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November 26, 2003
Federal Reserve Districts
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Overview Economic growth in the Fifth District picked up a notch in October and early November as activity in the retail and services sectors increased more quickly and manufacturing output rose. Retailers said that customer traffic improved and they reported higher revenues and employment in recent weeks. Manufacturers chalked up substantial increases in shipments and new orders in October; the strongest growth rates in over six months. Commercial real estate activity moved higher as well, and while growth in home sales eased a little, residential realtors continued to record exceptional home sales figures. District bankers reported stronger commercial lending, but noted that residential mortgage refinancing dried up. In agriculture, generally mild weather allowed farmers to make good progress harvesting crops. Retail Many District retailers reported an uptick in their sales in recent weeks, and contacts at general merchandise and building supply stores said that the pace of their sales quickened. A manager at a department store in the Greensboro, N.C., area said the local economy had stabilized following textile plant layoffs earlier in the year and store management expected holiday sales to be at or above last year's level. A big-box retailer, however, noted that sales patterns showed consumers were living paycheck-to-paycheck now that the effects of this summer's tax refunds were lessening. Automobile dealers reported mixed sales. A dealer in Charleston, W.V., said that, despite high manufacturer rebates, vehicle sales were down over the last month. In contrast, dealers in Maryland and central North Carolina registered higher sales. Services Services businesses reported generally higher revenues in the weeks since our last report. A Baltimore, Md., financial services firm told us they had seen "strong and consistent" interest in their services and expected to increase hiring in the first quarter of 2004. Professional, scientific, and technical services firms located outside Washington, D.C., saw steady customer demand. In central Virginia and central North Carolina, revenues at healthcare systems rose, and in Maryland, environmental services firms experienced higher demand. A freight transportation business serving the District said demand for its services had increased over the past month as businesses rebuilt inventories. Manufacturing The District's manufacturing industry expanded at a brisk pace in October. The expansion was particularly broad-based-firms in almost all sectors reported higher shipments. A contact at a Virginia lumber mill said business "bounced back" in recent weeks, and a counterpart at a mill in North Carolina told us that new orders were good and that much-needed capital improvements had been planned for next year. In addition, a manufacturer of industrial machinery in West Virginia described economic conditions in Central Appalachian coal fields as "favorable" and said customers were projecting higher capital investment in new mining equipment. There were, however, a few weak spots in the otherwise upbeat reports-a furniture manufacturer in North Carolina, for example, said that office furniture sales were still very much "in the doldrums." And a textile producer in North Carolina reported that increased imports from China had caused his firm to shut down two plants and eliminate 615 jobs recently. Manufacturers continued to tell us that they were doing very little hiring and that wage growth remained modest. Finance District bankers said that loan demand was flat in recent weeks as higher commercial lending was offset by slower residential mortgage lending. Commercial lending was boosted, in part, by growing confidence in the strength of the economy-a Richmond, Va., banker said his clients were "ready to pull the trigger" to borrow funds and invest in their businesses again. While commercial bankers reported little change in credit standards in lending to businesses, there was the sense that lenders were aggressively pursuing new lending opportunities. Residential mortgage lenders were not as upbeat, reporting that mortgage refinancing activity had essentially dried up. Several contacts noted that mortgage lending for home purchases was generally stable, however, and expected mortgage lending to pick up over the next six months. Real Estate Residential real estate agents generally reported that home sales remained strong although the pace of growth had slipped a notch since our last report. A realtor in Chevy Chase, Md., said properties were selling at or above asking prices and that condominiums and co-op properties were "extremely hot" sellers. A realtor in Virginia Beach, Va., described the market there as "wide open" with sales prices escalating 20 percent a year, and an agent in Odenton, Md., told us that her agency exceeded its sales goal in October by $2 million. But a few signs of cooling emerged in the District. An agent in Charlotte, N.C., said that while September home sales set a record, October closings had slowed as credit problems kept some potential homebuyers from securing loans. In addition, an agent in Greensboro, N.C., characterized home sales there as "slower" because of business closings and job layoffs. Commercial realtors reported a "noticeable increase" in office and retail leasing activity during recent weeks. Contacts throughout the Fifth District noted that clients were "coming off the sidelines" and moving ahead with plans that had been on the shelf for months. Realtors classified recent activity into two categories: existing clients expanding their current capacity and new small businesses seeking space to begin their operations. Retail space in the Richmond, Va., market remained in high demand-a contact there reported that the latest retail vacancy rate remained unchanged despite the addition of over two million square feet of retail space in recent months. Leasing activity in industrial space remained sluggish, but one contact in Huntington, W.V., did note that there had been some recent interest from manufacturers. Tourism Tourism remained mixed in October and early November. The coastal areas along the Outer Banks of North Carolina and at Virginia Beach, Va., have still not fully recovered from the damage caused by Hurricane Isabel in September and travel to those destinations was off. A contact on the Outer Banks said that recreational fishing, in particular, was down since Hurricane Isabel had damaged some chartered fishing boats and fishing piers. She noted, however, that progress had been made in restoring the damaged highway to Cape Hatteras. Contacts in mountainous areas in Virginia and West Virginia noted stronger tourist activity, adding that they were almost booked to capacity for the Thanksgiving holiday week. Temporary Employment District temporary employment agencies reported somewhat stronger demand for workers in recent weeks, attributing the strengthening to a pickup in the economy. While most agents were optimistic that demand would strengthen further over the next several weeks, an agent in Gastonia, N.C., believed his agency would see lower demand for workers with the approaching holiday season and end-of-year budget freezes at some companies. Agriculture Generally mild and dry weather in October and November enabled farmers to make good progress in harvesting crops and preparing fields for late fall plantings. Clement weather facilitated the harvesting of peanuts, cotton, soybeans, and sweet potatoes in North Carolina and helped farmers wrap up their corn harvest in Maryland. In addition, corn harvesting was nearing completion in Virginia and in West Virginia, and apple harvesting was completed in South Carolina.
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Cleveland