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Fifth District economic activity increased at least moderately in most sectors since our last assessment. Manufacturing continued to receive upbeat news from contacts, with many reports of strengthening orders and shipments. Services firms reported mostly stable-to-improving demand, after several months of declines. In addition, bankers noted slight improvements in most areas of lending, and tourism picked up, led by gains in the Baltimore area. Labor markets experienced an increase in both temporary and permanent hiring, especially in the manufacturing sector. Harvests around most of the District were successful, and farm income projections were revised higher. On the other hand, there were a few weak indicators. Activity in both residential and commercial real estate markets was soft, although house-shopping traffic improved in some areas. Retail activity overall continued to contract, with declines of some big-ticket items. Price pressures were generally restrained.
Manufacturing
Manufacturing activity picked up in October and November after a slight easing in September. An auto-parts supplier in the District said that auto manufacturers continued to increase orders. He also mentioned that capital expenditures, which had previously been on hold, were recently approved. A packaging manufacturer reported strong demand, and a machinery equipment industry spokesman said that orders, led by autos and aerospace, have been rising this year from very low levels. Similarly, a custom fabricator reported a slight increase in incoming orders and anticipated a significant upswing in early 2011. A manufacturer of fuel pumps and dispensers described his sales as good this year, but feared that tough economic conditions will limit sales next year. Moreover, a plastics producer stated that, even though October was a high-volume month, he was not expecting further improvements until early next year. Survey contacts reported that raw materials and finished goods prices rose at a somewhat quicker pace than in our last report.
Retail
District retail sales generally declined in recent weeks, although pockets of strength were reported. Several department store managers reported disappointing sales since our last assessment and their outlook for the holiday season was restrained. However, in the days leading up to Black Friday, a few contacts reported an increase in foot traffic and sales. Big-ticket sales were generally soft, with mixed reports from car and light truck dealers. While an automobile dealer in South Carolina attributed falling sales to the high unemployment rate in his area, a central West Virginia dealer said that he had "a real good month." A recent boat show in Maryland drew over 90,000 visitors; sales were reported as robust and financing at low rates was widely available. In addition, grocery sales grew more rapidly than a month ago, according to survey contacts, and an executive at a chain hardware store in central Virginia told us customer traffic remained steady, but the amount customers were spending increased. Inventories flattened over the last four weeks, according to most respondents in our November survey, and retail prices rose moderately.
Services
Business activity at service-providing firms stabilized or accelerated since our last report. Most owners and managers at restaurants across the District reported an uptick in revenues, and several investment professionals said business had rekindled at their firms. In Richmond, a contact at a financial services firm said his clients' appetite for risk was returning. Even with improved client confidence, however, his firm was not able to increase profit margins. Education and healthcare contacts noted little change in revenues during recent weeks. "Steady, close-to-budgeted demand" for services was the report from an executive at a North Carolina healthcare system. A CPA in central West Virginia said the local economy remained "pretty stagnant," but demand at his firm was steady. Prices at services-providing firms edged up slightly, according to survey findings.
Finance
Lending activity in the District continued to post modest gains from weak levels since our last assessment, but there were also many areas with no improvement. Refinancing continued to dominate activity in the mortgage market, although several bankers around the District cited marginal improvements in new home loans. However, most loans were for homes in the low price range and often associated with foreclosures or short sales. Several loan officers for large regional banks reported a pickup in consumer lending activity--mostly for home improvement or purchasing and repairing bargain-priced homes. A banker in the Baltimore area stated that commercial loan demand started to increase in recent weeks, noting that many loans were to support new business, and a lender in South Carolina provided equipment financing to several local manufacturers. Financing of new commercial construction remained dormant, but a banker in the Baltimore area cited a modest increase in condo and apartment construction loans. Credit quality continued to improve, according to most bankers, even as non-performing loans and loan losses remained above normal. However, a loan officer in the Richmond area noted that delinquencies were moving back to normal levels.
Real Estate
Indicators of real estate activity around the District were mixed during the last month. Most Realtors continued to report limited sales activity, but several indicated that consumers have started to shop for homes again. A Realtor in South Carolina stated that an increase in layoffs in recent weeks contributed to slow home sales. In central Virginia, a real estate agent reported that, while the number of contracts was down recently, foot traffic had improved and prices had stabilized--even at the upper-price range. A Realtor in the D.C., area described sales activity as "pretty good" (up markedly from a year ago). However, a real estate agent in Northern Virginia said that October was "a terrible month," although sales in early November were showing modest improvement. Several agents noted that more sellers in the market were opting instead to rent their properties. A Baltimore area Realtor stated that military families moving into the area as part of BRAC-related relocations were often renting rather than buying homes, dampening anticipated home price increases. A contractor in North Carolina told of an appraiser who had so much business that he was "working seven days a week with no end in sight."
Commercial real estate activity was generally weak since our last report, but property managers were becoming more optimistic about the near term. A Baltimore developer described commercial property demand as spotty, but he expected a pickup in demand from local "feds, meds, and eds." A developer of residential complexes reported that his numbers have improved in recent weeks, but the volume of transactions remained extremely low. A commercial Realtor in North Carolina noted that rental rates were flat at low levels, but property owners were able to avoid making negative cash-flow deals. In contrast, the owner of an elevator repair service reported that businesses were spending again--partly to maintain safety standards, but also to modernize in anticipation of a pickup in business activity. A commercial architect said that he could now "see light at the end of the tunnel" and was able to proceed with several projects that had been on hold for well over a year. A contact in the D.C., area said that architectural firms were hiring again. Nonetheless, most contractors continued to report no speculative building, and a contractor in central Virginia said that his region had only a few closings for new construction (mostly government projects).
Labor Markets
Hiring activity picked up moderately since our last report, but employment agencies were uncertain whether the gains would continue into December. Several sources reported increased hiring of production and assembly workers. A supplier of ball bearings stated that his company recently started to hire, after postponing the decision over concern about the sustainability of improving demand. A machinery equipment industry spokesman reported that hiring was up, but mostly limited to filling empty positions. The tourism industry along the District's east coast added employees, according to one contact, but mostly for temporary workers. A major retail chain store representative said that hiring activity had been ongoing, but most likely would be down in December when compared to a year ago. Several contacts at employment firms reported that demand for assembly line workers was somewhat stronger than a month ago, although the contacts were evenly split about whether the gains would continue into December. An agency manager in South Carolina expressed concern about a slowdown in hiring during the holiday season. Contacts continued to report that skilled workers were hard to find, but that wage pressures were subdued and little change was expected over the next few months.
Tourism
Assessments of tourist activity were mostly positive since our last report. A financial analyst reported that tourism in the Baltimore area was "robust" in recent months, and a port official there noted that Europeans were flying into Baltimore to take advantage of recently added cruise lines. A Myrtle Beach contact characterized tourist activity as somewhat stronger, compared to a year ago, which he attributed to increased weekend traffic. A manager at a mountain resort in Virginia also described tourist activity as somewhat stronger, which was due to great weather coupled with beautiful fall foliage. That contact also mentioned that the resort had attracted a more affluent crowd who normally spends more on food and recreation. Restaurants did better in October and November than in the summer months, and golf courses had more players than usual for the fall season. However, contacts from the Outer Banks of North Carolina and Virginia Beach reported little change in bookings in recent weeks. Several added that discretionary retail spending by tourists was down and vacationers were looking for exceptional deals at restaurants and recreation venues.
Agriculture
Dry and cool temperatures allowed Fifth District farmers to make steady progress in harvesting and in small grain plantings, and farm income projections increased since our last report. Corn harvested for grain was 100 percent complete in Maryland and was winding down in West Virginia, according to reports, with farmers in those states reportedly pleased with yields. The corn harvest in Virginia had neared completion, with local producers expecting low yields due to extremely dry weather. In both North and South Carolina, the cotton harvest was ahead of schedule. In addition, small grains had been planted and were off to a good start throughout the District. Results of our recent agricultural credit conditions survey indicated that income projections strengthened somewhat as a result of continued higher commodity prices and stronger demand. However, lower yields and crop quality were expected to have an impact on producers' financial positions.
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