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Overview
Fifth District economic growth was restrained in March but showed signs of gaining
momentum in early April. District services businesses generally reported modest
increases in revenues, though utilities and trucking firms experienced some
softening in demand for their services as they pushed through higher fuel costs.
Retailers indicated that sales dipped in March--big-ticket sales were particularly
weak--but partly rebounded in early April. Manufacturing shipments and orders
moved higher in the weeks since our last report though factory employment contracted
somewhat. Real estate agents continued to report robust housing markets in many
areas of the District, and bankers said that lending activity increased in most
categories. Despite higher oil prices, business contacts generally reported
that prices for their products and services continued to rise only modestly.
In agriculture, excessive rain hampered planting and field work, but crops and
pastures were generally in good condition.
Retail
District retailers said that sales slipped a bit in March but gained ground in early April. For March, shopper traffic was generally light and big-ticket sales were sluggish, but both measures improved in early April. Automobile dealers reported that their sales were generally mixed in recent weeks. Despite higher gasoline prices, most dealers contacted said they had not yet seen a significant shift to smaller cars. A big-box retailer reported that their sales were flat, as consumer budgets tightened due to higher healthcare costs. In contrast, a contact at a department store in central North Carolina said their sales were strong, and a sporting goods dealer in the Charleston, W.V., area said sales had been on an upswing in the last few weeks. Retail establishments in the District reported moderately higher employment and wages in recent weeks. A contact at a hardware store in central Virginia said he had boosted hiring to staff a new store, while a large bookstore in central North Carolina reported a substantially higher budget for hiring.
Services
Contacts at District services firms generally reported moderate revenue growth in the weeks since our last report. A few companies, however, noted that they had raised prices to recover higher fuel costs and had experienced somewhat slower growth in demand as a result. A national trucking firm with a presence in central North Carolina, for example, said that higher diesel fuel prices had trimmed their business in recent weeks. Contacts at electric and gas utility firms in South Carolina and Virginia said rising fuel costs would be passed through to customers in the months ahead. Employment and wages rose moderately at service-producing businesses, and prices in the sector generally continued to increase at an annual rate of less than 2 percent.
Manufacturing
District manufacturing activity strengthened since our last report, with shipments and new orders increasing moderately in March and early April. Capacity utilization contracted in March but increased in April. A plastics manufacturer in North Carolina told us he was optimistic, noting that "March was down" but adding that "the outlook is good." A Maryland-based producer of electrical equipment held a similar view, characterizing the current slight slowdown as only temporary. Furniture makers in Hagerstown, Md., and Sumter, S.C., were upbeat and reported higher shipments and new orders in both March and April. Although oil prices were sharply higher, scrap steel prices were reported to be falling from 2004 highs, and overall raw materials prices continued to rise at an annual rate of less than 2 percent.
Finance
District loan officers reported moderately higher demand for loans in March and early April. Commercial lending edged up, boosted by stronger economic activity in most areas. A commercial lender in Charleston, W.V., said that an upturn in coal mining activity boosted borrowing to finance capital spending in that industry. Residential mortgage lenders also reported higher demand. A banker in Greenville, S.C., said that residential mortgage lending had picked up in recent weeks, as more "fence-sitters" committed to home mortgage loans. In contrast, a residential mortgage lender in Richmond, Va., said that recent increases in interest rates had damped demand for residential mortgages but that he expected a "decent" level of loan demand to continue for the next few months.
Real Estate
Residential real estate agents reported a pickup in activity in March and early
April. A Washington, D.C., agent said his office had been "extremely busy,"
and that houses placed on the market continued to receive multiple offers. An
agent in Virginia Beach, Va., said that homes in that area were moving fast
and that buyers continued to pay more than list price there. Several contacts
indicated that it was becoming exceedingly difficult to find land to build on
and to secure approval from municipalities to construct new homes. A Washington,
D.C., agent said that some builders were buying several small lots and combining
them into one large lot in order to build larger, mansion-like homes--a process
he labeled "mansionization." Agents in a number of areas reported low inventories
of homes and rapidly rising prices.
Commercial real estate agents reported a notable increase in leasing activity in the weeks since our last report. Activity was strongest in the office and retail segments of the market; in contrast, industrial leasing remained stagnant. Contacts in Raleigh, N.C., and Columbia, S.C., said that their phones were ringing again as clients finally seemed to be emerging from the "winter doldrums." Washington, D.C., remained, by far, the busiest market in the District. "There continues to be an unbelievable appetite for product in this market," noted a Washington, D.C., contact. The increase in leasing activity led to a firming of rents in most areas. While commercial construction activity was generally slow, there were numerous reports of older office and retail space being converted into upscale condominiums.
Tourism
Tourism was generally mixed since our last report. Mountain resorts in Virginia and West Virginia wrapped up a strong ski season and contacts noted that an early Easter lengthened the season and increased holiday bookings. In contrast, contacts along the coast said that unseasonably cool temperatures and higher gasoline prices had hurt tourism activity there. In Washington, D.C., over 1 million tourists attended the 93rd annual National Cherry Blossom Festival, a record attendance for the event.
Temporary Employment
Contacts at temporary employment agencies reported that stronger economic activity drove up the demand for temporary workers since our last report. An agent in the Washington, D.C., area told us that distribution center workers were particularly sought, in part because "a lot more goods were being shipped now." Citing the low unemployment rate in the Washington, D.C., area, a temporary employment agent looked for a shortage of workers in coming months and predicted that employers would have to increase wages to attract and retain workers.
Agriculture
Above-normal precipitation in March and early April hampered planting and limited field work in many areas of the District. Excessive rains delayed corn planting in Maryland and North Carolina and muddy fields slowed field work in Virginia and West Virginia. Corn planting in South Carolina was 33 percent complete by early April, somewhat below the five-year average of 40 percent by this time of year. In addition, Maryland and South Carolina farmers reported that the development of small grain crops was on track and the crops were in generally good condition. Pastures and livestock were also in good condition.
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Cleveland