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Business activity in the Fifth District was unchanged or slightly improved in most sectors since our last assessment. In the service sector, retail activity on balance remained soft during the last month, while non-retail services firms reported flat or slightly increasing demand. Tourism to mountain and ocean destinations picked up in recent months. Banking activity improved moderately, but gains did not extend to commercial real estate. Indeed, both commercial Realtors and construction contractors reported that activity was little changed from weak conditions in past months. In contrast, however, residential Realtors indicated that low-to-medium priced homes across the District were generally lifting the market, if only slightly, since our last report. The manufacturing sector slowed over the last month, with several contacts citing softer demand. Finally, employment agencies specializing in temporary workers noted modest improvements in demand, with several adding that recent uncertainty about the direction of sales was causing their clients to postpone hiring full-time employees.
Manufacturing
District manufacturing stalled in July after exhibiting moderate gains in June. A producer of coated steel reported that orders had declined during the entire second quarter. He noted that typically the second and third quarters were the strongest for his company, but that he was not seeing any improvement in either June or July. Similarly, a furniture manufacturer indicated that business had slowed in recent months, particularly for furniture collections for the home. Several firms reported that working capital constraints, coupled with the inability to pass through raw material increases, had limited their ability to expand their business. In addition, a few contacts mentioned that automotive deliveries had slowed and material costs had increased recently as a result of the production interruptions in Japan. Our latest manufacturing survey indicated that prices of both raw materials and finished goods grew more slowly over the last month.
Fifth District ports continued to post moderate gains since our last report. With shipping moving into its peak season, however, several port authorities expressed concern that recent import gains were not as strong as expected. One official attributed the apparent sluggishness in May and June to retailers ordering earlier than normal last year (due to uncertainty over shipping rates), making year-over-year comparisons misleading. Another contact stated that the surge in trade that occurred over the last year was not sustainable, and also added that the weakening of the overall economy was affecting import volumes. A shipping official noted that many businesses were reluctant to build inventory and some retailers seemed to be holding back their orders, adding to a sense of "choppiness" to shipping activity. However, exports of coal and other commodities continued to do well, according to a port official, and auto imports were described by one contact as "amazing," with automakers scrambling to rebuild depleted inventory. Several contacts expected shipping activity to pick up later this year, in part due to an increase in empty containers being shipped to Asia--presumably to be refilled for the Christmas holiday season.
Retail
Retailers across the District generally reported mixed sales since our last report. A few retailers, for example, reported that mid-price items languished in recent months, and customers bargained hard for discounts. Several clothiers told us that their apparel sales fell--except in higher-end goods. In addition, rising cotton and wool prices were pushing clothing prices higher. Our recent survey of retailers indicated some weakening in revenues, although the weakness was not as pronounced as a month earlier. However, several discount stores reported increased shopper traffic and an uptick in total sales. Grocery store contacts also reported rising sales, as did some wholesale building supply firms in the D.C. area. Several luxury retailers reported solid sales, and an auto dealer indicated strong sales in recent weeks. One West Virginia dealer noted that foreign makes continued to "outsell production."
Services
Service sector activity was flat to slightly stronger in recent weeks. Revenues strengthened moderately, according to polled contacts, particularly in telecommunications. A number of builders and construction-related firms in the D.C. area also reported a pickup in business during the past month. Most contacts we surveyed at restaurants and hotels said revenues accelerated since the start of summer. However, advertising agencies indicated that business was flat, and healthcare services providers reported little change. Non-retail services providers' prices rose at a slightly quicker pace over the last month, according to our recent survey.
Finance
Loan demand in the District continued to improve, albeit at an uneven pace, since our last report. Consumer lending increased in most banking markets, according to contacts, with several bankers citing examples of making loans for appliance replacements and home renovations. A loan officer in West Virginia noted increased loans for auto dealership inventory. And, a banker in North Carolina noted continued strength in industrial loans for warehouse buildings and machinery. However, another banker characterized industrial loans as going more toward high-tech capital goods than traditional machinery. Except for apartment buildings, commercial real estate loans declined in most areas around the District, with several commercial developers reporting continued difficulty getting financing. One banker, however, cited a pickup in commercial loan demand primarily from larger companies, while demand for small business loans in general edged downward. Most bankers stated that intense competition for quality loans was squeezing margins. Several contacts reported that credit quality was flat or slightly improved over the last few months, with the number of late payments edging down. A banker in Richmond said that small businesses, especially retailers, accounted for most cases of delinquencies.
Real Estate
Real estate activity edged higher since our last report. Several Realtors indicated that sales had picked up gradually and that their markets were more active than a year ago. While most of the gains were in the low-to-mid price range, activity also inched up for higher-priced homes in some areas. An agent in the D.C. area, for example, reported that properties in the mid-to-upper price range sold quickly, with the best sellers in the $800 thousand to $1.25 million price range. He added that relatively low inventory should keep market activity fairly strong in that area. A Realtor in the western part of North Carolina said that he was "cautiously optimistic," but added that high unemployment in that area remained a serious drag on sales activity. Realtors throughout the District noted an increase in foot traffic, but sale price movements varied. Real estate agents in the Greensboro, N.C. and Greenville, S.C. areas stated that prices held steady, while a contact in the D.C. area cited a slight increase in sales prices.
Commercial Realtors and construction contractors reported little change from the generally weak conditions that prevailed in our last assessment, but a few encouraging signs were noted. A recent survey of contractors in the District revealed that one third of respondents experienced no change in construction activity over the last three months, while forty percent reported declining activity (compared to over fifty percent three months ago). Gains often came from government, medical, and higher education projects, which have been pockets of strength. However, several contractors reported a recent decline in higher education-related construction. On the Realtor side, most contacts continued to cite weakness in demand from small businesses for both office and industrial space. However, several Realtors noted a pickup in leasing to small retailers, especially independent restaurants. A Realtor in Virginia reported limited gains among car dealerships and nursing homes, with most of that business coming from long-standing clients. A Realtor in Raleigh reported some increase in the number of clients who expressed interest in taking out a lease in the near future. Finally, most contacts around the District indicated that rental rates were generally stable, and several Realtors reported a decrease in the number of requests for rent reductions.
Labor Markets
Fifth District labor market activity, especially among temporary employment agencies, improved slightly in recent weeks. Most contacts at temp agencies characterized demand as at least somewhat better in recent weeks, although a few agents cited weakness in demand for workers. However, virtually all agents indicated that demand was still stronger than a year ago. Several employment agents cited uncertainty about the economy as the primary factor behind hiring temporary help rather than full-time employees. For example, a Hagerstown agent said that many of his clients were still very uncertain about their future orders. As a result, they were using contingent labor more than they might if they felt that business volume would continue to increase. Increased demand for temporary workers was reported for a diverse set of skills, including light manufacturing assemblers, machine operators, forklift operators and quality inspectors. Respondents to our latest manufacturing survey indicated that employment demand, while fairly robust in June, was little changed in July. Retail hiring rose slightly, according to our recent survey, and hiring was little changed at non-retail services providers. A slight majority of both retail and non-retail respondents indicated that they were increasing wages.
Tourism
District tourism gained momentum in recent weeks. Contacts along the Mid-Atlantic coast reported bookings in line with a year ago--notwithstanding last year's "bump" from vacationers who relocated their vacations to the East Coast from the Gulf Coast during the oil spill disruptions. Hoteliers in several locations noted a trend toward last-minute bookings, although a contact on the coast of North Carolina cited last year's relocation crunch as the impetus for more advance bookings in her region this season. A resort manager in the mountains of western Virginia said that new summer attractions helped drive 95 to 100 percent occupancy at his site. July has been "fantastic," according to a hotel representative in Baltimore, with occupancy pushed up by several big events and by an increase in the number of family reunions. Contacts reported mostly small rate increases for the summer. Most hotel and resort owners expressed optimism about potential business during the 2011 winter holiday season; some were already receiving inquiries.
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Cleveland