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The Fifth District economy continued to advance at a solid pace in the weeks since our last report. District retailers reported stronger sales gains in both October and November and they anticipate an excellent holiday sales season. Manufacturers indicated that their new orders and shipments grew faster in recent weeks, while services providers recorded modest increases in revenues and stable employment. At financial institutions, commercial lending continued strong, but residential mortgage lending slowed further. Real estate activity grew somewhat more slowly, with the level of construction and commercial leasing remaining high. In labor markets, employment growth remained modest. Wage growth picked up in the services sector and remained high in retail, but price increases continued to be moderate in both sectors. In agriculture, harvesting was wrapping up and yields for most crops were fair to good.
Retail
District retailers reported stronger sales growth in late October and November and looked for a further pickup through the holiday season. Customer traffic was brisk in recent weeks. Moreover, a department store manager's assessment that "everyone was a buyer" summed up the assessment of many retailers. Big-ticket sales led the way in October but not in November; gift shoppers turned their attention to apparel and jewelry in more recent weeks. Retailers' inventories increased well above the normal amount in November as store managers stocked up for the holidays. Retail prices rose at a moderate rate in recent weeks and were expected to continue to rise only moderately in coming months.
Services
Revenues expanded modestly in the services sector since our last report, but within the sector, growth by industry was mixed. Contacts at health services, public utilities, and information technology firms reported that their revenues grew more quickly, while commissions at real estate and insurance firms were said to be little changed compared to last month. District airports and hotels were gearing up for strong holiday and vacation travel over the next few months--including travel on New Year's Day. Many airlines are offering lower fares on days around the beginning of the new year, and despite potential Y2K concerns, most expect a good customer response.
Manufacturing
Manufacturing growth nudged higher in November. Shipments and new orders increased substantially in most goods-producing industries, particularly at food, tobacco, and furniture manufacturers. In contrast, textile and apparel manufacturers and industrial machinery producers continued to record sluggish sales. Although many textile manufacturers continued to attribute sluggish sales to weak demand, a textile producer in South Carolina said that his shipments fell in part because of an inability to secure skilled labor. The average manufacturing workweek rose in November after falling in October and employment rose. However, manufacturers in a few sectors, including industrial machinery and electronic equipment, continued to trim their workforces. A manager at an industrial equipment manufacturer in West Virginia attributed layoffs at his company to uncertainty surrounding the near-term future of coal mining. Turning to prices, both raw materials and finished goods prices were little changed since our last report.
Finance
District loan officers said that commercial loan demand remained strong in late October and November, while the demand for home mortgages slipped further. Generally strong overall business activity and vibrant commercial real estate markets were cited as factors contributing to solid commercial lending growth in the District. Residential mortgage lending, however, continued to be slowed by higher mortgage rates and, in a few cases, a dip in consumer optimism. A mortgage lender in Greenville, S.C., noted that the current debt loads were high for many borrowers and he suggested that mortgage lending may be slowing simply because "people don't want to go further into debt." Mortgage lenders indicated that they are scrambling for customers; in the words of a Richmond, Va., lender, his firm was "doing everything we can to make sure we aren't overlooking someone to lend to."
Real Estate
While residential real estate activity in the District was still generally reported to be strong in recent weeks, there were scattered signs of slowing growth. A Charlotte, N.C., realtor reported that customer interest in purchasing new homes had tailed off somewhat while real estate agents in several other North Carolina markets said that building permits in their areas were lower than a year ago. Realtors in Raleigh, N.C., however, continued to see lively sales, and in Rocky Mount, real estate sales rebounded after slowing earlier in the fall because of extensive flooding in the region. Virginia's real estate markets were mixed: realtors in Northern Virginia and Richmond characterized markets as strong, but some weakness was reported in the Tidewater area. In the District of Columbia, condos and co-ops were selling "exceptionally well--better than ever," according to one realtor, as young people increasingly moved into the city. In booming areas such as Frederick, Md., organizations serving low-income individuals expressed concern that housing price increases were outstripping improved income prospects, making housing less affordable for the poor.
Commercial real estate activity in the Fifth District was reported to be little changed in recent weeks. Realtors characterized commercial construction as "flat" in Virginia and the District of Columbia. One contact in D.C. told us he had seen a softening in construction by "big box retailers," and speculated that the chains may be feeling the pinch of competitors' expanding Internet sales. In Raleigh, N.C., however, there was a pick up in new commercial building activity, most of which was pre-leased. In Charleston, W.V., the commercial market has cooled; some Class A buildings planned there have not been built because they could not be pre-leased.
Tourism
Tourist activity was strong in most areas of the District in November, but remained sluggish along coastal areas. Business at mountain resorts increased notably; at a ski resort in Virginia, for example, the manager noted that sales of time-shares were up ten percent compared to a year ago. The pace of activity along the coast, however, was visibly slower as cautious travelers apparently remained concerned that accommodations were still affected in the aftermath of several hurricanes earlier this fall. A contact on the Outer Banks of North Carolina said that group bookings were down substantially--in part because of vacationers' concerns about water quality in the region.
Labor Markets
District employers reported substantial wage increases in recent weeks, but they noted that employment in most sectors rose only modestly. In retail, seasonally adjusted employment growth was flat in November because many seasonal employees were brought on board in September and October as many stores pushed their hiring forward. In recent weeks, wages rose at a quicker pace as some retailers scrambled for the remaining seasonal workers. Employment in the services sector was little changed but firms indicated strong wage growth was necessary to attract and retain workers. An owner of a small office janitorial business in North Carolina said he was forced to increase wages because, "It's getting harder and harder to muster interest in our job listings. Everyone wants to work for a big multinational or a 'tech' startup." District manufacturers reported a modest increase in both wages and employment. Temporary employment agents also said that firms offered substantially higher wages in recent weeks, particularly for computer savvy workers. Even among agencies dealing with welfare-to-work workers, job opportunities were characterized as plentiful for all but the least skilled.
Agriculture
Fair weather across most of the region enabled District farmers to make good progress harvesting crops in recent weeks. The peanut harvest was delayed in some areas because of flooded fields, but activity is now complete in Virginia and drawing to a close in the Carolinas. Good peanut yields were reported in Virginia, but yields were well below average in North Carolina. Cotton yields were also down in the Carolinas because of flooding earlier in the growing season. Despite ample rain in the eastern areas of the District, dry conditions persist in West Virginia; pastures are in poor condition in much of the state and wells are drying up in some counties.
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Cleveland