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Economic growth in the Fifth District remained brisk in May, although a few sectors showed some deceleration. The manufacturing and service sectors continued to grow rapidly, while retail trade lost some of its vigor of earlier months. Commercial real estate activity increased further, and sources said that growth in residential real estate was mixed. Driven by stronger demand, bank lending edged up after several lackluster months. In agriculture, May's unseasonably cool and dry weather slowed crop development and hampered planting activity. Overall price pressures were less pronounced, and despite tighter labor markets, fewer reports of wage pressures were received.
Retail Trade
District retailers reported that activity grew more slowly in recent weeks. Sales revenues grew at lower rates; several contacts cited cooler-than-normal weather as the main reason for more sluggish sales growth. Customer traffic and sales of big-ticket items increased only slightly, and retailers noted rising inventories. Employment and wage growth eased somewhat and retail prices were little changed. Retailers generally remained optimistic, although fewer expected demand to pick up in the coming six months.
Services
Service sector activity continued to expand briskly. Revenue growth was particularly strong in the real estate, financial, and health services sectors. However, revenue growth slowed in wholesale trade and dropped sharply in business services. Service employment and wage growth picked up during the month, and prices rose at slightly faster rates. Service sector contacts lowered their expectations of future demand.
Manufacturing
Manufacturing activity continued to expand at a strong pace in recent weeks. Overall shipments remained at record levels but those in the apparel, furniture, and printing industries weakened. The volume of new orders increased at a generally slower pace, but producers of paper goods, electric equipment, textiles, and industrial machinery saw the pace quicken. Although manufacturers continued to characterize labor markets as tight, workers apparently were more confident of their job prospects; one contact noted that prospective hires were refusing to submit to drug testing. Finished goods prices changed little, and raw materials prices declined. Contacts anticipated higher finished goods prices over the next six months.
Tourism
Tourism continued to strengthen during May. Contacts reported that, compared to a year ago, the average tourist stayed longer and spent more money over the Memorial Day weekend. A Virginia Beach hotelier attributed an increase in bookings at his hotel to higher consumer confidence and a strong economy. Sources expected hotel and resort prices to increase by two to eight percent this summer.
Port Activity
Representatives at District ports indicated that both imports and exports were lower in April than in March, but remained above year-ago levels. Most port contacts expected higher volumes during the next six months, with imports outpacing exports.
Temporary Employment
The demand for temporary workers remained strong, but aside from normal seasonal increases, was little changed from the previous report. Several contacts noted that an increase in students seeking summer work had little effect on their ability to fill vacant positions. One employment agent said that finding workers with the necessary skills, especially computer skills, remained a "constant challenge." Wages were generally reported as holding steady, but several contacts stated that employers desperate to fill jobs were considering raising wage levels.
Finance
Lending activity in the Fifth District was generally higher in May. A number of banks reported increased demand for commercial loans. One Richmond banker commented that increased business expansion and acquisition in his region was driving strong commercial lending. Home mortgage lending also rose. Several lenders suggested that the prospect of higher lending rates led homebuyers to commit to mortgages now rather than later. Demand for consumer loans in general was flat; one banker described consumers as "tapped out."
Residential Real Estate
Homebuilders and realtors gave mixed reports on residential real estate activity. Homebuilders said that housing starts and permits increased slightly, whereas real estate agents said that home sales and customer traffic eased somewhat. One source characterized the market as "stable, but nothing that's ringing any bells and whistles." Contacts were skeptical that the level of customer traffic would lead to sales. One said "there's a lot of tire-kickers out there." Increases in building materials prices were less pronounced, and there were few signs of wage pressures. There were several reports that strong demand was raising home prices in South Carolina. In Charlotte, N.C., however, one builder said that they're "slashing prices" due to overbuilding.
Commercial Real Estate
Commercial real estate activity escalated further since our last report. Office, retail, and industrial leasing accelerated in most jurisdictions, although it slowed somewhat in Virginia and West Virginia. The market for prime office space continued to tighten except in Virginia and West Virginia. Many contacts reported shortages, particularly for large blocks of space. Rents rose in all jurisdictions. Sources noted an increase in new construction, and there were scattered reports of increased speculative construction.
Agriculture
Unseasonably cool and dry weather across most of the District slowed crop development and hampered planting progress. Cooler weather in North Carolina reduced germination of the cotton and peanut crops. In eastern South Carolina, the outlook for crops was characterized as "grim" due to a lack of moisture. A shortage of rainfall in Virginia led some farmers to begin irrigation of vegetable crops. There were scattered reports of blue mold on North Carolina tobacco.
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Cleveland