| Skip to content
|
Fifth District economic activity grew more slowly in October and early November as softness persisted in the manufacturing sector and service sector activity weakened. Manufacturing shipments were nearly flat in October, while new orders and capacity utilization declined for the third straight month. At services firms, revenue growth was sluggish partly because area layoffs reduced demand. In retail, sales growth was tepid, shopper traffic declined, and hiring for the upcoming holiday season was spotty. District home sales remained robust though, spurred by mortgage rates below 6 percent, and commercial leasing showed hints of a pickup. Price pressures remained modest across District industries. In agriculture, District farmland received much-needed rain, but the timing could have been better--sodden fields delayed crop harvesting and reduced yields of some crops.
Retail
Most retailers in the Fifth District said sales growth was slow over the last four to six weeks. In the Washington, D.C., area, sniper attacks damped shopper traffic and sales in October, but shoppers began returning to area stores late in the month. A large building supply retailer with a presence throughout the District reported that despite soft sales over the past few weeks, the company will open several new stores in coming months. In the big ticket category, automobile dealers reported slow sales. While some stores in the District have added employees for the upcoming holiday season, many limited their hiring to filling vacated positions. Capital spending plans for 2003 were mixed among retailers, but most planned to upgrade computer hardware or software next year.
Services
Services businesses reported generally sluggish revenue growth since our last report. A sports complex in central North Carolina, for example, said customer demand has slowed in recent weeks because of airline layoffs in that area. An equipment rental firm in Virginia Beach, Va., and a landscaping firm near Frederick, Md., said drought related water restrictions had adversely affected their businesses. However, a caterer in Charleston, W.V., and a fitness center in Charlotte, N.C., reported growing demand and said that they plan to expand their businesses and undertake additional capital spending. Many District service businesses reported plans to upgrade computer hardware and software and to make other technological improvements in 2003. Contacts at District freight hauling firms said they planned to replace some of their aging rolling stock in 2003.
Manufacturing
District manufacturing activity remained weak since our last report. Although shipments firmed somewhat in October, new orders, capacity utilization, and employment continued to fall. However, conditions varied by industry. In October and early November, shipments were down substantially in the food, furniture, and primary metal industries. A furniture manufacturer in North Carolina told us that the industry remained in recession, in part because of soft consumer spending on home furnishings. Several textile and apparel industry contacts reported that the continued strength of the dollar prevented them from competing effectively. Nonetheless, manufacturers in several other industries were upbeat--a producer of industrial machinery and equipment in Maryland, for example, said new orders were picking up. A plastic products manufacturer in North Carolina said that while current business was flat, he expected solid improvement in shipments and new orders over the next six months.
Plans for capital expenditures varied among industries. Contacts in the fabricated metal and printing sectors told us that their capital spending budgets would be greater in 2003 in order to upgrade technology and replace worn out equipment. In contrast, manufacturers at apparel and textile firms in North Carolina and Virginia indicated that they planned to trim capital spending further in 2003 because of reduced sales, lower profit margins and, in one case, a lack of bank financing. In addition, several producers of electrical equipment in Maryland and South Carolina cited the downturn in the economy as the primary reason for scaling back their capital expenditures for next year and indicated that it was unlikely that expansion projects eliminated in 2002 would be restored in 2003.
Finance
Contacts at District financial institutions said that demand for residential mortgages remained strong while demand for commercial loans continued to be weak. Our contacts attributed the growth in residential mortgage lending to the recent declines in interest rates. With mortgage rates dipping below 6 percent, refinance activity was brisk, they said, accounting for between 75 percent and 80 percent of residential mortgage lending in some cases. A banker in Richmond, Va., told us there was a surge in home refinancing after the Federal Reserve lowered the federal funds rate in early November. Lower interest rates, however, did little to stoke demand for commercial loans. Several commercial lenders reported stronger loan demand from the public sector, particularly for higher education projects, but most continued to report weak demand from the private sector.
Real Estate
Real estate agents reported solid growth in home sales since our last report. Some District realtors described October sales as fantastic--a Richmond, Va., realtor said sales were twice the level of a year ago. An agent in Greenville, N.C., characterized home sales as excellent, while a realtor in Fredericksburg, Va., said sales were much higher than normal. Properties in the low- to mid-price ranges remained the best sellers. In contrast, markets for higher priced homes cooled in some areas; a homebuilder in Baltimore said he had noticed some softening in the market for upper price range homes while a builder in the Raleigh and Durham area said sales of homes in upper ranges "fell dramatically." While housing prices were generally flat across the District, several areas experienced strong increases. A realtor in Odenton, Md., said prices there rose "dramatically" in recent months due to a lack of inventory. A realtor in Washington, D.C., added that prices in that area were sky high and that sellers were getting "way more" than the listed price for those homes.
Commercial realtors reported a slight pickup in leasing activity in recent weeks. By sector, demand for retail and industrial space edged higher, but remained weak for office space. Consistent with this view, the supply of vacant space in the office sector continued to edge higher, but was generally unchanged for the retail and industrial markets. A realtor in Richmond, Va., reported that office markets around state capitals were particularly sluggish, as people "waited for the dust to settle" from state budget cuts. Rent levels were flat, except in the industrial sector where rent levels rose modestly. Agents in Sterling, Va., and Waldorf, Md., noted that inquiries about smaller-scale warehouse space had been particularly strong. A smattering of build-to-suit projects were begun since our last report, mostly for retail space. Contacts reported increased interest from small- to mid-sized businesses in buying rather than leasing property, due largely to favorable interest rates.
Tourism
Tourist activity picked up in October and early November. A contact in Myrtle Beach, S.C, said that early fall bookings had increased about eight percent, in part because of more "walk-in" guests. Contacts at mountain resorts also reported higher fall bookings, and they expected good patronage into the winter season. Abundant rainfall in October replenished the water supply at ski resorts in Virginia and West Virginia--a manager at a resort in West Virginia said that the water supply for snowmaking was now at its highest level in three years. The recent rainy weather, however, hampered tourist activity in Virginia Beach. Tourism was also down in Washington, D.C., in October because of concern about the sniper attacks. Occupancy rates at hotels in D.C. were reduced to almost half their normal levels.
Temporary Employment
Contacts at temporary employment agencies reported lukewarm demand for workers in recent weeks due to a generally sluggish economy. Many agents, however, expected the economy to pick up in coming months and believed that the demand for temporary workers would strengthen as a result. Several contacts reported a pickup in demand for seasonal employees by retailers gearing up for the holiday sales season. Production workers and clerical staff were also widely sought. Wages for temporary employees were little changed since our last report.
Agriculture
Above normal precipitation in October and early November helped replenish drought-stricken areas in the District but hindered crop harvesting and small grain planting in much of the region. Soybean harvesting was behind schedule in South Carolina, Virginia, and West Virginia due to the wet fields. Rain also delayed planting of small grains in the Carolinas and in some areas of Virginia. The wet weather severely damaged the cotton crop in South Carolina--District agricultural analysts expect drastic yield reductions. Looking ahead, livestock producers in North Carolina expressed concern about the adequacy of winter feed supplies because of a smaller hay harvest. However, in West Virginia, producers pushed back the feeding of hay to livestock because the recent rainfall had improved pasture conditions.
|
Cleveland