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The Fifth District economy expanded at a moderate pace between early March and late April. Service sector revenue growth quickened, led by real estate and air transportation firms; and retail sales growth, after pausing in March, resumed in recent weeks. Although Asian economic problems trimmed export sales for some manufacturers, overall demand facing the sector remained solid. Residential and commercial real estate activity trended upward and builders nearly got back on schedule following earlier rain delays. Bank lending remained brisk for most loan categories. Labor markets continued to be tight; more employers raised wages to attract and retain qualified workers. Prices of goods and services changed little.
Retail
Aided by milder weather, consumer spending rebounded somewhat in recent weeks following disappointing March sales. The pace of spring apparel sales "dropped a step or two" in late March because consumers had pushed some seasonal purchases into preceding months. Some apparel contacts, though, reported a small boost in sales of summer clothing since Easter. Retailers said that shopper traffic was little changed since early March and that inventories held steady, although at higher levels than some preferred. Merchants told us their biggest problem continued to be a shortage of qualified workers; a growing number raised wages in recent weeks in order to retain experienced employees and attract new applicants.
Services
District service producers reported very favorable business conditions in recent weeks. Firms' revenues grew more quickly, especially at real estate- and air transportation-related businesses. In contrast, wholesalers reported that their revenues fell sharply. Demand for business services intensified in recent weeks. A North Carolina printer noted that his clients increasingly "wanted it all and wanted it all now," and he questioned his ability to meet demand this summer when his employees take vacation. Concerns about labor availability were more widespread in recent weeks. Service producers said that they were having greater difficulty finding qualified workers--and some also reported greater employee turnover. Reports of higher wage offers were more common, although few firms noted sharp increases.
Manufacturing
Since our last report, manufacturing activity grew modestly. Shipments and new orders edged higher, while backlogs fell slightly. Manufacturers continued to add workers, but many said that qualified workers were increasingly hard to find. A contact in the food industry noted that he could find good candidates for salaried positions, but had difficulty finding qualified hourly workers. In a few pockets though, tight labor conditions weren't a problem; two textile manufacturers reported that they had cut hours because their shipments and new orders were off.
Several manufacturers told us that the financial crisis in Asia had reduced their sales. A producer of machinery and equipment said his company had suffered a 20 percent reduction in exports to Asia in recent weeks, and an electrical products producer had curtailed shipments to Korea because his customers there were having difficulty securing credit. Domestic sales fell for a textile producer in North Carolina, who explained that, despite having state-of-the-art equipment, he couldn't compete with cheaper Asian labor.
Finance
District banks reported somewhat stronger lending activity in March and April. Commercial and mortgage lending advanced slightly above the high levels reported earlier in the year; a Virginia banker noted that the number of mortgage loans she had closed so far this year had already exceeded the usual yearly volume. Business expansions spurred by strong economic conditions underpinned greater demand for commercial loans. Competition to provide commercial loans remained intense; a North Carolina banker noted "there are four banks chasing every deal" and another added that margins had become "razor thin." In consumer lending, somewhat stronger activity was attributed in part to consumers needing money to pay income taxes.
Real Estate
Real estate activity expanded from already high levels in many parts of the District in recent weeks. Realtors reported that home sales strengthened and that customer traffic picked up in April, especially for entry-level homes. A realtor in Richmond, Va., noted that sales were "hopping" and said it was the best market he had seen in twenty years. A realtor in Greenville, S.C., was equally upbeat, describing "gangbuster" sales there. Home prices were moderately higher in most areas, although they were little changed in West Virginia. Drier weather across most of the District boosted housing starts and helped builders get back on track after rain delays earlier in the year.
On the commercial side, a real estate contact described activity as "trucking right along" with slight increases in construction and more talk of new deals. In the Washington, D.C. area, both build-to-suit and speculative building activity accelerated. Several areas also experienced slight increases in retail construction, especially for restaurants. Investor interest in new office construction remained high; commercial real estate contacts indicated that "a lot of people," including some from abroad, were "looking for investments" and there was "a lot of money" chasing deals.
Tourism
Tourist activity rose throughout the District despite unseasonably wet weather in March and early April. Bookings for the Easter holiday were well above those of a year ago; the operator of a mountain resort in West Virginia noted that an increase in group bookings had bolstered his business during April. Spending at District shops and restaurants rose at a quicker pace since our last report. Looking ahead, hotels and resorts in coastal areas were already booked solid for the summer months.
Temporary Employment
Demand for temporary workers strengthened further in recent weeks. While workers with technical skills remained in much demand, many contacts reported a growing need for entry-level workers. Tight labor markets continued to hamper temporary agencies' efforts to provide both contingent and "temp-to-perm" workers to local employers. A few contacts at temporary agencies expressed outright frustration about firms increasingly hiring temporary workers to permanent positions; for the agencies, maintaining an adequate pool of temporary workers has become more difficult. Wage increases were more widely reported.
Agriculture
Drier weather during the last several weeks allowed many District producers to catch up on spring planting. Many fields remained wet, however, and several agricultural analysts expressed concern about whether planting will remain on schedule. Analysts were also concerned that saturated pastures and moist air conditions could increase the likelihood of disease in livestock, although no problems have been reported. On the upside, above normal rainfall has "greened up" pastures, stepping up cattle grazing and reducing haying requirements.
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Cleveland