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Overview
Economic activity in the Fifth District expanded modestly since our last report, with slowing activity in some sectors offset by firming growth in others. Retail sales were generally solid through the holiday season, and activity held up in early January. Manufacturing measures moved a bit lower as demand for some lines softened. Housing activity edged higher, as sales firmed and home inventories eased lower in some areas. Commercial real estate agents noted that conditions in the sector remained strong, and construction and leasing activity was steady in recent weeks. District labor markets continued to be taut, with strong demand for workers, especially in urban areas. Price pressures were mixed, with some upward drift apparent in raw material costs. In agriculture, unseasonably mild weather boosted crop conditions and extended the grazing season for livestock.
Retail
District retail sales rose moderately in recent weeks with gift card redemptions boosting activity in early January. Electronics, especially high-definition LCD and plasma televisions, sold particularly well during the holiday season--a central North Carolina retailer said he ran out of televisions before Christmas. In contrast, warm weather slowed apparel sales. A contact at a Virginia hardware store chain told us his stores have not felt the homebuilding slowdown yet, perhaps because hardware purchases come at the end of the homebuilding process. The pace of automobile and light truck sales was unchanged in Virginia, but slowed in the Baltimore area of Maryland and the South Carolina Midlands. An automobile dealer in Charleston, W.Va., said customer traffic was down and "buyers are not motivated." Retail price growth edged up slightly since our last report; average wages rose somewhat faster, as well. A West Virginia retailer told us he had raised wages for his lower-end workers because competition for those employees is tight.
Services
Revenues at service-producing firms generally edged higher since our last report, although some firms said growth was flat. Contacts at legal and environmental services firms reported faster revenue growth, and financial services providers in Baltimore and Richmond also said business had picked up. In contrast, architects and interior designers reported flat activity, as demand continued to be held in check by the soft housing market. Executives at healthcare services organizations and computer services firms also said the pace of consumer demand for services was generally unchanged in recent weeks. Services firms continued to hire at a brisk pace, while price growth eased in the last few weeks.
Manufacturing
District manufacturing activity contracted modestly in December following a pickup in November. Manufacturers told us that factory shipments, new orders and employment pulled back since our last report. Product demand weakened noticeably in the fabricated metals, rubber and plastics, and transportation equipment industries. A manufacturer of plastic packaging supplies in South Carolina said that business had definitely taken a downturn during the last quarter of 2006. In addition, a fabricated metals producer in North Carolina indicated that demand was soft--trimming both volumes and margins. In contrast, an electronic components producer reported business was strong in 2006 but noted that the outlook for 2007 was less optimistic because [business] seemed to be slowing in recent weeks. Raw material prices continued to rise after picking up considerably in November, while finished good prices grew at a more measured pace.
Finance
District bankers reported an uptick in lending activity since our last report. The demand for residential mortgage loans moved up in some pockets within the District. A Charleston, S.C., agent attributed unusually strong December activity to continued low interest rates. In Greenville, S.C., a contact noted that a new program to help poorer households finance home purchases led to an increase in loan volume. According to a Charleston, W.Va., agent, a few particularly nice new housing developments helped increase activity in that area. Commercial lending remained strong. Little change was reported in interest rates or the rates of delinquent loans.
Real Estate
Residential real estate agents reported a modest pickup in home sales since our last report. Contacts in Richmond, Va., reported very strong sales in December, resulting in a nine percent increase in sales volume over 2005 levels, and a two percent increase in units sold over the same period. A contact in Fairfax told us that his area had experienced "a good rebound" in the number of houses sold, and that had caused a nice drop in his inventory level. Likewise, contacts at housing markets in Charlotte and Asheville, N.C., reported strong activity, with December sales in Asheville exceeding those of a year earlier. And in Greenville, S.C., an agent reported having an "extremely strong" housing market where his sales increased 15 percent over 2005 sales. However, in Fredericksburg, Va., an agent told us that inventory remained very high. A homebuilder in the Tidewater area reported no real change in the number of housing starts or building permits, adding that demand is "just not there." House prices held steady across most areas of the District.
Commercial agents across the District reported that leasing and construction activity remained at generally strong levels though recent activity was sluggish. In Washington, D.C., market conditions were characterized as tight, leading to more construction and rising rents. In contrast, agents in some mid-sized cities noted steady activity with varying flat vacancy rates and little pressures on rents. Across the District, contacts noted that former commercial space in downtown areas continued to be converted to residential uses. Several agents said that conditions will likely strengthen in coming months. They cited increased interest in their areas by national firms looking to expand.
Tourism
Tourist activity was generally mixed since our last report. Contacts in coastal areas said that unseasonably warm weather in December and early January had boosted their business. A hotelier at Virginia Beach, Va., told us that holiday bookings were up 40 percent when compared to a year ago. In contrast, a manager at a mountain resort in Virginia reported that skiing and tubing were down 50 percent from last year because of unseasonably warm weather in that region. On a brighter note, he said that timeshare sales were up nearly 15 percent compared to a year earlier.
Temporary Employment
Temporary employment agencies in the District reported generally stronger demand for workers since our last report. An agent in Richmond, Va., told us that she anticipated a stronger need for temporary workers over the next few months because of the area's low unemployment rate. A contact in Raleigh, N.C., expected demand for workers to rise in early 2007 as businesses' budgets are anticipated to expand. Likewise, a Baltimore, Md., agent reported very strong demand and said feedback from her clients suggest this trend will continue. On a less optimistic note, agents in the Washington, D.C./Maryland area told us that "January through March is usually our slowest period." Workers with computer proficiency, administration, data entry, industrial warehouse, sales and engineering and life sciences were among the skills sought by employers.
Agriculture
Warmer-than-normal temperatures in December coupled with mild, rainy weather in November accelerated the growth of winter grains and extended the grazing period for livestock in most of the Fifth District. Small grains were reported to be in mostly good condition in much of the District. In addition, contacts told us that adequate moisture levels had improved pasture conditions and that the mild winter had benefited livestock.
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Cleveland