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The Fifth District economy expanded at a faster pace in the weeks since our last report, boosted by a pickup in consumer spending. Retailers reported busy stores and stronger-than-expected sales during December. Outside of retail, service sector activity was flat, held back in part by inclement weather in late December. Manufacturing activity was mixed; output growth tapered off, but employment picked up after dropping in November. Growth in commercial and residential real estate held up well and lending activity remained strong at financial institutions across the District. Cold and icy weather in late December hampered tourism in many areas, but revived ski resorts, many of which had opened later than normal because of mild temperatures early in the month. In labor markets, wage growth continued strong in retail and services, but slowed in manufacturing. Prices of both goods and services were little changed at most District firms.
Retail
Retail sales advanced at a stronger pace in December. District retailers reported better than expected shopper traffic during the holidays and a rebound in sales of big-ticket items. A manager at a shopping mall in Columbia, S.C., said that big-ticket items such as furniture, computers, and jewelry "stole the show this year." In contrast, holiday apparel sales were disappointing; a retailer in Charlotte, N.C., noted that although sales of heavy winter items made "a comeback toward the end," winter lines generally suffered because of the unseasonably warm weather in early December. Retail wages expanded at a slightly quicker pace than in our last report, in part because of an unusually tight labor market for seasonal workers.
Services
Service sector activity was flat in December. Contacts at District service businesses, including legal and accounting firms, reported that icy weather late in the month contributed to a drop in patronage and a lowering of their revenues. Inclement weather snarled highway and air traffic across much of the District and caused widespread delays and cancellations of travel plans. Employment in the services sector dropped in December although wages continued to advance briskly. Service firms reported that the prices they charge were little changed.
Manufacturing
District manufacturing activity was mixed in recent weeks. Growth in shipments tapered off in December and new orders edged lower; both measures were sharply lower at chemical and food manufacturing firms. However, despite recent layoffs at textile firms, manufacturing employment edged higher in December and there were scattered signs that the quality of applicants for manufacturing jobs was improving. A contact in Greenville, S.C., for example, told us that he was seeing "better potential employees" in his area. Some of the improvement in applicant quality may be the result of the increased availability of workers recently laid off. Several contacts noted that laid-off workers have had little difficulty finding new jobs and in many cases had received comparable pay in their new positions. On the price front, manufacturers indicated that their prices held steady, after three months of modest declines.
Looking forward, District producers remained optimistic about shipments and new orders during the next six months. They also anticipated that employment would increase and that wage levels would rise.
Finance
District loan officers reported that lending activity was strong in December. A vibrant housing market and low interest rates continued to underpin robust demand for residential mortgages. Although most contacts anticipated that mortgage lending will remain brisk in early 1999, a few cautioned that higher consumer debt levels could slow the advance. Commercial lending was characterized as "exceptionally competitive" in recent weeks; one banker noted that he could "only get business by taking it away from competitors." A Charlottesville, Va., banker reported that he was seeing more competition from community bankers who were aggressively "knocking on doors" in search of borrowers.
Real Estate
Residential real estate activity remained strong since our last report. Realtors cited continued solid job growth and business relocations to the region as primary factors sustaining activity. Builders reported slower construction activity in December, but noted that the level of building remained high for this time of year. Home prices continued to rise moderately in most areas of the District. On the cost side, only modest increases in labor and materials prices were noted. According to a Baltimore, Md., contractor, labor markets there were "tight, but workable." However, skilled tradesmen, particularly electricians, plumbers, and framers, remained in short supply.
Commercial real estate activity lost some momentum in recent weeks but nonetheless, remained at a high level. Several contacts expressed surprise that strong commercial leasing activity had continued through the holiday season which is typically a slow period. Commercial rents edged up in most areas as vacancy rates continued to fall. Looking forward, most realtors were optimistic about prospects for the commercial real estate market and for the overall economy in the coming year.
Tourism
Tourism weakened in December. A major ice storm on the East Coast late in the month caused cancellations and early departures at many coastal resorts in the District. However, colder weather during the holidays was welcome news at area ski resorts. Several resorts in Virginia and North Carolina had been forced to delay the opening of their ski seasons because of unseasonably warm weather in early December and a shortage of water reserves necessary for snowmaking. Delayed openings reduced their December revenues by about twenty percent. Nevertheless, contacts at area ski resorts remained optimistic, noting that they were now booked to capacity for most of January and February.
Temporary Employment
Strong demand for temporary retail workers during the holiday season more than offset weaker demand in other sectors last month. Outside of retail, service firms continued to hire temporary help but at a somewhat slower pace than in our last report. In manufacturing, firms cut back on hiring across the District, citing sluggish demand from abroad for their products. Despite weaker demand in some sectors, modest wage growth continued in December and many contacts believed that, within the next six months, firms would begin to increase wages substantially in order to attract workers.
Agriculture
Generally dry weather allowed District farmers to make significant headway in their fieldwork in early December. By mid- to late-December, however, winter storms brought below average temperatures and freezing rain to the region. State agricultural analysts reported no major damage to winter grains from the ice. In spite of the precipitation, farmers were still in need of rainfall to replenish soil moisture and ground water tables. In the livestock sector, colder temperatures stressed livestock and increased the amount of hay required to feed cattle. Despite increased needs for hay, no substantial shortages were anticipated.
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Cleveland