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Overview
Although growth moderated from its robust pace earlier in the year, economic activity in the Fifth District continued at a high level in June and July. While manufacturing shipments and new orders advanced at relatively brisk clips, both fell short of matching the pace set in the late spring. Retailers reported lower sales growth, particularly for big-ticket items, and only modest increases in customer traffic. Activity in services firms was flat. In housing, growth was slowed by higher interest rates and concerns about future economic prospects, but commercial real estate activity maintained steady growth. Employment growth continued to be modest in most sectors, with a scarcity of workers holding back hiring at some firms. Wage pressures remained moderate. Price increases were also modest except for sharply higher oil and gasoline prices.
Retail
District retailers reported that sales growth edged lower in the weeks since the last report, led by lower big-ticket sales. Contacts at department and discount stores described sales growth as slowing or, in a few instances, flat. Several automobile dealers said that their sales declined in July. Employment growth at District retail establishments was little changed, in part because of a shortage of qualified workers. A manager at a department store in Richmond, Va., said that finding reliable employees continued to be a challenge, adding "[Some] employees just don't show up for work." Wages and retail prices rose moderately in June and July.
Services
Revenues at District services businesses were generally unchanged in recent weeks, and increases reported by water utilities and tourism-related industries were primarily driven by seasonal factors. Services employment was steady in recent weeks and wage increases were moderate, although substantially higher wages were reported for engineering and information technology professionals. A contact at an engineering firm in Charlotte reported a "surge" in professional salary levels during the last year and said that his company recently had raised wages substantially to remain competitive. Overall price pressures in the services sector remained subdued.
Manufacturing
Fifth District manufacturing activity generally advanced at an upbeat pace since the last report, but a few pockets of weakness persisted. Overall manufacturing shipments and new orders grew somewhat faster in most District factories in June and July. Nevertheless, some contacts at apparel, lumber, and fabricated metals manufacturing facilities noted that their shipments fell slightly in recent weeks. Manufacturing wage growth picked up in July, while employment was little changed.
Manufacturers reported that the prices they received continued to rise modestly in July, and that the prices they pay for raw materials continued to increase moderately. Higher oil prices again squeezed profits for some District manufacturers; a chemical manufacturer in South Carolina, for example, noted that higher oil prices had increased raw materials prices, pushing his profits lower in the first two quarters of 2000. In addition, a manufacturer of precision instruments in Maryland reported that a shortage of electronic components used in digital telephones and pagers had lowered his profit margins.
Finance
District loan officers reported that fears of slower economic growth lowered the demand for bank loans in recent weeks. Several commercial bankers noted a drop in their "pipeline" of commercial lending, in part because of higher interest rates and heightened customer concerns regarding future business prospects. Residential mortgage lending also was affected by a sluggish housing market as well as interest rate worries. A Greenville, S.C., banker reported weaker demand for home mortgages, adding that he was not filling several vacant staff positions because he saw little indication of a pickup in lending anytime soon. Credit standards were reported to be little changed. Several commercial lenders, however, noted that they were taking a closer look at the creditworthiness of borrowers in cyclical industries.
Real Estate
Residential realtors and builders throughout the District reported generally weaker demand in June and July. A realtor in Washington, D.C., said that, compared to a year ago, June sales were flat and July sales were substantially down. Realtors in Greensboro, N.C., and eastern West Virginia attributed slower growth mainly to higher mortgage rates. A homebuilder in Charlotte, N.C., reported more difficulty securing loans because, in his opinion, banks were tightening credit standards. Another homebuilder in the Carolinas, however, said that the prospects of higher mortgage rates in coming months had boosted his current business because more customers were committing to building ahead of the anticipated higher interest costs.
In commercial markets, realtors reported continued tight supplies of Class A office space, but more abundant retail space in June and July. In the District of Columbia, speculative office buildings were generally fully leased by the time they were completed, and rents on office space were rising--exceeding $50 per square foot in some areas. In contrast, there was a slight decline in retail leasing activity in the District of Columbia and in the Carolinas. A Charlotte, N.C., realtor said there was now "a sense of overbuilding of retail space and apartments in the region." In Greenville, S.C., retail and office leasing activity was described as slowing, but rent levels were unaffected. In contrast, a realtor in Richmond, Va., said that the vacancy rate for retail space had declined dramatically and that he expected rents to rise during the next six months.
Tourism
Tourism strengthened further in recent weeks. Along the District's coast, tourism received a huge boost in June when OpSail 2000--a parade of tall ships that made stops in Hampton Roads, Va., and Baltimore, Md.--attracted over three million sightseers. In addition, hoteliers at Virginia Beach and on the Outer Banks of North Carolina reported that their Fourth of July holiday bookings were substantially higher than a year ago. In mountain areas, the manager of an upscale resort in western Virginia noted that his Fourth of July bookings increased 10 percent compared to a year ago.
Temporary Employment
Demand for temporary workers continued to be strong. Administrative workers with computer skills remained at the top of employers' wish lists, as were light industrial workers, particularly in South Carolina. Most employment agents expected a pickup in the demand for temporary workers in coming months as a greater number of new businesses were slated to open in their areas. On balance, wages for temporary employees changed little since the last report; several contacts, however, expected moderate wage increases in the next six months.
Agriculture
Mild temperatures and abundant rainfall created generally good growing conditions in most areas of the District in recent weeks. Corn, soybean, and tobacco crops were in good to excellent condition in Maryland, Virginia, and most of North Carolina. Corn and soybean conditions were also good in West Virginia. In contrast, the persistent rainfall has hampered hay cutting and curing in Virginia and Maryland. In South Carolina, however, drought conditions continued in some areas, with soil moisture levels rated as short or very short in over 60 percent of the state's cropland. As a result, many of the pastures and much of the corn crop in the state remained in poor condition.
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Cleveland