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The Fifth District economy continued to expand at a moderate pace in the weeks since our last report. Many firms in the service sector reported a pullback in revenues, but manufacturing output rebounded after several months of decline. Retailers reported somewhat higher sales in November and a good start to the holiday sales season, despite unseasonably warm weather which damped enthusiasm for winter apparel. Real estate activity picked up; commercial developers were particularly upbeat in light of the rebound in the stock market. Loan demand was strong and lending was brisk at District banks. In labor markets, wages grew moderately and worker shortages persisted, despite continued declines in District manufacturing employment. Fair weather in late October and November boosted tourism, but brought little relief to moisture-starved crops and pastures.
Retail
Retail sales rose only modestly through the first three weeks of November, but ended the month on a strong note. Most retailers reported that their sales reflected normal seasonal momentum prior to Thanksgiving, even though shopper traffic was noticeably higher. However, retailers reported busy stores and robust sales during the weekend following the Thanksgiving holiday. Several contacts said their sales would have been even stronger without the unseasonably warm weather which hindered sales of winter lines. A department store manager in Charleston, S.C., noted that "it's hard to be in the holiday spirit when it's 75 degrees outside." Retailers continued to struggle to find holiday help; a Richmond, Va., retailer said there was a "terrible labor shortage" in his area. Retail wages were higher in most areas.
Services
Activity in the services sector edged lower in November, as business-service firms and airports reported revenue declines. Contacts at law and accounting firms indicated that their November billings held up well, but paled in comparison to October's unusual strength. A source at an airport reported that revenues decreased because a low-cost airline "pulled out," which allowed other airlines to raise fares and led to an overall decrease in airline traffic. Employment remained little changed while wage growth moderated across the District. Service providers continue to expect increased demand over the next six months; businesses that provide financial services were especially optimistic.
Manufacturing
Manufacturing activity picked up in November. Shipments increased in most goods-producing industries, underpinned by an uptick in customers' confidence. An industrial machinery producer said his customers had been "on the fence" in recent months, but now were going ahead with orders. The average workweek stabilized after tumbling in October, even though manufacturers in several sectors continued to trim their workforce levels. A drop in tobacco employment was attributed to ongoing efforts to "streamline" operations, while contacts said that textile firms lowered payrolls because they continued to lose business to foreign competitors. Looking ahead, manufacturers were more optimistic about shipments and new orders in coming months, but expected employment to continue to trend downward.
Finance
District banks reported strong lending activity in the period since our last report. Residential mortgage lending benefited from a solid housing market and steady refinancing activity while lower interest rates buoyed commercial lending. Most bankers reported little change in their loan standards in November, but several indicated that caution prevailed as they peered "down the road" for signs of recession. While few believed that a substantial slowing in the economy was imminent, several anticipated a normal throttling back of mortgage lending activity in coming weeks as potential customers turn their attention to the upcoming holidays.
Real Estate
Realtors described District housing markets as generally strong and stable in November. Although a few realtors noted some "seasonal slowing" in the rate of home sales in recent weeks, most were quick to point out that sales in their areas remained very good. Only modest price increases were reported. A realtor in the District of Columbia expressed surprise that prices in his area were not advancing faster, quipping that perhaps the "law of supply and demand" no longer applied there. Homebuilders reported generally strong housing starts because of low interest rates and improved consumer confidence. Reports of higher labor and materials costs were more widespread. A builder in Rockville, Md., told us that labor costs were "going through the roof" and that there continued to be shortages of all types of building subcontractors. Other contacts noted that drywall and insulation prices had risen sharply in recent weeks.
Commercial real estate activity picked up in recent weeks, driven higher by a rebound in stock prices and consumer confidence. Realtors in both West Virginia and North Carolina noticed that a growing proportion of doctors, engineers, and attorneys were buying their offices rather than leasing. The exodus of these professionals combined with new product coming on line contributed to an increased availability of Class A space in these areas. In contrast, realtors in Maryland, Washington, D.C., and South Carolina expressed growing concern about shortages of available space.
Tourism
Tourist activity was strong in November. Bookings at District resorts for the Thanksgiving holiday were well above those of a year ago; a contact on North Carolina's Outer Banks suggested that much of the increase in his area was driven by Christmas shopping at area outlet malls. Resorts in mountain areas also enjoyed increased activity. A source at a ski resort in Virginia reported that sales of time-shares rose considerably and that tourists were spending more. Contacts noted that skiers were more interested in buying state-of-the-art skiing equipment rather than second-hand merchandise. District sources expected tourist activity to strengthen further during the next six months.
Temporary Employment
Strong demand for temporary workers persisted across the District in recent weeks. Workers with technical and clerical skills were particularly sought after throughout the region; a contact in Greenville, S.C., reported that industrial skills, including packaging and assembling experience, were in short supply in her area. Several temporary agencies noted an increase in "temp-to-perm" workers, as employers attempted to secure quality help while it was still available. Contacts reported little change in the wages that their placements received and did not foresee substantial changes during the next few months.
Agriculture
District agricultural analysts continued to report that topsoil moisture levels were short to very short in many areas. Pasture conditions were generally described as poor and deteriorating, leading to concerns about the adequacy of hay stocks. In Virginia, farmers increased their supplemental feeding of cattle and continued to use private wells to assist in watering livestock. On a brighter note, corn harvesting neared completion in Maryland and West Virginia and winter wheat planting was ahead of schedule in most areas.
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Cleveland