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Fifth District economic activity generally improved since our last report. Manufacturers' new orders rose and port activity picked up, with raw commodities helping to drive exports. Bank officials reported some increased volume in commercial loan demand, as business clients restarted projects that had been put on hold. Revenue growth among non-retail services firms was more widespread in recent weeks, with notable increases in demand for freight trucking and tourism-related services. Residential real estate markets edged up, especially for homes in the lower price range. Commercial leasing improved somewhat. District labor markets picked up, particularly for temporary workers in automotive and other manufacturing sectors. On the other hand, commercial construction remained weak and retail contacts reported soft sales. Input price growth continued to pick up in both manufacturing and services sectors and we heard concerns about the availability of raw materials.
Manufacturing
Manufacturing activity continued to expand at a solid pace in March. An auto-parts supplier said that orders at his plant had increased beyond available capacity and he indicated that lead times had increased due to the scarcity of materials. He mentioned that levels of inventories were much lower than desired, and in some cases were nonexistent, causing backlogs of orders for both aftermarket and service parts. Similarly, a packaging manufacturer told us that vendor delay in selected raw materials had affected his company, and he described transportation costs as a growing worry. A manufacturer of dental equipment reported an increase in business throughout his company; he noted that the gains included existing and new accounts. In contrast, several manufacturers who supply products to federal government agencies attributed the lack of new contracts to the uncertainties surrounding the budget for fiscal year 2011, but they expected that business would return to normal once the federal spending issues are resolved. Several textile contacts reported that uncertainty in their raw material markets, exacerbated by the turmoil in the Middle East, had caused prices in petroleum-based products to escalate. More broadly, raw materials prices continued to move higher, according to our latest survey.
Port-related activity in the District advanced at a moderate pace, although several contacts noted that the pace of expansion was slower than a year ago. Exports of raw commodities remained robust, with exports outpacing imports at most ports. One official reported strong export demand for break freight (e.g., autos and construction equipment), as well as soy beans, scrap metal, paper, and refrigerated commodities. Another port contact stated that the number of freighters waiting to enter to port to load--mostly coal and grains--was the highest he had seen in years. High freight capacity kept shipping rates down, according to one shipper, but fuel costs were becoming a serious concern, even when those costs could be passed along. Both truck and rail have benefited from increased intermodal freight coming through the ports, according most contacts, but the fuel-cost advantage of rail has given that mode an edge over trucking.
Retail
District retail sales remained anemic in recent weeks. A store manager at a discount chain department store in central North Carolina noted, "Sales petered out after early tax refunds were spent," while the store manager at another discount chain store in Virginia Beach said sales were "slow but steady." Suppliers' prices rose rapidly for cotton and petroleum-based fabrics. At a Maryland mall, a department store manager told us that rising cotton prices were "a big deal," preventing acquisition of inventory such as clothing, sheets, and towels. An analyst for a major hardware store chain stated that sales were "a little better," with shoppers spending more but not on major home improvements. Big-ticket sales weakened, according to surveyed contacts, primarily in wholesale construction materials and furniture. Vehicle sales were generally sluggish or unchanged; a dealer in the Tidewater area of Virginia reported "sales have been stagnant." Another dealer reported that he was facing restrictions on ordering certain car colors, because those paints come from Japan; he also noted availability problems with car components originating in Japan. Retail prices rose at a slightly quicker pace in recent weeks; a large grocer indicated that his wholesale price increases were being passed through to consumers.
Services
Revenues grew more rapidly at services-providing establishments since our last report. CPAs and tax-preparation services reported strong seasonal demand. Internet service businesses, as well as travel-related services providers, also noted higher revenues. A contact at a building maintenance firm cited a recent uptick in modernization spending, especially among large hotels, causing increased backlogs at his company. Healthcare contacts indicated that demand for their services was generally unchanged in recent weeks, as did business-to-business services such as management consultants. An exception was freight trucking; contacts with a nationwide presence stated that business was strengthening and that they were doing some hiring. The pace of price increases in the sector edged up, according to survey responses.
Finance
Banking activity picked up across the District. Most bank officials whom we contacted noted a marked increase in interest from business clients, often to restart projects that had been delayed over the past two years. Several bankers also reported that their lending had grown from weak levels at the end of last year. A Virginia banker stated that consumer demand, while still quite soft, had improved, while a Richmond banker in a relatively affluent neighborhood cited a spike in equity line usage (often to be used for pre-sale home renovations). Most commercial bankers reported that small business lending had strengthened somewhat, with much of the funds going to equipment upgrades and plant expansions. A bank official in West Virginia reported that auto dealer inventory financing increased, but overall the bank's loan pipeline was slack and he was unenthusiastic about loan demand in general. Reports on mortgage lending activity were mixed.
Real Estate
Real estate activity edged up since our last report. Several Realtors indicated that sales were picking up gradually and that markets were more active than a year ago when tax credit programs were still in place. Most contacts indicated that sales in the low-price range fared much better than sales in the upper ranges. In contrast, an agent in the D.C. area stated that sales in the $700 thousand to $900 thousand price range increased over 80 percent, and sales in the one-million-plus price range were up over 100 percent. While most Realtors indicated that that they had not seen any change in the proportion of distressed sales, a contact in Greensboro, North Carolina noticed an increase in foreclosures and an agent in Fredericksburg mentioned that short sales were still about 50 percent of that market. Realtors throughout the District noted an increase in foot traffic, but sale price movements varied. Real estate agents in the D.C. and Greenville, South Carolina areas stated that prices held steady, while a contact in Greensboro said prices were soft. In contrast, an agent in Fredericksburg, Virginia reported that sales prices rose about 10 percent over last year, and an agent in the D.C. area reported upward price momentum due to lower inventory. He noted that properties in top condition and priced at market were selling quickly and that recent sales were generating four to five offers at full price and above.
Commercial real estate activity improved somewhat since our last assessment. A Richmond Realtor reported a substantial increase in office leasing (both new and renewals), and the industrial sector experienced moderate improvements in absorption, while leasing of retail space held steady. In South Carolina, a contact noted that a vacant plant in a distressed industrial area had been sold to a local import business. Additionally, an economic developer for the area stated that commercial permit activity was increasing both in terms of volume and amounts. However, foreclosed properties were still an issue in Maryland, according to a contact there, while another source remarked that available financing for projects continued to be a problem in the Carolinas. Construction activity was little changed over the last several months, according to a survey of construction contractors in the District, although the few reports of at least some gain in activity slightly outnumbered reports of declines. Most contractors reported cost increases in a wide variety of commodities, but, compared to a similar survey at the end of last year, a greater number were able to pass through the increases.
Labor Markets
Labor markets generally strengthened across most sectors in the Fifth District, with the exception of construction and retail. Several employment agencies reported somewhat stronger demand for temporary help in recent weeks, particularly in automotive and other manufacturing sectors. The branch manager of a temp agency in Raleigh and an agent in Hickory, North Carolina reported an increase in demand for skilled workers for the manufacturing and automotive industries. In Charlotte, North Carolina, an employment agent indicated that hiring was on the rebound and that his firm would soon add internal recruiters and account managers. Most recruiters expected rising demand for employees over the next six months. However, many contacts mentioned that skill levels of applicants often fell short, despite recent government actions to improve education and training for displaced workers. According to our latest survey, wages in the retail sector increased on average, although gains were somewhat less widespread than in our last report; the pace of wage increases picked up at services firms.
Tourism
District hotels, including resorts, reported an uptick in bookings for April, as well as strong advance bookings for the summer vacation season. The manager of a resort hotel in the North Carolina Piedmont region expected a good summer season, and he indicated April bookings were up slightly year-over-year. Our contact at a resort in western Virginia reported an increase in dollar volume, year-over-year. He said, "'Staycations' are here for the long-haul," with many of his advance-booked leisure guests coming from within a day's drive. A contact on the North Carolina Outer Banks reported that rentals were up in most categories for the summer ahead, and good spring weather had boosted April cottage rentals. She stated that people seemed to be feeling a little better about the economy and were focusing on spending time with family. A Washington, DC contact reported that early attendance at this year's Cherry Blossom Festival was above average and that cooler temperatures meant that blooms would last longer, giving visitors more opportunity to enjoy the cherry trees in bloom.
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Cleveland