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District economic activity generally grew more slowly since our last report, with only manufacturing output and temporary hiring showing much life in recent weeks. Retail sales were flat over the period for the most part, with big-ticket sales softening and domestic automobile inventories increasing. Revenues at services firms grew, but at a slower pace. Factory output bounced up in early July after holding steady in June, and new orders firmed as well. Residential real estate markets continued to cool and commercial activity took a breather. District hiring was mixed, with the pace of activity softer in retail, unchanged at services firms and stronger in manufacturing. Prices continued to be pressured by pass-throughs of higher raw materials prices, but there were hints that the pace could be lessening. In agriculture, widespread rainfall in early July helped stressed crops and pastures.
District retailers reported that on balance, their sales flattened in recent weeks. A sporting goods supplier in West Virginia said that sales growth was unchanged since our last report. A contact at a department store in Virginia Beach, Va., reported flat sales in recent weeks, and retailers in West Virginia and central Maryland told us that apparel sales declined. A domestic automobile dealer in the Tidewater, Va., area also reported lower sales, adding that there was an "overload of cars right now." Another dealer in the DC beltway region told us that his customer traffic declined by as much as 20 percent in recent weeks. Contacts at building materials stores said demand generally softened as interest rates and gasoline prices rose. In contrast, a building supply store manager in central Virginia said that his sales picked up in the first half of July. Retail prices and employment in the District grew at a slower pace in recent weeks.
Revenues at District services firms generally increased more slowly in recent weeks, according to contacts. District healthcare facilities reported that demand for their services was flat to lower, although several hospitals in North Carolina reported strengthening demand. Administrative, professional, scientific, and technical firms characterized revenues growth as unchanged, though a few reported a pick-up since our last report. Freight companies said revenues rose at a faster pace in recent weeks. Price growth in the sector slowed since our last report and the pace of hiring was unchanged.
Manufacturing activity was nearly flat in June but picked up steam in early July. Manufacturers told us that shipments, new orders and employment expanded at a solid clip in the past two weeks. Manufacturers in the chemicals, fabricated metals, furniture, plastics and textiles industries reported increased production. A textile manufacturer in North Carolina told us that while their shipments were strong, they were experiencing a profit squeeze because of rising raw materials prices. In addition, a chemical producer in North Carolina noted that customer demand remained strong and that inflationary pressures were increasing. Despite continued concerns about high raw materials prices, most contacts indicated that prices of raw materials increased less quickly since our last report.
Bankers in the Fifth District said that loan demand grew more slowly in late June and early July. A mortgage banker in Charlotte, N.C., said that high gas prices "have really reduced discretionary spending by consumers," contributing to lower demand for mortgages. Hot coastal housing markets showed signs of deceleration, leading a Charleston, S.C., mortgage lender to remark that "this softening…will finally bring some normalcy back to our business." Lending for commercial loans also softened. A Charleston, W.V., lender reported that businesses were putting off capital expenditures as long as possible due to higher interest rates.
District residential real estate agents continued to report a general slowdown in home sales. An agent in Washington, D.C., said sales in his market had dropped sharply compared to last year, and he described recent activity as "the worst he had seen in 8 years." In contrast, a Northern Virginia agent described sales levels as "adjusting back to a more normal state." Several agents reported that houses were staying on the market longer and that inventory continued to build. Consistent with slowing sales activity, home price declines were more widespread across the District. Several contacts commented that higher interest rates were a factor in slower sales. Although low- to middle-priced houses remained the best sellers, agents in a few areas reported that higher-priced homes had picked up recently.
Commercial real estate agents reported slowing leasing activity, although several noted increases in the office and industrial segments of the market. A contact in Richmond, Va., said that high commercial rents in northern Virginia had caused a number of companies to relocate to the Richmond area, boosting demand there. Little change was reported in overall vacancy and rental rates, however. Commercial real estate agents reported a small increase in new construction. An agent in Raleigh, N.C., noted that most construction coming to market is "already pre-leased and therefore will not affect vacancy rates."
Tourist activity was mixed since our last report. Hoteliers along the coast reported solid bookings during the weeks surrounding the July 4th holiday--facilitated by good weather and more aggressive discount packages. Tourism at mountain resorts in Virginia and West Virginia was mixed, however. While a contact at a mountain resort in Virginia said holiday bookings were much stronger than a year ago, a counterpart at a West Virginia resort indicated that his bookings were weaker.
Temporary employment firms in the District continued to report generally strong demand for workers since our last report. An agent in the Washington, D.C., area told us that the demand for workers had remained at a solid level. He said that a lack of skilled workers was a growing problem and would become a bigger problem if the economy continued to grow on pace. Agents in Richmond, Va., and Raleigh, N.C., reported ongoing demand for direct-placement hires; the Raleigh agent expressed optimism that continued strengthening in his local economy would continue to underpin demand for workers in coming months. Computer skills, sales and administrative support skills remained highly sought by employers.
Wetter-than-normal weather brought much needed rainfall to crops and pastures in the Fifth District in late June and early July. While the Carolinas remained generally dry, the summer showers greatly improved soil moisture conditions and yield prospects for corn and soybeans. In addition, the rainfall revived pasturelands across much of the District. Heavy rains in Maryland and Virginia, however, caused some localized flooding which damaged crops in low-lying areas. On a brighter note, small grain harvesting neared completion in the Carolinas, and peach crops in Maryland, and West Virginia remained in good-to-excellent condition.