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Economic activity in the Fifth District continued to advance at a sluggish pace in late February and March, though there were a few signs of improvement. Retailers said that consumers continued to rein in their spending. Home sales activity remained weak in most markets and assessments of commercial real estate conditions in the District were generally downbeat. In addition, commercial lending activity continued to slump, though residential lenders noted that demand for home mortgages edged higher. Other sectors fared better in recent weeks, however. Activity at Fifth District factories and ports picked up since our last report, spurred by strong overseas demand for U.S. goods. Additionally, revenue growth at services firms was steady and reports on tourist activity were mostly upbeat. There was also brighter news from District farms as overall conditions improved and spring planting activity proceeded on schedule. On the employment front, hiring activity was mixed. Service providers added workers, while manufacturers and retailers continued to trim payrolls. Readings on prices also varied as retail and services price growth moderated somewhat, while raw material costs were up sharply.
Retail
District merchants reported that retail sales activity dwindled further in recent weeks. The manager of a sporting goods store in West Virginia said sales were "significantly slower" over the past six weeks, while a contact at a department store in the Washington, D.C., area noted that shoppers were "only spending when they had to." Sales of big-ticket items such as furniture and automobiles were especially weak. A contact in Charleston, W.Va., told us his automobile dealership had the worst March in company history. In response, some retailers adjusted inventory and staffing levels. An executive at a large building supply chain said spring inventories were lower than normal and that summer hiring plans had been curtailed. Measures of retail price growth eased a bit, though we heard more widespread concerns about rising transportation costs.
Services
District service providers reported moderate revenue growth since our last report. Contacts at engineering and telecommunications firms noted a pickup in revenues, while contacts at architectural and web design firms reported steady demand. In contrast, activity at financial services firms was sluggish as clients remained uncertain about general economic prospects. Hiring at services firms edged up in recent weeks, while price growth cooled.
Manufacturing
District manufacturers said that production activity firmed a bit in March. Producers noted healthy increases in shipments and new orders which they attributed to strong overseas demand. An electrical equipment manufacturer in Maryland told us that his European business had gained momentum and that shipments to Asia remained strong. On the other hand, contacts said tentative U.S. consumers continued to limit domestic demand. "Unabated" price growth remained a challenge for producers. Contacts reported that raw material prices grew more quickly in recent weeks behind sharp increases in energy costs. District manufacturers also indicated that their margins were being compressed further due to a growing inability to pass along price increases.
Ports
Export activity at District ports continued to "boom" in March as attractively-priced U.S. goods drove growth in exports. Contacts said that increased grain exports also bolstered activity in recent weeks. Nonetheless, port officials noted that weakening domestic demand contributed to softness in import volumes, especially automobiles and household goods. Additionally, contacts voiced some concerns over potential supply chain disruptions due to rising fuel costs.
Finance
Feedback from residential lenders was more encouraging in recent weeks. Contacts in Richmond, Va., and Charleston, S.C., noted a pickup in overall lending activity as an increase in mortgage originations more than offset a slowdown in refinancing activity. Reports on interest rates suggested only small changes. Contacts in Greenville and Charleston, S.C., said mortgage rates edged lower in March, but lenders in Richmond, Va., and Raleigh, N.C., told us rates were "roughly the same." In addition, contacts noted that credit standards continued to tighten--lenders said they were enforcing stricter income ratios and requiring larger down payments over the last six weeks. On the commercial side, contacts described lending activity as "lukewarm." Demand for commercial loans was relatively steady since our last report, though activity was "still below average" according to a lender operating in Virginia and the Carolinas. Contacts also noted downward pressure on interest rates in recent weeks as competition for quality applicants intensified. Feedback on credit standards varied. A Charleston, W.Va., banker said his institution was requiring more equity for transactions, while a Baltimore, Md., contact reported no major changes in credit standards over the previous month.
Real Estate
Fifth District housing markets remained generally sluggish in recent weeks, though there were some pockets of improvement. A Realtor in Richmond, Va., told us sales were "basically flat" in March, while an agent in Charlotte, N.C., said sales were down thirty-five percent from the previous month. Similarly, a contact in Washington, D.C., noted very few "signs of life" in his market, but speculated that the "worst was over" in terms of the housing slump. On the flip side, a Realtor in Greenville, S.C., reported "excellent" sales over the last six weeks and an agent in Fredericksburg, Va., noted a jump in prospective buyers. A contact in Richmond, Va., said that a majority of his recent sales had been on homes under $350,000, though a Realtor in Greensboro, N.C., told us that some properties in the million dollar range were "starting to move." Home prices across the District continued to soften a bit since our last report and construction activity was limited.
Assessments of commercial real estate conditions were a bit weaker in recent weeks as additional softness in the northern half of the District overshadowed somewhat positive reports from the Carolinas. The pace of leasing activity was steady in Raleigh and Charlotte, N.C., while an agent in Richmond Va., remarked that clients were "starting to pull in their horns." Similarly, a Washington, D.C., contact told us that his area "hasn't seen the normal spring pickup." Reports on vacancy rates were also mixed. Realtors in Baltimore, Md., and Charleston, W.Va., reported little to no change, the Columbia, S.C., and Charlotte, N.C., markets saw rates edge lower, while contacts in northern Virginia and Richmond, Va., noted an uptick in vacancies. Rental rates were flat across the District, though agents in Richmond, Va., and Washington, D.C., said landlords were offering incentives to retain clients. Reports of new construction activity remained "sparse" as lenders continued to heavily scrutinize proposals. Agents in Columbia, S.C., and Richmond, Va., noted an increase in the number of deals falling through, while a Charlotte, N.C., contact said, "finding a developer who can close is the trick right now."
Tourism
Reports on tourist activity varied in late February and March. Managers at mountain resorts in Virginia and West Virginia said their ski seasons had improved notably compared to last year, and that their resorts' reservations were "booked to capacity" for the Easter weekend. Contacts along the coast, however, told us that it was "not their best Easter," which they attributed to the holiday occurring earlier than normal.
Temporary Employment
Fifth District temporary employment agents continued to report somewhat weaker demand for workers over the past six weeks. Contacts said that requests for warehouse and distribution center workers had fallen off sharply, though demand for temporary employees with computer and administrative skills remained strong. Looking forward, contacts expected demand for workers to pull back further in the months ahead as clients revised hiring plans amid the ongoing economic uncertainty.
Agriculture
Reports from District farms were more upbeat in recent weeks. Although drought conditions persisted in a number of areas, contacts told us that soil moisture was adequate for field preparation and planting in most parts of the District. An agricultural analyst in North Carolina said that farmers had started planting potatoes and cabbage and were preparing their fields for additional spring plantings. In addition, contacts in Maryland and Virginia reported that small grain crops were in good to excellent condition.
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Cleveland