker
noted that his bank was more carefully scrutinizing "the type of properties
receiving loans, but not applicants." The demand for commercial loans held firm
in October and November. Little change was reported in interest rates or the
rates of delinquent loans.
Real Estate
Residential real estate agents across the District reported continued weakness
in home sales. A Washington, D.C., agent told us that sales were down 17 percent
from a year earlier, and he predicted that this trend would persist for another
two years. In Richmond, Va., home sales were also reported to have fallen below
2005 levels. An agent there told us that buyers were not rushing to make purchasing
decisions--they could afford to "pick and choose." Home inventories continued
to rise modestly and some sellers were trimming asking prices. In contrast,
a contact in Greenville, S.C., reported "positive sales" which he attributed
mostly to large companies locating there recently. Several contacts noted modest
decreases in home prices.
Commercial real estate agents across the District reported that leasing activity
remained healthy in recent weeks. In the Raleigh market, a contact said industrial
activity was "on fire," driven by strong population growth in the area. Contacts
generally reported that vacancy rates edged down since our last report and several
noted a slight uptick in rental rates.
Tourism
Tourist activity was generally stronger since our last report. A contact on
North Carolina's Outer Banks said hotels and resorts were booked solid for the
Veteran's Day weekend. She attributed the increase primarily to their first
marathon which attracted 4,400 runners. In addition, a manager at a mountain
resort in western Virginia noted record-breaking time-share sales--up nearly
20 percent over last year. In contrast, a hotelier at Virginia Beach reported
that some corporate clients had scaled down their budgets--resulting in less
money being spent on food and beverages.
Temporary Employment
Temporary employment agencies in the District continued to report generally
firmer demand for workers since our last report. In some areas, tight labor
markets had made it difficult for companies to fill needed positions. Workers
with sales, life sciences, engineering and financial skills remained in strong
demand.
Agriculture
Mild, rainy weather conditions assisted small grain development in most areas
of the District, but rains delayed field work in some regions. Analysts in Virginia
and Maryland told us that soggy field conditions hindered soybean harvests.
They noted, however, that higher grain prices in recent weeks encouraged farmers
to continue small grain plantings when the weather permitted. In South Carolina,
harvesting of sweet potatoes and apples was ahead of schedule, while corn and
soybean harvests fell behind schedule in West Virginia. Harvests of cotton,
peanuts, sweet potatoes, sorghum and soybeans were nearing completion in North
Carolina, and Christmas tree producers in that state said they were preparing
for the holiday season.
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Cleveland