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The Fifth District economy weakened further in June and early July. Retail contacts reported generally falling sales, though discounters told us they were seeing increased sales of certain items. Additionally, residential real estate sales were slower in most markets, as was residential lending activity. Commercial leasing activity also weakened across most markets, with little new construction expected, while demand for temporary workers was weaker. Manufacturing activity declined overall, though exports showed further growth since our last report. In contrast, commercial lending activity was seen as stable, on balance, with mixed reports across markets in the District. Similarly, we received mixed reports from the services industries, and also mixed reports of tourism activity during the holiday weekend. Retailers and manufacturers noted further input price increases, but had uneven results passing the additional costs through to their customers.
Retail
District retail contacts reported generally falling sales in recent weeks, except at discount stores where retailers said sales and shopper traffic had picked up. A retail spokesperson in central Virginia told us area grocery stores and golf courses had begun using gas vouchers as incentives. In West Virginia, a sporting goods store manager said he had an inventory backup along with significant increases in supplier prices. Rising supplier prices also affected a central Virginia hardware chain; an executive there reported reduced inventories to match falling sales. In contrast, a big box discount retailer reported increased foot traffic and sales of grocery and entertainment items as more people received government stimulus checks. Automobile and light truck dealers said their sales continued to slide, especially for domestic vehicles. Retailers eliminated jobs in recent weeks and wage growth was flat. Retail prices grew a bit more slowly since our last report, although several contacts noted that ongoing supplier price increases would be passed through to customers.
Services
Contacts at services-providing firms gave mixed reports. A central Virginia financial services provider said, "The situation is dour--clients are very discouraged right now." Executives at various healthcare systems and hospitals in North Carolina reported that demand for services stabilized or rose. Telecommunications contacts in West Virginia and in Washington, D.C., said revenue growth picked up in recent weeks. In addition, national freight trucking companies in the District told us that their shipping volume rose. The pace of hiring remained flat at services firms. Price growth slowed at most services firms, but average wages grew somewhat more quickly, notably at several healthcare facilities.
Manufacturing
District manufacturers reported that activity continued to pull back in June and early July as shipments, new orders, and employment contracted. Respondents generally attributed the drop off to shortages of raw materials and interrupted shipment schedules. A South Carolina chemical manufacturer indicated that some of the slowdown was caused by a shortage of raw materials from China. In addition, a contact at a machinery factory in North Carolina reported that interrupted shipment schedules, due to higher gas prices and restrictive truck schedules, had reduced sales. Price pressures remained elevated and respondents continued to voice concern over rising energy and transportation costs. A producer of door components in North Carolina told us that price increases from suppliers continued to come in unabated and that demand, which seemed to have stabilized, had decreased again. He indicated that his company would attempt to pass along price increases to its customers but he did not know if it would be enough to offset cost increases.
Fifth District export activity continued at a healthy clip in June and early July. Port officials reported sustained growth in outbound tonnage, which was "still growing in double digits" at one port. Import volumes remained steady in recent weeks, although several officials noted slight slowdowns from Northern Europe. Fuel surcharges continued to rise and respondents believe "they are here to stay."
Finance
Residential lending activity cooled across most of the District in recent weeks. Contacts in the Carolinas described conditions as "slow" and "quieter still," while activity was slightly weaker in Richmond, Va., and the outer markets of Washington, D.C. Credit standards continued to tighten a bit, according to lenders in Washington, D.C., Richmond, Va., Charlotte, N.C., and Hilton Head, S.C. Additionally, several lenders reported diminishing credit quality.
On the commercial lending front, activity was generally stable. Loan demand ranged from steady to slightly up across Virginia and the Carolinas, although activity weakened somewhat in the Washington, D.C., and Charleston, W.Va., markets. Contacts in Washington, D.C., Charlottesville, Va., and Charlotte, N.C., reported further tightening in credit, especially for projects in real estate-related industries. Credit quality showed signs of deterioration in Washington, D.C., Virginia, and the Carolinas, where lenders reported an uptick in client bankruptcies and weaker financial statements.
Real Estate
Residential real estate agents across the District reported generally slower home sales in June and early July as uncertain economic conditions kept some prospective buyers sitting on the sidelines. Several contacts reported increased buyer traffic and many listings but not many sales. A Virginia Beach, Va., Realtor described that housing market as "anxious," adding that people were "waiting to see what's going to happen." Additionally, a Fairfax, Va., contact told us the "heart of his market" had softened but remained "very fragile." In Richmond, Va., an agent predicted "a real challenge" for the housing market to turn around before the end of 2008. In contrast, sales were good in the Greenville, S.C., market, and an agent in Charlotte, N.C., reported flat sales with an expected increase later this summer. Several Realtors across the District reported lower house prices and ongoing builder incentives for buyers.
Commercial real estate conditions continued to weaken across most of the Fifth District. Contacts in Washington, D.C., Richmond, Va., Charlotte, N.C., and Columbia, S.C., reported that leasing activity for office space had subsided, with a Greensboro, N.C., agent adding, "things are sluggish for everyone." Demand for retail space was mixed. Contacts in Charleston, W.Va., and Raleigh, N.C., noted a slight increase in activity, but conditions were "bleak" in Washington, D.C. Vacancy rates were mostly firm and rental rates were generally unchanged. Contacts in the Washington, D.C., and northern Virginia markets, however, reported owners accepting offers lower than asking prices, while office rental rates were up slightly for new space in Raleigh, N.C. No major construction was announced recently, and agents reiterated that clients were having difficulty financing new projects.
Tourism
Assessments of tourist activity varied in recent weeks. Respondents at mountain resorts in Virginia and West Virginia reported stronger bookings for the week of the July 4th holiday compared to a year ago. A manager at a mountain resort in Virginia told us that residents of nearby urban areas were vacationing closer to home this summer. He noted that owners of time shares were "using" rather than "renting," which he attributed to higher gasoline prices and the close proximity of his establishment. In contrast, contacts on the Outer Banks of North Carolina and in Myrtle Beach, S.C., indicated that bookings had slowed compared to a year ago and noted that upscale restaurant patrons were cutting back on food and beverages. Looking forward, a hotelier at Myrtle Beach, S.C., reported that higher gasoline prices were reducing fall bookings in his area.
Temporary Employment
Fifth District temporary employment agents generally reported weaker demand for workers since our last report. Overall economic weakness was cited as the culprit for the very weak demand for temporary workers in the Hagerstown, Md., area. Contacts in Raleigh, N.C., and in Richmond, Va., expected demand to strengthen over the next few weeks as clients transitioned from summertime to the fall business season. Additionally, some clients who had put projects on hold earlier in the year "to see how the economy turns out" were now ready to move forward with their planned projects. Those skills most highly sought after included higher level professionals and those with technical, credit, collections, and legal experience.
Agriculture
Scattered rainfall throughout the region brought relief to some District crops and lessened the drought stress in several areas. In North Carolina, showers helped alleviate drought concerns in the Central Piedmont and Central Coastal regions of the state, while precipitation in South Carolina improved peanut growing conditions. Despite beneficial rains, a contact in Maryland indicated that some fields were showing signs of stress due to dry conditions. Additionally, an analyst in South Carolina noted that some Upstate pastures had already gone dormant from a lack of moisture. On a brighter note, apple and peach crops were reported to be in generally good condition in Maryland, and the winter wheat harvest was nearing completion in Virginia with yields looking favorable.
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Cleveland