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Fifth District economic activity remained at a high level in recent weeks, although the rate of growth has moderated. Retail sales rose sharply since October and the commercial real estate market remained strong. Service sector growth slowed as did growth in state revenues. Manufacturing activity was mixed and loan demand slackened. Unfavorable weather hurt ski resorts' business and hampered crop harvests. Labor markets tightened further, and wage pressures were more evident. Price increases were more widely reported; retail and service sector prices rose more quickly, and commercial rents continued to rise.
Retail Trade
The pace of retail activity escalated since the last Beige Book report. Retailers reported robust gains in apparel sales, but indicated that general merchandise and computer sales were down. Shopper traffic and inventories at most stores expanded at a faster pace in recent weeks, although some automobile dealers reported declines in both. Retail employment grew more quickly, and retailers, particularly in urban areas, had difficulty finding employees. Wage pressures continued to be widely reported. Respondents noted that retail prices rose somewhat more quickly, and they expected slightly higher prices and increased demand for their products over the next six months.
Services
The service sector grew more modestly in recent weeks, held back by declines in business and personal services. Employment growth remained modest and the rapid pace of wage growth reported in the last Beige Book slackened. Wage pressures were less pronounced in the wholesale trade, finance, and insurance industries; however, some contacts in the hotel industry noted that tight labor markets were "driving [their] pay scales higher." Prices at service-producing firms rose more quickly. Looking ahead, respondents expected demand for services to be steady over the next six months.
Manufacturing
Activity in the District's manufacturing sector was mixed. Shipments were lower in the textiles, furniture, and paper goods industries. In contrast, shipments of metals, lumber, chemicals, and transportation equipment strengthened. Generally, the volume of new orders increased at a faster pace. However, producers of paper products, furniture, and rubber and plastics reported fewer orders. Despite increased hiring by tobacco and transportation equipment firms, manufacturing employment fell somewhat during December, as textiles, furniture, and chemicals firms trimmed payrolls. Shorter hours at textile, furniture, and paper plants trimmed the average workweek. Finished goods prices declined and raw materials prices grew at a slower rate.
Tourism
Unseasonably warm weather hampered tourism in late December and early January. Respondents reported that a lack of natural snow and the inability to make snow closed some ski areas and limited the number of trails that others could operate. Despite the shutdowns, one contact from a popular ski resort stated that if the weather cooperates for the rest of the winter, they could still surpass their record-breaking 1996 season. Many contacts at coastal areas noted that despite unseasonably warm weather, tourist activity had slowed from November, although winter hotel bookings were about the same as last year.
Temporary Employment
The demand for temporary workers increased during December and early January, as qualified help remained in short supply. Most contacts noted an increase in the demand for light-industrial workers while the need for information technology workers remained high. One North Carolina agent reported that more employers in his area were seeking managerial-level employees. Wage pressures continued, especially in areas of low unemployment. In the tight Spartanburg, S.C., labor market, a contact said that offers of higher wages were starting to attract workers from low-paying permanent positions.
Finance
District banks reported somewhat lower demand for mortgage and consumer loans during December and early January, while commercial loan demand changed little. Contacts attributed the drop in mortgage lending to an uptick in interest rates. One Virginia banker indicated that higher rates "put the brakes on" customer interest, bringing the demand for home loans "to a screeching halt." Several bankers said that high debt levels generally slowed consumer lending activity, although they noted an increase in debt consolidation loans. The demand for commercial loans held steady, but contacts reported that the competition for those loans had become "fierce," leading banks to provide added service and to trim pricing.
Residential Real Estate
Residential real estate activity eased slightly during December and early January. Housing starts and sales were lower, although the number of building permits increased slightly. Home prices moved marginally higher. Customer traffic was steady, and several homebuilders noted that the interest shown by "serious" customers had improved. Homebuilders reported that subcontractors remained in short supply and that lumber prices rose sharply through November but have stabilized in recent weeks.
Commercial Real Estate
The pace of commercial real estate activity accelerated in recent weeks. Office, retail, and industrial leasing activity picked up, except in North Carolina, where it remained at a high level. Commercial vacancy rates continued to fall, and rents rose slightly in most jurisdictions. The availability of prime office space tightened further, and numerous contacts reported shortages. Many respondents noted an increase in build-to-suit construction.
State Revenues
State revenues have increased at a slower rate since October. General fund collections were mixed across District states, ranging from modest growth in South Carolina to a sharp drop in Virginia. A Maryland contact said that poor lottery ticket sales had reduced general fund collections in her state. Withholding tax collections grew sharply in West Virginia, but rose modestly elsewhere in the District. Retail sales tax collections increased at a faster rate; a contact in West Virginia noted that sales tax collections had remained strong for three consecutive months, following nineteen months of "sluggish" performance.
Agriculture
Wet weather across most of the District during December hampered farmers' ability to do fieldwork. Persistent rainfall delayed corn harvesting and prevented ground preparation in many areas. However, winter wheat was developing on schedule. In the livestock sector, mild temperatures reduced the amount of hay needed to feed cattle. In the dairy industry, falling prices continued to force some small producers to leave the industry. Hog producers in North Carolina faced higher costs as the lack of sufficient slaughter facilities required them to ship hogs to plants in other states.
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Cleveland