May 5, 1993
Overview
On balance, the Fifth District economy continued to improve in
recent weeks. Retailing strengthened and, although manufacturing was
generally steady, the furniture market was the strongest in several
years. The residential real estate market improved, particularly for
houses in the mid-price range. Commercial real estate activity
strengthened in the Carolinas and in the Richmond area, but remained
weak in Maryland and the D.C. area. Residential mortgage demand
rose, while commercial loan demand was unchanged. Activity at Fifth
District ports increased. Bad weather led to a deterioration in some
agricultural crops and also contributed to a decline in tourism.
Manufacturing
Our survey of manufacturers indicated that District activity
generally held steady during the past month. Respondents noted
little change in most indicators, although they reported increases
in shipments, capital expenditures, and prices. Virginia
manufacturers, however, reported increased activity, especially in
shipments, new orders, and capital expenditures.
Manufacturers were optimistic about their prospects for the next six months. Increases were expected in almost all indicators except inventories and the number of employees, which were both expected to be steady.
Lumber and Furniture
Producers at the International Furniture Market in High Point, North
Carolina, indicated that the '93 market was the strongest since
before the industry slump of 1988-91. Buyers were more confident
than in the past few years and were trying to rebuild their
inventories as quickly as possible. In addition, furniture analysts
suggested that many retailers would be refurbishing their stores in
order to better display new products.
Cost-conscious consumers and high lumber prices were squeezing manufacturers' profit margins. Three reasons were cited for high lumber prices: (1) recent weather has hindered timbering; (2) competition in the lumber industry has lessened as regulations have forced small mills out of business; and (3) environmental restrictions have reduced the availability of timber, despite increases in forest areas and volume.
Tourism
Hotels, motels, and resorts throughout the District indicated that
tourist activity for March and the first two weeks of April declined
when compared to February and to a year ago. The respondents
attributed the declines to the "Blizzard of '93" and weak consumer
confidence. Respondents also indicated that tourists were not
spending as much per person. Spring bookings were unchanged when
compared to a year ago, and all of the respondents expected tourist
activity to improve during the next six months.
Consumer Spending
Our regular mail survey indicated that retail activity strengthened
during late March and early April. Retailers reported increases in
shopper traffic and sales, including sales of big-ticket items.
Wages and prices rose, while employment and capita1 expenditures
remained unchanged.
Retailers were optimistic about their prospects for the next six months. They expected sales, shopper traffic, wages, prices, and inventories to increase. They foresaw no change in employment or capital expenditures.
Ports
Representatives at District ports--Baltimore, Charleston, and
Hampton Roads (Norfolk)--indicated that both imports and exports
were generally higher in March than in February. Compared with a
year ago, both imports and exports were about the same at Baltimore
and Hampton Roads but were higher at Charleston. Exports were
expected to continue increasing at Charleston and Hampton Roads but
to remain unchanged at Baltimore during the next six weeks.
Finance
District financial institutions contacted by telephone indicated
that credit conditions improved during the last six weeks.
Respondents stated that commercial and consumer loan demand was
steady, while commercial and consumer loan rates were down slightly.
Residential mortgage demand strengthened during the last six weeks. Application volume was at a record-high level in March, but fell off in April. Home mortgage loan rates were, on net, little changed during the period. Rates bottomed out in early March, rose during the next few weeks, and began to decline again in April. Activity was about evenly divided between originations and refinancings.
Residential Real Estate
Real estate analysts surveyed by telephone reported that residential
activity remained relatively strong, although adverse weather
conditions delayed housing starts in some parts of the District.
Residential sales varied across the District but were, on net,
higher; sales remained strongest for homes in the mid-price range.
Prices of existing homes remained mostly steady, but prices of new homes rose because of higher lumber costs. In areas where the residential market was strongest, higher costs were almost entirely borne by homebuyers. In other areas, however, the result was lower profit margins for builders.
Nonresidential Real Estate
Commercial real estate activity remained strong in the Carolinas and
Richmond but was weak in Maryland and the D.C. area during the past
six weeks. Analysts noted that vacancy rates fell faster in the
suburbs than in the downtown areas. Leasing activity was
particularly strong in the retail sector because of a shift towards
large, value-oriented stores. Analysts also reported an increase in
industrial and warehouse leasing activity.
Some new construction was underway, particularly for large, anchored shopping centers and government buildings. Little speculative construction was underway, but some analysts noted that a few builders were beginning construction with only 80 to 90 percent of the building preleased. Other analysts reported that a shortage of large blocks of office space would stimulate construction demand in the future.
Agriculture
Above-normal rainfall and below-normal temperatures across most of
the District delayed spring planting activity and led to the
deterioration of some crops. Corn and tobacco plantings were only 5
to 8 percent complete, compared to 25 percent or more normally.
Vegetable crop plantings were also behind schedule. Almost half of
the District's small grains--planted last fall--were rated in fair
or poor condition, either because they were drowned, were suffering
from disease and powdery mildew, or were growing at below-normal
rates on account of cold weather. On a more positive note, the
condition of peach and apple trees improved during the last several
weeks.