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Fifth District economic activity advanced at a moderate pace in recent weeks, although individual sectors' performances were mixed. Service sector activity grew solidly in October and retail activity picked up as big-ticket sales rebounded from a summer lull. Manufacturing, however, remained in the doldrums with some producers continuing to lose ground to foreign competitors. Bankers were a little more cautious, but lending activity remained strong. In real estate, residential activity advanced at a slower pace and commercial activity cooled in some markets as concerns over credit availability grew. Wage growth moderated in the retail sector, but was little changed in manufacturing and services. Price growth remained subdued in the retail and services sectors, while modest price declines were reported in a number of manufacturing industries.
Retail
Retail sales grew at a faster pace since our last report, fueled by a revival in shopper traffic and big-ticket sales. District automobile sales were strong in recent weeks; one GM dealer reported that "sales should continue to pick up now that we will be able to build back our inventories." Most big-ticket retailers indicated that their customers were searching longer and negotiating lower prices; despite this, they reported solid sales. Looking forward, retailers expected that their sales growth would not slow appreciably in coming months even though they anticipated a more cautious mood for consumers. A hardware retailer in Virginia said that "we continue to look for signs of a slowdown, but as yet they haven't materialized."
Services
Service sector revenues grew in October after two months of declines. Service firms noted that recent fluctuations in financial markets have not yet damped demand but have created a "less confident market" with "more cautious consumers." After edging lower in previous months, service sector employment grew at a modest pace in October while wage growth remained constant. Price increases for services remained moderate in recent weeks.
Manufacturing
District manufacturing activity weakened further in recent weeks. Shipments and new orders edged lower and the average workweek declined. Production declined in the textiles and apparel, furniture, chemicals, and transportation equipment industries. Several textile producers attributed the declines to the continued economic and financial problems abroad; their export sales shrank further, and imports have eroded their domestic market share. A furniture producer in North Carolina stated that his sales had been dropping since August and that foreign buyers were scarce at October's Furniture Market in High Point, N.C. Manufacturing wage growth was little changed in October. Prices declined in the textiles, apparel, and furniture industries.
Evidence of declining exports also appeared at District ports. A contact at the Port of Baltimore said that imports far exceeded exports in September and a representative of the ports of Wilmington and Morehead City, N.C., noted that they were accumulating empty cargo containers because of fewer exports.
Finance
District loan officers reported that lending activity picked up since our last report as declining interest rates sparked refinancings of business loans and home mortgages. A number of lenders, however, noted that they had become more cautious in evaluating loan applicants in light of an anticipated slowdown in the economy, although lending volume had not yet been appreciably affected. A loan officer in Richmond, Va., explained that although he was "looking harder at deals," loans that "passed muster six weeks ago" generally "still pass muster today." A Charleston, S.C., banker conveyed the sentiment of several lenders with his comment that the loan committee at his bank did not want to see exceptions to loan policy in the current economic environment.
Real Estate
Residential real estate activity continued to expand at a solid pace in October, but the rate of expansion was cooling in many areas of the District. Major real estate markets in Washington, D.C., Virginia, and North Carolina, were described as slowing in recent weeks. Housing starts, however, remained strong despite a pullback in speculative building. According to builders, less expensive starter homes were selling well as lower interest rates have made them an attractive alternative to renting. A South Carolina builder noted that condominiums and townhouses were "selling like hotcakes." Prices of homes advanced modestly in most areas, but edged lower in western Virginia and West Virginia.
Commercial real estate activity in the Fifth District slowed in recent weeks. In Richmond, Va., Motorola announced an indefinite delay in construction of its multi-billion dollar production facility. In the Washington, D.C., area contacts expressed growing concerns about credit availability. One realtor there described a "backing off of commercial real estate prices" due to a "decline in rental rates because landlords are worried about having empty space." He also noted a doubling of landlord concessions in recent weeks for projects that are expected to be completed within the next few years. Another Washington, D.C., contact said that all speculative development that wasn't already under construction had come to a halt, which he attributed to market weakness and lack of credit availability.
Tourism
Tourist activity was mixed in October. Although hotels in coastal areas reported that their business weakened somewhat, resorts in mountain areas reported generally stronger activity. A contact on North Carolina's Outer Banks said that tourist activity had lost momentum in the aftermath of Hurricanes Bonnie and Danielle. In contrast, a hotelier at a popular mountain resort in West Virginia said that convention business at his resort was much stronger than a year ago. In addition, a source at a time-sharing resort in the Virginia mountains reported a recent pickup in the construction of new units there and said that developers had expanded their future construction plans. Looking ahead six months, most District contacts expected tourist activity to remain steady.
Temporary Employment
The demand for temporary workers continued to be robust across the District in recent weeks. Service-sector workers, especially those with computer skills, remained in strong demand. Manufacturing firms, however, recruited fewer workers. Several agencies noted a slowdown in the number of "temp-to-perm" workers as employers have become more reluctant to commit to full-time employment. Contacts reported little or no change in the wages that their placements received and did not foresee substantial changes in wages over the next few months.
Agriculture
Fall harvesting and planting activity was brisk across most of the District. Dry weather and near normal temperatures were favorable for cotton and soybean harvesting. In Virginia and the Carolinas, cotton harvest progress was above average as was soybean harvesting activity in Maryland and West Virginia. In many areas, farmers began planting small grain crops despite the continued low levels of soil moisture. Rainfall will be needed in coming weeks to allow these crops to germinate properly.
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Cleveland