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The Fifth District economy grew slightly since our last report, as growth in services and housing was offset by weakness in retail and manufacturing. Wet and cool weather along with softening consumer confidence hindered retail sales during May. Revenue growth at services firms outside of retail, however, rose at a moderate rate in recent weeks. Manufacturing shipments and new orders were off sharply in both April and May, particularly in the apparel and furniture industries. Low mortgage rates continued to bolster home sales and refinancing activity, and growth in commercial real estate activity was more modest. Price increases were generally contained in all sectors of the District economy. In agriculture, widespread rainfall in late May benefited crops and pastures in most areas of the District, but dry conditions continued to hamper planting activity in South Carolina.
Retail
District retailers reported that their revenues declined in recent weeks. Retailers in Raleigh, N.C., and Charleston, W.V., said that rainy, cooler-than-normal weather trimmed sales in May. A manager at a large department store in the Research Triangle area of North Carolina noted that several large layoffs in the region contributed to falling sales in recent weeks. Automobile dealers reported some improvement in customer traffic, and noted that sales were generally solid, driven in part by manufacturer rebates. Lumber brokers and building materials suppliers reported increased revenues, partly because of higher lumber prices. Retail employment slipped in May and several District retailers said they would hire fewer summer employees this year because of lower anticipated sales. Retail prices continued to rise at a modest price at District stores.
Services
Services businesses across the District generally reported moderate increases in revenues in May. Despite the strength, tighter federal government budgets and the shakeout of dot-com businesses have slowed revenue growth in some areas. A contact at a website design company in West Virginia said that business had been "a little flat" because potential clients had been frightened by news of dot-com business failures. Employment in the sector rose at a relatively strong rate as did wages. District services prices rose modestly.
Manufacturing
The District's manufacturing sector weakened further in May as shipments and new orders tumbled. Declines in manufacturing shipments intensified in recent weeks, particularly for transportation equipment, fabricated metals, printing, apparel, and furniture firms. Furniture producers cited weak consumer confidence as the primary factor contributing to poor sales. A manager at a furniture manufacturing plant in North Carolina said that his shipments were falling and he expected the decline to persist during the next six months. Several apparel producers in North Carolina noted that higher energy prices continued to squeeze their profit margins; they also cited competition from abroad and a strong dollar as ongoing concerns. Employment levels in manufacturing fell further in May, while wage levels were little changed. Manufacturers reported that their prices were generally unchanged.
Finance
District loan officers indicated that lending activity was generally flat in recent weeks. Residential mortgage lending continued strong, bolstered by brisk refinancing activity. However, commercial lending was slowed by sluggish economic conditions. A Charleston, S.C., banker noted that his commercial loan officers "were not exactly being overwhelmed with new requests for loans" while a Norfolk, Va., counterpart said that he was getting plenty of calls from prospective business borrowers, but "closing fewer deals." Lenders were keeping a closer eye on the financial conditions of borrowers in cyclical industries whose financial conditions were weakening.
Real Estate
Residential Realtors and homebuilders reported that home sales picked up in May. Contacts indicated that the low-to-middle priced home market remained the most vibrant, boosted by continued low mortgage rates, which have made housing affordable for first-time homebuyers. A Realtor in North Carolina reported steady home sales in Raleigh and Charlotte, but indicated that some markets were now becoming "saturated" with homes. Home sales in Greensboro, N.C., were somewhat sluggish, in part because of the uncertainty surrounding the effect of banking industry mergers on the local economy. Most homebuilders reported higher prices for lumber and insulation, but little change in labor costs.
Commercial realtors across the District reported moderately weaker growth in leasing and construction activity in recent weeks. Leasing of office space was generally slower. In Northern Virginia and the District of Columbia, large blocks of office space continued to flood the market in the wake of the "high-tech fallout." Realtors in Charlotte, N.C., reported softer industrial leasing activity and an increase in available industrial space for subleasing. Most contacts reported that rents charged for office space had declined in recent weeks, while rents for retail and industrial space were essentially flat. Commercial construction activity slowed; few speculative projects were under way.
Tourism
Tourism remained strong in recent weeks. A manager of a chain of hotels in the Virginia Beach area said that his Memorial Day weekend business was better than last year, despite some rainy weather during the holiday. A hotelier on the Outer Banks of North Carolina also reported stronger Memorial Day business this year. Tourism in Myrtle Beach, S.C., was boosted by two motorcycle rallies, which attracted over 375,000 bikers during the last two weeks of May. Contacts at District restaurant and recreational facilities noted that consumers were spending freely, despite higher gasoline prices and slower economic growth.
Temporary Employment
Contacts at District employment agencies reported somewhat weaker demand for workers in the weeks since our last report. An agency manager in Cary, N.C., said that business was "at a standstill" while a Charlotte, N.C., contact was hoping the economy would soon "get out of this slump" so that business would start to grow again. Despite overall weaker demand for temporary workers, several contacts noted relatively strong demand for warehouse and light industrial workers. Wage offers to temporary workers changed little since our last report.
Agriculture
Abundant rainfall in late May replenished depleted soil moisture levels and improved crop conditions across much of the District. Although heavy rainfall hampered field preparation efforts in Virginia and West Virginia, planting activity was reported to be generally on schedule. Not all areas, however, benefited from the rainfall -- dry soil conditions persisted in South Carolina and planting activity there was behind schedule as soil moisture levels remained too low for seed germination.
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Cleveland