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On balance, the Fifth District economy expanded at a rapid pace in December and into the new year. District retailers recorded better-than-expected sales gains both during and after the holidays. At District services firms, revenues were higher and employment picked up. In manufacturing, shipments and new orders continued to show moderate gains. In contrast, real estate activity was somewhat slower in December and lending activity at District banks was little changed. In District labor markets, employment continued to grow moderately in most sectors while wages continued to advance at a brisk pace, especially at retail and service firms.
Retail
District retailers reported strong sales growth in December. Holiday sales generally exceeded plan and growth was much higher than a year ago. In addition, most retailers said that the holidays' momentum carried over into the new year. Retailers told us that the recent vibrant consumer spending has not been limited to the purchase of gifts; automobile dealerships and some lumberyards, for example, reported higher-than-normal sales in December. Retail prices continued to move up in recent weeks, but price increases remained moderate.
Services
Revenues at services sector firms expanded at a moderate pace in the weeks since our last report. Business, legal, and financial services were among the sectors with the largest gains. Some business services firms, however, indicated that the century date change had slowed their business late last year, and they now anticipate a return to more normal operations as Y2K concerns pass. A business service contact in Charlotte, N.C., for example, commented, "Now that companies realize that their computers are fine, they can spend money developing the areas of their businesses they had put on hold." Prices in the services sector have been growing at moderately faster rates in recent months, and in December, the trend remained intact.
Manufacturing
Manufacturing activity continued to expand in December. Shipments grew at a slightly faster pace than in November, while new orders rose moderately. Shipments at industrial machinery, primary metals, and electronics firms were notably higher. One Fifth District manufacturer told us that deregulatory trends in the electric industry had resulted in higher sales and orders for power plant equipment. Orders for their equipment were now booked well into 2002, as opposed to the normal booking period of only six to nine months ahead. In contrast, food, tobacco, and textiles manufacturers reported declines in their shipments and new orders. Although prices for most raw materials were relatively flat, several manufacturers noted sharply higher steel and crude oil prices.
Finance
District bankers said that the level of lending activity changed little in December. Commercial lenders reported that loan demand had been strong and they expected demand to remain strong into 2000. A Norfolk, Va., banker said "business was as good as I've seen in a while" and several other lenders noted "good deals in the pipeline." A commercial lender in Greenville, S.C., told us that while loan demand had been only average in December, he expected some pick-up in activity this quarter from businesses that had delayed borrowing until after Y2K concerns passed. Residential mortgage lending continued to be slowed by higher interest rates. A loan officer in Virginia said that with mortgage demand weakening, competition for customers had intensified. She reported an increase in her bank's efforts to market loans to customers with less attractive credit histories.
Real Estate
Residential real estate and building activity in the District slowed to average or slightly below average levels for this time of year. A contact in Baltimore, Md., said that housing starts were flat but that buyer interest in senior citizen oriented condominiums had picked up. Some slowing in housing starts--beyond the expected seasonal slowdown--was reported in the Carolinas. In Virginia, realtors said sales were either at seasonal levels or slightly lower, with the exception of the Northern Virginia market, which remained generally strong. Homebuilders in West Virginia reported stable to slightly slower demand for houses, with some softening in prices. Shortages of bricks persisted in the District, particularly around Baltimore, Md., and Charleston, W.V. Wallboard was also still in short supply in scattered areas, but the availability is reportedly improving. Prices of lumber and wallboard peaked last fall, and have remained fairly stable in recent weeks.
Commercial real estate slowed somewhat more than usual in recent weeks, except in the Maryland suburbs of Washington, D.C., and around Charlotte, N.C. Office and retail rents were said to be flat in the District of Columbia. A contact from Columbia, S.C., told us that downtown office space was in ample supply, but that suburban office space was tight. In Richmond, Va., a realtor noted that vacancy rates for industrial space had increased recently, and as a result, rents were expected to soften during the first quarter of 2000. In Charleston, W.V., a slowdown in office and retail leasing activity was said to reflect, in part, more professionals purchasing rather than leasing office space.
Tourism
Tourist activity was mixed in December. Contacts at area ski resorts reported record attendance in December, but bookings for the New Year's weekend were spotty. A manager at a ski resort in Virginia
said that business during the weekend was only half of last year's level; he attributed the decline to more people working this New Year's eve. A contact at a ski resort in West Virginia, however, said that business was very strong during New Year's weekend because of attractive resort prices and an abundance of snow. Tourist activity along the District's coast was adversely affected by Y2K concerns; a Virginia Beach hotel manager said that the "Y2K hype" had sharply reduced bookings for the New Year's weekend.
Labor Markets
Employment in the Fifth District increased moderately in recent weeks and employers continued to report substantially higher wage offers. Employment growth in the services and manufacturing sectors was stronger than in our previous report while seasonally-adjusted employment in retail was little changed. Wages advanced at a relatively strong pace in the retail and services sectors. Several business services providers added to their workforces because they expected their clients to focus on expanding operations now that Y2K concerns have eased. An operations consultant in Northern Virginia, for example, said that he plans to hire extra workers because he believes companies will turn their attention to "hotspots they had been neglecting." Contacts at temporary employment agencies said they were successfully placing temporary and contract workers that are being released from Y2K-related projects.
Agriculture
Generally mild weather in recent weeks allowed District farmers to make considerable progress in their winter fieldwork. The exception was in West Virginia, where a blast of Canadian air in late December brought cold temperatures and icy conditions. Agricultural analysts in that state noted no major damage to winter grains from the storm, but they indicated that colder-than-normal temperatures necessitated greater supplemental feeding of livestock than normal. Despite substantial rainfall in most of the District in December and early January, some areas continued to struggle with dry conditions. In Virginia, a few producers reported that springs and wells had gone dry, while in western Maryland, some beef cattle producers reduced their herds because of poor pasture conditions.
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Cleveland