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On balance, the Fifth District economy softened further in recent weeks, although business contacts were beginning to provide scattered positive reports. Commercial real estate sales were sluggish and vacancy rates increased; on the other hand, some contacts observed moderate increases in leasing activity. Residential lending edged higher, largely due to increased demand for refinancing. Contacts also reported some pickup in home sales. Retail sales were down overall, particularly for big-ticket items such as automobiles, although a few retailers noted slightly increased sales and shopper traffic. Revenues at services firms generally decreased, as did average service sector wages and employment. Meanwhile, demand for manufactured goods remained weak, inventories continued to grow, and both raw materials and finished goods prices began to fall. Temporary employment agents continued to report weak demand for workers.
Retail
According to most contacts, retail sales declined since our last report, particularly for big-ticket items. However, a few retailers reported that sales had stabilized or increased in the last two weeks. Retail contacts said they continued to respond to slow demand by keeping their inventories low. A West Virginia car dealer told us "sales are a challenge," and in order to better respond to changing demand, his business began maintaining a 30- to 60-day inventory instead of the usual 120- to 180-day inventory. Sales of automobiles and light trucks continued to slump across the District, for which several dealers blamed a lack of credit for potential buyers. Although some merchants reported stable wages, average retail wages generally declined and retail employment dropped. An executive at a chain hardware store was expecting a wage freeze at his stores in coming weeks and a home and garden supplies retailer in Tidewater, Virginia reduced employee hours and eliminated employer matching funds for the 401(k) accounts. Retail price growth slowed slightly since our last report.
Services
Revenues at services firms fell overall in recent weeks, although several contacts indicated steady or slightly stronger demand. A contact at a payroll services firm in Maryland said his business was in "survival mode." Businesses related to construction continued to struggle. A principal at an architecture and engineering firm in central North Carolina said financing remained a problem for new building projects. At a coastal South Carolina commercial interiors firm, a contact noted that no new work was waiting and "no one is seeking proposals." Employment and average wages at services businesses declined in recent weeks. Contacts at hospitals and healthcare systems indicated that hiring was frozen for administrative personnel, while a family fitness center executive in central North Carolina told us his organization had offset falling revenues by laying off some employees and instituting wage reductions for those who remained. Price growth in the service sector inched up slightly.
Manufacturing
District manufacturers reported that production remained weak in March. A manufacturer of automotive components in South Carolina told us that he had seen "catastrophic" reductions in orders due to widespread decline in industry demand. A producer of residential doors in North Carolina observed that his firm was experiencing a "total lack of orders" and that competition was resorting to unreasonably low pricing in order to obtain business. In addition, a primary metals manufacturer in South Carolina noted sluggish orders and dramatic downward pricing that eroded profitability and devalued inventory. He also indicated that many customers were unable to obtain operating credit lines. An electrical components producer in Maryland laid off employees in order to cut costs and predicted more layoffs if business continued to stagnate. Likewise, a contact at a paper company in North Carolina told us his plant was idled with little hope for being restarted unless the economy turns around quickly. A number of lumber companies in North Carolina and West Virginia reported operating in "survival mode" as more lumber firms went out of business, inventories flooded the market, and prices continued to drop. Survey evidence also indicated that raw materials and finished goods prices had fallen since our last report.
Trade activity at District ports continued to soften in recent weeks. Contacts reported that the volume of both imported and exported goods had decreased about 20 percent from a year ago. Declines were fairly uniform, according to port officials, with "everything off right now."
Finance
Residential lending activity rose modestly in March and early April. According to contacts, demand for refinances remained "hard to keep up with" and the process was taking longer than usual due to more stringent appraisals and thorough underwriting. Purchase activity rose slightly, but only accounted for roughly 25 to 35 percent of business by some contacts' estimates. Changes in credit standards varied. While some banks made no changes in recent weeks, others reported fewer to zero exceptions on guidelines and an increase in required FICO scores. On the commercial side, loan demand picked up a bit since our last report. Contacts noted an increased interest in education and medical related projects, as well as an uptick in refinances for commercial mortgages. Credit standards were unchanged at some institutions but tighter at others as lenders reported scrutinizing prices and credit worthiness more heavily in order to more accurately assess risk. Contacts also noted broad-based weakness in commercial client portfolios � a contrast from previous downturns when stress tended to be more industry specific.
Real Estate
Residential Realtors in the District generally reported a modest pickup in home sales since our last report, although sales remained at a subdued level. A Richmond, Va., contact reported a significant increase in the movement of higher-priced homes in March as well as an increase in offers contingent upon buyers selling their existing homes. For the first time in a while, a Fairfax, Va., agent reported seeing multiple offers on the same properties as people began to sense that now is the time to buy. A contact in Greensboro, N.C., also reported increased activity, with more than 180 showings in one recent weekend. And in Odenton, Md., a Realtor said they "made their grade" in sales. In contrast, several agents reported only seasonal increases in activity with sales still down since last year. A Charlotte, N.C., agent told us that while the tax credit for first time homebuyers helped, she had 14 months worth of inventory in the month of February. In Washington, D.C., sales activity decreased 40 percent from last year. House prices fell across much of the District.
Commercial real estate markets remained soft in recent weeks, although contacts in Baltimore, Md., Greenville, S.C., Columbia, S.C., and Charleston, S.C., reported slight upticks in leasing activity since our last report. However, the size of completed transactions was down about 50 percent according to a Baltimore contact, and elsewhere in the District the pace of leasing activity was unchanged or slowed further. Asking rents declined in the Baltimore, Washington, D.C., Norfolk, Va., Greenville and Charleston areas, and tenant concessions remained prevalent. Landlords were reportedly conserving cash by offering free rent in favor of tenant improvements. Vacancy rates crept up in parts of the District and were expected to rise in other areas as agents reported business closings and more space available for sublease. Commercial sales were sluggish through March, due in part to the limited availability of financing. In addition, only highly motivated sellers were listing properties. Sales prices moved lower in Baltimore, Washington D.C., Raleigh, N.C., Charlotte, and Columbia as owners were "beginning to get realistic" and having "to take what they can get."
Tourism
Assessments of tourist activity varied since our last report. Along the coast, contacts noted somewhat weaker bookings compared to our last report and to a year ago. An analyst from Myrtle Beach told us that the booking cycle had shortened considerably and indicated that many hotels were offering double-digit discounts for summer business. Managers at mountain resorts in Virginia and West Virginia, however, said their ski seasons were comparable to last year and bookings for the Easter weekend were looking good. In addition, expected overall attendance at the annual National Cherry Blossom Festival in Washington D.C., remained strong. Initial reports suggested that approximately 1 million people will show up for the festival this year. Consequently, hotel bookings in the nation's capital were only three percent below normal. In contrast, booking rates for other destinations were down about 20 percent.
Temporary Employment
Fifth District temporary employment agents continued to report generally weak demand for workers in recent weeks. However, employment contacts in Raleigh, N.C., told us that they were optimistic for an uptick in demand for temporary workers both because of new businesses and because they were beginning to see increased confidence from the corporate community. Throughout the District, workers in higher level IT and office support, and those with industry-specific technical skills, were some of the most sought after. Wages remained generally unchanged.
Agriculture
Widespread rainfall coupled with scattered snow showers in March improved soil moisture while replenishing streams, reservoirs, irrigation ponds, and livestock ponds. Agricultural analysts in Virginia told us that some of the state's hardest-hit regions from the previous year's drought were showing signs of recovery. On the other hand, wet fields also delayed spring planting activity across most of the District. The planting of cabbage and Irish potatoes in North Carolina, and corn in South Carolina were behind schedule. Moreover, an early March snowfall in Virginia damaged some ornamental crops and hindered the growth of forages in the southwestern area of the state. Pastures were reported to be in generally fair-to-good condition in South Carolina and Virginia but in poor-to-fair condition in North Carolina and West Virginia.
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Cleveland