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The Fifth District economy expanded at a modest pace in the weeks since our last report. Retail sales were somewhat lower in March, but strengthened noticeably in recent weeks. Revenue growth at services firms picked up appreciably in March and April. The manufacturing sector, however, continued to struggle; shipments and new orders declined further since our last report. Favorable mortgage rates boosted home sales and refinancing activity in recent weeks, but commercial real estate activity softened somewhat. In agriculture, ample rainfall provided excellent conditions for spring planting and small grain crops were reported to be in generally good condition.
Services
District services firms reported stronger sales and continued growth in employment in March and April. Wages in the sector grew at a moderate pace. There were, however, scattered reports of higher wages--an engineering firm in Charlotte, N.C., for example, increased compensation to attract specialized employees in a still tight labor market. Looking ahead, contacts in Charlotte, N.C., expressed some concern about future job losses in the wake of the First Union and Wachovia merger. Prices of services continued to rise at only a modest rate.
Retail
District retailers reported moderately higher sales growth since our last report. Most retailers reported little change in inventories. Automobile dealers in Washington, D.C., and the eastern panhandle of West Virginia, however, trimmed inventories as sales softened. After several months of decline, retail employment growth picked up in April. Retail prices rose at a quicker pace in recent weeks; higher gasoline prices in particular were a growing concern in a number of areas of the District.
Manufacturing
District manufacturing activity weakened considerably since our last report. Shipments and new orders moved lower, particularly in the fabricated metals, paper, electronics, furniture, and plastic products industries. A producer of plastic products in North Carolina said that the last few months had been very slow for his company and its customers; he expected sales during the next few months to be "grim." Contacts at several furniture manufacturing firms indicated that their sales had tumbled and they cited big losses in consumers' investment portfolios as a major contributing factor. Layoff announcements at chemical, textile, and automobile-related firms continued. On the price front, higher energy costs were a major concern. A paper manufacturer in Maryland told us that slack product demand had forced his company to absorb substantial increases in energy costs. Manufacturers noted that their planned capital investment plans had lessened since late last year. Of the current investments, most were for replacement equipment and new product lines.
Finance
District loan officers reported uneven lending activity in recent weeks--residential mortgage lending picked up while commercial lending continued sluggish. Mortgage lending was bolstered by a surge in residential refinancings. A banker in Greenville, S.C., said that refinancings now represented 90 percent of his lending activity. In contrast, commercial lenders generally reported somewhat sluggish loan demand in recent weeks. Several contacts suggested that businesses appeared to be more hesitant to commit to loans, possibly waiting for the economy to improve before implementing expansion plans. Several lenders also noted that they were exercising more caution in extending credit to marginally profitable businesses.
Real Estate
Residential realtors and homebuilders reported steady to slightly higher home sales in recent weeks due to lower mortgage interest rates. Sales of homes in the low-to-middle price range showed the most improvement. A realtor in Asheville, N.C., said that recent sales in that area were well above year-ago levels with most of the strength coming from mid-priced homes. A realtor in Maryland said, "Sales are good and lower interest rates are making homes affordable." But not all housing segments were stronger. District realtors linked weaker sales of higher priced homes to concerns with stock market volatility and a slowing economy. Most homebuilders reported steady building materials and labor costs.
Commercial realtors across the District noted somewhat weaker leasing and construction activity in recent months. Leasing activity was generally slower in the retail and office sectors. Large blocks of office space went back onto the market in northern Virginia and the District of Columbia because of weaker demand by high-tech firms. Class A office space remained generally tight in major metropolitan areas, although there were pockets of easing. A number of contacts reported lower office and retail rental rates. Commercial construction activity remained steady with very few speculative projects on line.
Tourism
Tourist activity strengthened in March and April throughout the District. A contact at a mountain resort in Virginia said that the ski season ending in March broke all previous attendance records. Looking forward, he indicated that higher gasoline prices could improve his business because residents of nearby urban areas might vacation closer to home this spring and summer. A hotelier on the Outer Banks of North Carolina told us that "business is booming" because of staggered spring breaks which boosted tourism in the weeks around Easter. The National Cherry Blossom Festival in Washington, D.C., attracted over 600,000 visitors in late March and early April.
Temporary Employment
Demand for temporary workers remained mixed in the weeks since our last report. Several contacts said that demand was strong for clerks and administrative assistants, but only moderate for industrial workers and skilled information technology personnel. A temporary agency contact in Cary, N.C., anticipated an acceleration in economic activity to spur stronger demand for temporary help, noting "at some point the economy has to rebound." A Charleston, W.V., manager stated that chemical firms in the region were looking for additional temporary help in recent weeks, but he did not expect stronger demand to continue in light of consolidation in the chemical industry. Wages for temporary workers remained generally steady across the District.
Agriculture
Ample rainfall provided good tillage conditions in most areas of the District, allowing farmers in North Carolina and Virginia to get ahead of schedule in corn planting. The widespread rainfall also boosted pasture growth and reduced the need for supplemental feeding, particularly in North Carolina and West Virginia. An early April cold snap, however, caused some damage to apple and peach crops in North Carolina. In addition, vegetable growers in South Carolina had to replant some crops because of cold weather during the month.
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Cleveland