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Economic activity in the Fifth District continued to advance at a moderate pace in late January and February. Retailers said that after seasonal adjustment, sales increased at the fastest rate in several years. Service sector growth picked up sharply and tourism strengthened. Activity surged in both commercial and residential real estate. On a weaker note, District manufacturing output slipped somewhat and the volume of cargo moving through ports declined. In the financial sector, demand for consumer and commercial loans weakened slightly but mortgage demand strengthened. Employers continued to report difficulty filling vacant positions and indicated that wage pressures became more pronounced. Price pressures continued in most sectors although retail price increases moderated.
Retail Trade
District retailers reported that their seasonally adjusted January and February revenues grew strongly, particularly at restaurants, pharmacies, and building materials stores. Apparel sales were steady and auto sales decreased modestly. Other retail indicators such as employment, shopper traffic, and wage levels remained strong. Contacts noted that their prices rose somewhat more slowly in recent weeks. Retailers' outlook remained bright; they expected demand for their products to increase during the next six months.
Services
Service sector revenues grew more quickly since the last Beige Book report, especially in health services, wholesale trade, and business services. However, contacts indicated that revenue growth slowed in transportation, communications, and public utilities. Employment and wage growth was more pronounced in recent weeks. Wage pressures were stronger in wholesale trade and business services but slackened considerably in health services. Contacts reported that their prices rose in recent weeks and they expected demand for their services to increase over the next six months.
Manufacturing
Activity in the District�s manufacturing sector declined modestly. Durable goods producers indicated that shipments fell somewhat during the past six weeks although new orders changed little. Employment declined slightly as manufacturers faced increased employee turnover and experienced greater difficulty locating qualified workers. Contacts reported more widespread labor shortages, particularly in the textile and industrial equipment sectors. Several firms indicated that the productivity of their new hires was unusually low; one manufacturer in South Carolina said that his firm had to provide more training "for those [workers] that don't learn as fast." Prices for finished goods and raw materials grew at slightly faster rates than in December, but respondents expected these prices to ease during the next six months.
Tourism
Tourism strengthened in late January and February. Respondents indicated that unseasonably warm weather boosted activity in coastal areas. One hotelier from the Outer Banks noted that her resort was "booked to capacity" on weekends. Despite the mild weather, contacts from Fifth District ski resorts reported that the number of visitors was approaching last year�s record level; however, many apparently came to tee off rather than to ski. A contact at one popular ski resort said that March bookings looked very strong.
Ports
Representatives at District ports indicated that both imports and exports were lower in January than in December, but remained above year-ago levels. Most port contacts continued to expect higher volumes during the next six months, with exports outpacing imports.
Temporary Employment
The demand for temporary workers increased further in recent weeks; one placement agent in West Virginia described demand as "running about twice normal." Labor markets remained tight and contacts noted that applicants with computer skills continued to be in short supply. Several respondents reported that firms were increasingly turning to temporary employment agencies to fill permanent positions.
Finance
In recent weeks commercial and consumer loan demand weakened somewhat while mortgage loan demand strengthened. Contacts said mortgage lending was "surprisingly strong for this time of year," and several reported renewed interest in refinancings. Competition for commercial loans remained strong; one banker noted that margins had become "ridiculously low." Respondents indicated that the quality of consumer loan applicants had deteriorated in recent weeks. A North Carolina contact reported that his bank tightened credit standards for unsecured and automobile loans.
Residential Real Estate
Residential real estate activity accelerated in late January and February, fueled primarily by unseasonably warm weather. In general, Fifth District contacts reported a surge in customer traffic and moderate increases in housing starts, sales, and permits. A realtor in the Washington, D.C., area remarked that "the market is tremendously active," while another respondent there noted that "business is booming." A Charlotte, N.C., homebuilder said that despite his attempts to avert a backlog of orders by aggressively raising sales prices, his homes were still selling. Overall, contacts reported that wages, materials costs, and home prices had increased slightly.
Commercial Real Estate
Commercial real estate activity continued to escalate since our last report. The leasing of office, retail, and industrial space accelerated in all jurisdictions except Virginia, where it remained at a brisk pace. Vacancy rates continued to fall except in North Carolina, where they were pushed higher by an increase in new space coming to market. Respondents across the District reported increased new construction; one North Carolina contact remarked that there was "so much dirt [from construction vehicles] on the road it was impossible to keep a car clean." The market for prime office space remained tight, and several contacts reported shortages in their areas. Rents rose in most jurisdictions, and one District of Columbia contact noted that "concessions are drying up."
State Revenues
State revenues increased at a slower pace in recent weeks. General fund collections grew more slowly in all jurisdictions except the District of Columbia and Virginia. Virginia's increase primarily reflected large gains in withholding tax collections.
Agriculture
Agricultural analysts indicated that weather conditions had varied effects on District farming activity. While wet weather this winter had delayed field preparation in the District, drier weather in recent weeks allowed farmers to catch up on scheduled activities somewhat. In contrast, milder-than-normal weather and adequate hay supplies aided livestock producers. Rebounding cattle prices increased producers' optimism about future profitability; one respondent said that "the tide has turned."
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Cleveland