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Economic growth in the Fifth District generally remained sluggish since our last report, though several sectors showed signs of a pickup in February. Retail sales continued to weaken in recent weeks. After several months of contraction, manufacturing shipments and new orders edged higher in February, even though backlogs and employment slipped further. At District services firms, revenues and employment rebounded in the last several weeks, although at banks, lending activity was little changed. In the real estate sector, lower mortgage rates bolstered home sales in many areas of the District, while activity in commercial real estate markets was mixed. Labor markets also were mixed--wages at retail and services firms continued to rise at a moderately strong pace, but employment levels at many District businesses dropped off. Outside of energy, prices continued to rise only modestly.
Retail
District retailers reported that seasonally-adjusted retail sales declined in January and February. Weaker consumer confidence led to softer automobile and other big-ticket sales as well as sparser shopper traffic in both months, although the declines lessened somewhat in recent weeks. In addition, auto dealers reported higher inventories. Looking ahead, however, retailers were more optimistic about sales prospects during the next six months. An executive at a large department store chain told us she was already seeing strong sales of spring merchandise and a big-box retailer in Richmond, Va., said that although customer traffic remained sluggish, shoppers were spending more per purchase in recent weeks. Turning to employment, retail establishments continued to report declines in their payrolls and moderate wage increases.
Services
District services firms reported an increase in revenues and employment in recent weeks. A contact familiar with the high-technology industry in the Washington, D.C., area said moderate expansion was under way in that sector. In contrast, a contact at a Charlotte, N.C., engineering firm told us that his company had put expansion plans on hold because of concerns about the local economy. Several services industry contacts suggested that new employees were easier to recruit and that turnover rates had dropped. High-tech employees, in particular, were reported to be less likely to leave for other jobs now. Services sector prices rose at a somewhat faster pace in recent months, and wage growth picked up.
Manufacturing
On balance, Fifth District manufacturing activity expanded slightly in February, following several months of contraction. Manufacturing shipments and new orders edged slightly higher at many plants, though they remained weak overall. Contacts at packaging and chemical firms said that orders and shipments picked up in February and they suggested that economic conditions were improving somewhat. In contrast, a textiles manufacturer in Asheboro, N.C., reported that his company's year-to-date shipments in 2001 had dropped by 15 percent. In addition, contacts at several chemicals and primary metals industries indicated some slowing in shipments. Across the District, layoffs continued to be announced, although less frequently in the last few weeks. On the price front, soaring natural gas prices drove raw materials costs higher for many District producers. A tire manufacturer in Virginia, for example, reported that higher natural gas prices hiked his company's energy costs by over 33 percent. In labor markets, manufacturing employment weakened in recent weeks, as did the average workweek.
Finance
District loan officers generally reported that lending activity was flat in the weeks since our last report. Commercial bankers continued to cite some curtailment of businesses' expansion plans and credit needs. Several bankers noted they had become more selective in extending credit in recent weeks, particularly to companies in the textiles, construction, and health care industries. On a brighter note, a number of loan officers said that interest rate reductions in January had boosted business loan demand somewhat. On the consumer side, a banker in Rocky Mount, N.C., noted that loan demand had also picked up in the aftermath of the interest rate reductions, and he believed that additional reductions would boost loan demand further.
Real Estate
Residential realtors and homebuilders reported that lower mortgage rates and warmer than normal weather had led to a modest pickup in construction and sales in recent weeks. Realtors in Virginia and the District of Columbia were particularly upbeat; a D.C. realtor noted that his January sales "were the highest in 5 months." Sales activity, however, varied considerably across price ranges. Houses in the low-to-middle price range were reported to be selling at a faster clip than higher-priced homes--in part because tumbling stock markets had taken a toll on the wealth of upper-end home buyers. Most District homebuilders reported somewhat lower building materials costs but little change in labor costs.
Commercial realtors reported mixed leasing and construction activity in recent weeks. Realtors in the District of Columbia said that demand for office space had slowed and that there had been an increase in subletting by tenants, placing downward pressure on office rents. Commercial realtors in Virginia and the Carolinas reported generally stronger demand for office and retail space but only modest new construction activity. Class A office space remained tight throughout the District, although some easing was cited by contacts in Raleigh, N.C., and Baltimore, Md. Commercial rents across the District were generally stable to moderately higher.
Tourism
District tourist activity remained generally strong in January and most of February. Cold weather in January facilitated snow-making and boosted attendance at ski resorts in North Carolina and Virginia. A contact at a Virginia resort said both his revenues and the number of skiers at his resort had "already surpassed last year, with three weeks still remaining in the season." The presidential inauguration in January boosted tourism in Washington, D.C., bringing approximately 200,000 out-of-town guests to the city. Contacts at coastal resorts reported strong bookings for the period between Valentine's Day and Presidents' Day and expected spring bookings to surpass those of a year ago.
Temporary Employment
Contacts at District employment agencies reported that the demand for temporary workers was mixed since our last report. Several agents said that there was a lessened need for temporary employees because their local economies were slowing. A Raleigh, N.C., agent, for example, reported slack demand for all types of workers, adding that several businesses there had recently closed, resulting in a "lot of layoffs." A Rockville, Md., agent, however, reported stronger demand for office workers in recent weeks--he expects business to strengthen further in the spring because of a new client seeking to fill about 350 positions. Wages for temporary employees were reported to be little changed since our last report.
Agriculture
Although February rainfall was more plentiful than earlier in the year, many areas of the District remain dry. North Carolina contacts said that soil moisture levels remain well below average, and many areas of Virginia were also dry, causing some producers to liquidate livestock as pasture conditions have deteriorated. Dry conditions have hampered the development of small grains in North Carolina and Virginia--poor stands of small grains may be abandoned in North Carolina and replaced with soybeans, although the most recent rainfall could salvage some fields. Hay and feed supplies were generally adequate throughout the District.
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Cleveland