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The Fifth District economy advanced at a modest pace in August and early September, as firmer manufacturing activity accompanied weaker retail sales. The manufacturing sector showed its first evidence of expansion since last fall: shipments rose and capacity utilization stabilized. In contrast, retail sales generally declined in August, though the degree of contraction was less than in July, and automobile sales firmed. Demand for services continued to grow, but there was added concern about future prospects. Housing sales remained at a generally high level in August and early September, while the construction and leasing of commercial properties weakened somewhat. In labor markets, wage growth picked up at retail and manufacturing firms, but eased at service providers. Price increases remained modest at factories and services firms. Scattered rainfall improved crop development in most areas of the District, except South Carolina, where drought conditions persisted.
Retail
District retailers reported somewhat lower sales in August, although declines were not as sharp as in July. Contacts said that layoffs at major employers continued to be a drag on sales growth. Sales of big-ticket items, such as appliances, were generally lower, as was shopper traffic. A large chain retailer in the metro Washington, D.C., area said that while sales were "better than expected" in August, they were weak over the Labor Day weekend. Automobile dealers in Richmond, Va., and the eastern panhandle of West Virginia, however, reported stronger sales in recent weeks. Reflecting the lackluster tone of retail, employment in the sector was flat and retailers said that price increases were modest.
Services
Services businesses reported moderately higher revenues in August but flat employment. A number of contacts also noted fewer "contracts in the pipeline" and expressed concern about future business prospects. Travel agents reported a slight increase in bookings. However, a manager at a financial services firm in Baltimore, Md., said that the brokerage side of his business was slow, and added that his clients were "outright worried" about the economy. In addition, a business consultant in Charlotte, N.C., reported having more difficulty collecting fees from financially-strapped clients. Employment and overall wages in the sector were little changed, but respondents at a number of healthcare facilities said that they had increased wage offers to nurses and technology workers, who remained in short supply.
Manufacturing
The manufacturing sector showed nascent signs of expansion in August, after almost a year of general decline. Shipments grew at a moderate pace during the month and new orders stabilized. Contacts in the food, printing, plastics, and primary metals industries reported notably stronger manufacturing activity. Several producers of electrical equipment also told us that shipments had started to pick up and a manager at a food processing plant reported that his company had lengthened the workweek from 5 to 6 days. Some industries, however, still struggled. A furniture manufacturer in North Carolina remarked that layoffs and plant closings continued and he believed that the industry was in "the worst recession since 1981, maybe 1973." Prices in the manufacturing sector were little changed.
Finance
District loan officers reported that the pace of lending activity was somewhat slower in the weeks since our last report. Several commercial lenders said that generally sluggish economic conditions had trimmed the demand for loans and few expected a rebound any time soon. A Richmond, Va., banker commented that she was still seeing "a lot of negative earnings on borrowers' financial statements," and suggested that the economic slowdown "had not hit bottom yet." A number of commercial bankers also noted tighter credit conditions--a Greenville, S.C., lender said that credit was as tight as he had seen in the last ten years. Residential mortgage lending was boosted by strong refinance activity, but growth in new loans was modest. Several loan officers said they had increased marketing efforts in an attempt to bolster lending. Residential mortgage lenders were generally upbeat about future prospects--a Charleston, S.C., banker noted that while lending in August was slow, he had been "real busy" in early September and expected the pickup in activity to continue into the fall.
Real Estate
Residential realtors and homebuilders reported little growth in home sales in August and early September but they said that both sales and construction activity remained at a high level. Lower mortgage rates stimulated home sales in many areas of the District, even though some realtors commented that stock market declines had squelched demand for homes in the upper price ranges. On the bright side, a realtor in Richmond, Va., said that his firm was having a "phenomenal" run--sales doubled in August from a year ago, in part because of lower mortgage rates. And a Greensboro, N.C., realtor said that sales in August were the best he had ever seen. But several realtors stated that the upper-end home market had slowed, leaving them with excess inventory of higher-priced homes. In Charlotte, N.C., the market for homes selling in excess of $1 million was said to be "struggling," while a builder in North Carolina characterized sales in the upper-price market segments as "almost non-existent." A number of builders reported substantially higher costs of lumber and drywall.
Commercial realtors reported generally weaker leasing activity, but noted that the pace of the decline had slowed somewhat in recent weeks. The industrial sector experienced a moderate decline in activity, while the construction and leasing of retail properties remained flat. A Raleigh, N.C., realtor reported that he had noticed a decrease in small specialty shops, but the "usual suspects" (grocery and video stores) were still going strong. Vacancies of Class A office space generally stabilized, except in areas with high concentrations of high-tech firms. Commercial office rents were generally unchanged, but concessions by landlords, such as a month's free rent, increased markedly. A Columbia, S.C., realtor reported seeing concessions in the office and industrial sectors for the first time in years.
Tourism
Tourism was mixed since our last report. Hoteliers in Virginia Beach, Va., and Myrtle Beach, S.C., reported that bookings for the Labor Day weekend were somewhat stronger than last year. However, a contact on the Outer Banks of North Carolina noted that her business was somewhat weaker compared to a year ago and that some hoteliers lowered room rates in mid-August to encourage bookings for the Labor Day weekend. She attributed the weakness to a slower economy and diminished consumer confidence. In contrast, a manager of a resort in the mountains of Virginia said that occupancy rates had increased in recent weeks and advanced reservations for the upcoming ski season had been exceptionally strong.
Temporary Employment
Contacts at temporary employment agencies reported that the demand for workers had been mixed in recent weeks. A manager in Hagerstown, Md., and a contact in Rockville, Md., reported that clients' interest in workers was "very weak" and the agency had more difficulty securing new clients. A Richmond, Va., agent, however, said that the economy had picked up recently, and she expected demand for temporary workers to strengthen. A manager in Raleigh, N.C., also expected her clients to need more workers in coming months because many small and medium-sized businesses were "through with their holding pattern" and ready to start new projects and hire new staff.
Agriculture
Scattered showers and thunderstorms in late August and early September boosted soil moisture levels and aided crops in many parts of the District. Drought stricken South Carolina continued to suffer, and cotton, peanut, and soybean growth and development was delayed. Corn harvesting was behind schedule in South Carolina and Maryland, but was ahead of schedule in North Carolina and Virginia. District farmers made good progress in harvesting tobacco, peaches, and apples. Wheat planting was well underway in West Virginia, and farmers in North Carolina and Virginia were making headway sowing fall grains.
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Cleveland