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The Fifth District economy expanded at a somewhat faster clip in recent weeks despite weather-related slowdowns in some sectors. Consumers continued to spend freely, with retail sales growth out pacing that of a year ago. In addition, manufacturers reported that orders and shipments rebounded sharply from an early winter slumber. Real estate activity, both in the residential and commercial sectors, picked up considerably, although residential builders noted that excessive rainfall reduced housing starts somewhat. Unusually wet weather also kept tourists away from coastal resorts and farmers out of their fields. In the service sector, growth remained healthy, even though the overall pace was held back by a reduction in utilities' sales. Shortages of both skilled and entry-level workers worsened, and reports of higher wages were more widespread. Prices, especially in the service sector, increased at a somewhat faster rate.
Retail
Since the beginning of the year, the retail sector has hardly missed a beat. January sales held up better than in past years, and most merchants told us they were pleasantly surprised by the strength of consumer spending in February. Mild temperatures hurt winter apparel sales, but got spring clothing off to a fast start. Consumers' purchases of durable goods strengthened. Sales of both new and used automobiles exceeded dealers' expectations, and furniture retailers reported that their businesses were finally benefiting from buoyant housing markets. While maintaining sales growth remained a priority, many merchants told us that their biggest concern was finding and retaining workers. One said that the lack of available workers "was keeping [him] awake at night." Reports of wage increases were more prominent than in our last report. Retailers indicated that prices generally increased at a faster rate in recent weeks. Restauranteurs and general merchandisers reported the largest price increases; apparel retailers, however, continued to report widespread price discounting.
Services
District service producers experienced healthy growth in recent weeks. Businesses associated with real estate--including mortgage insurance companies, real estate brokers, and appraisers--noted particularly strong revenue growth, as did both passenger and freight airlines. Electric utilities and natural gas suppliers, on the other hand, reported decreased revenues as unseasonably mild temperatures reduced energy demand. Service sector employment growth slowed amid widespread complaints of shortages of qualified workers. Service contacts reported faster price growth since our last report; the pick-up was most evident in the business services, finance, real estate, and lodging sectors.
Manufacturing
Since our last report, District manufacturers witnessed a resurgence in activity. Overall shipments and new orders rebounded sharply, even though producers of transportation equipment and industrial machinery reported disappointing growth. Most manufacturers continued to indicate that their sales had not been impacted by the financial crisis in Asia. An exception was a textile producer who suggested that a recent "flood" of Asian imports had hurt his industry. While a Virginia port representative stated that Asian difficulties had "hindered textile exports," contacts at other ports noted little impact on either exports or imports. Manufacturers continued to add employees, but many expressed growing concern over the quality of their job applicants. Wages grew somewhat faster than in our last report.
Finance
Lending activity increased in January and February. Mortgage lending--both new originations and refinancings--was particularly brisk; a Charlottesville, Virginia banker said that "January was pandemonium" in her office because interest rates were so low. Commercial lending also rose, boosted in part by increased business merger and acquisition activity. Banks' credit standards changed little since our last report.
Real Estate
Low interest rates and higher consumer confidence sparked real estate sales in recent weeks, but wet weather hampered homebuilding activity. A Virginia contact reported "booming" home sales while a South Carolina realtor said that it was the "best January and February ever" in his area. A number of realtors attributed higher sales to an influx of new businesses coming to their areas. Frequent rains across most of the District, however, thwarted contractors' efforts to keep apace of demand. Nevertheless, builders reported that the rains didn't diminish their optimism or affect the number of building permits being sought.
Commercial real estate activity picked up dramatically, with one contact noting that "floods of tenants were looking for space." The continued strength surprised some contractors who had "expected the market to hit saturation by now." Projects underway in the District included small office buildings and larger industrial warehouses as well as retail establishments, a growing portion of which were speculative buildings.
Tourism
Contacts reported that the unseasonably warm, wet weather of recent weeks had a mixed impact on District tourist activity. Despite mild temperatures which hindered snowmaking, attendance at ski resorts was near all-time highs. One contact said that the addition of a snow tubing park had increased his resort's customer base by appealing to those who do not ski. The warmer temperatures, however, caused ardent skiers to travel further in search of natural snow, benefiting West Virginia ski resorts. Frequent rains dashed hopes of a second year of record-breaking winter tourist activity at coastal resorts.
Labor Markets
Employers continued to experience difficulties finding qualified workers to fill vacant positions. A number of temporary agencies said that their greatest challenge was finding "trainable" people for entry-level production and customer service positions. One contact said that, increasingly, businesses were hiring two or more college students on a part-time basis to fill each full-time vacancy. While overall wage increases remained modest, workers with highly sought skills were "calling the shots" in their wage negotiations.
Agriculture
Near-record rainfall in many areas had mixed impacts on small grain crops. Wet and muddy fields barred farmers from applying fertilizer to the winter wheat and barley crops and from starting their pre-planting tillage. Standing water in low-lying fields was common, and one agricultural analyst said that flooded fields could reduce winter wheat yields in his area by as much as 20 percent. Elsewhere, the rains and milder-than-normal temperatures apparently benefited small grain crops. Analysts said that fruit trees budded early, increasing the risk of spring frost damage to peach and apple crops.
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Cleveland