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Reports from Sixth District contacts indicated that business activity was mixed
in September. District merchants reported that sales exceeded expectations,
although auto sales were mixed. Home sales and housing construction continued
to trend lower in Florida, and there were reports of declining housing market
activity in other areas as well. In contrast, nonresidential construction continued
to expand modestly. Real estate loan demand moderated further, and an increase
in foreclosures was noted in parts of the District. Reports on manufacturing
and tourism were generally positive. Labor shortages were a source of wage pressure
in some industries, and cost increases related to energy and raw material prices
continued to be reported. Several businesses noted they had successfully raised
their output prices to offset a portion of the higher input costs.
Consumer Spending
District retailers reported that sales improved in September. Most merchants
noted that sales exceeded expectations and were above year-ago levels. Back-to-school
activity was particularly strong across the District, and the outlook among
most retailers remained positive. Reports of auto sales were mixed. Most domestic
brand dealers reported that sales of trucks and SUVs were disappointing in September,
and that inventories were too high. Some dealers noted that reduced prices and
new financing incentives helped to boost sales modestly later in the month.
Regional foreign brand distributors noted that sales were better in the Southeast
than the national average in September, but were off from year-ago levels.
Real Estate
Further declines were noted in District housing markets in September. The majority
of builders and Realtors reported that activity was down from a year ago and
inventories continued to rise. Weakness was most pronounced among Florida contacts,
while there were scattered reports that conditions deteriorated in parts of
Alabama, Georgia, and Tennessee. According to contacts, new home construction
was below year-ago levels in most parts of the District. Reports from the Mississippi
Gulf Coast were more robust, whereas reports from New Orleans indicated that
the pace of construction continued at low levels. Contacts suggested that the
high cost of insurance remained a major problem for property owners in the Gulf
coast area.
Reports from commercial builders indicated that nonresidential construction
in the District was slightly stronger in September compared with a year earlier.
However, contacts also reported that rising material costs caused highway and
road projects in Alabama, Florida, and Georgia to be scaled back. Most reports
anticipated continued modest growth in nonresidential activity over the next
several months.
Manufacturing and Transportation
Reports on manufacturing production in September were generally positive. Activity
related to the energy sector was especially strong. A refiner was adding personnel
and a major shipbuilder received a contract to provide support vessels for the
offshore oil and gas industries. Steel industry contacts also reported good
results. Reports on capital outlays and future spending plans were mixed. For
instance, many contacts reported that capital investments were directed toward
increasing energy efficiency rather than adding to capacity. Reports from the
transportation sector varied. Some trucking companies noted slower activity,
especially those dealing with homebuilders. Meanwhile, regional rail companies
were encouraged by the steady growth in the volume of inter-modal container
shipments.
Tourism and Business Travel
Reports from the tourism sector were generally positive in September. Passenger
traffic at Orlando International Airport was up over two percent from a year
ago, and central Florida theme park attendance was described as solid. Three
casinos recently reopened on the Mississippi coast, boosting the near term economic
outlook for that area. In New Orleans, however, the reduced number of tourists
and conventions continued to hamper the industry's recovery there. Industry
contacts expect tourist activity in New Orleans to pickup after the hurricane
season.
Banking and Finance
Slowing loan demand, aggressive competition for deposits, and strong credit
quality, characterized reports from the District's banking sector in September.
Weaker real estate loan demand was noted in most parts of the District, while
reports on commercial and industrial lending were softer than in the last report.
Higher foreclosure rates were reported in parts of the region as increased interest
rates affected borrowers with adjustable rate mortgages. However, bank credit
quality indicators remained strong.
Employment and Prices
Labor shortages persisted in parts of the District. Some manufacturers reported
that they had raised their entry-level wages in an effort to attract workers.
Several residential construction firms continued to note difficulty in obtaining
qualified construction workers, despite the slowdown in building activity. A
spokesman for one staffing firm said that demand for skilled engineering and
finance specialists was strong. However, another staffing firm reported that
the overall demand for temporary workers had leveled off in September.
Many of the companies contacted stated that they have been able to pass on
at least some of their cost increases to their customers. However, a concrete
products manufacturing company had to absorb recent energy, freight, and raw
material cost increases because of the slowdown in homebuilding. Property insurance
premium increases continued to be a major concern for businesses in coastal
areas of the District.
Agriculture and Natural Resources
Drought conditions moderated slightly across the District, but growers in Alabama
and Georgia remained concerned about the impact of the summer drought on cotton
and peanut yields. Meanwhile, Florida citrus producers have benefited from higher
prices for oranges this year. Despite weaker export demand attributed to international
concerns about Avian influenza, lower poultry prices have reportedly encouraged
some large export orders from China, Russia, and Mexico.
High energy prices and a calm hurricane season resulted in a significant expansion
of exploration in the Gulf of Mexico in recent months. According to initial
estimates, a new, large find in the deep waters of the Gulf has the potential
to double U.S. crude oil reserves.
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Richmond