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On balance, Sixth District business contacts indicated that economic activity was subdued in January and early February. Retailers noted generally weak sales and uncomfortably high inventory levels, while auto sales were lower on a year-over-year basis for both domestic and foreign brands. Tourism-related spending was generally positive overall, but contacts were somewhat less optimistic going forward. Residential real estate activity remained quite weak, although homebuilders commented that new home inventories were marginally lower. According to Realtors, inventories of existing homes for sale continued to increase. Commercial real estate development was described as having slowed in January and February. Manufacturing performance varied by industry, and domestic freight traffic remained generally sluggish. Banking contacts continued to report stricter lending standards for real estate loans and increased mortgage delinquencies and foreclosures. Contacts in several industries noted continued strong demand for skilled workers. However, firms in housing-related industries noted an increase in layoffs or reduced work weeks. In addition, some temporary staffing industry contacts reported a decline in orders and an increase in worker applications. Contacts noted that rising food and energy prices, along with increases in health insurance premiums, were major concerns.
Consumer Spending and Tourism
Most District merchants reported that retail sales were weak during January and early February, citing a moderate decline in sales compared with a year ago. Several merchants reported that inventories were higher than expected, and were scaling back orders as a consequence. However, the outlook among retailers was generally positive with the majority expecting better sales over the next several months. District vehicle sales remained sluggish early in the year. Weak demand was reported by dealers of both domestic and import brands, and most contacts also noted they had cut back on vehicle orders from automakers.
Tourism-related spending remained generally positive in January and early February. However, one contact noted that bookings for the spring season were down nearly 20 percent from year-ago levels, and some reports indicated that business-related travel had slowed and was lagging year-ago levels. Also, several hotel contacts expected lower occupancy rates and more conservative spending by guests in the near-term as a result of higher food and energy costs.
Real Estate
Homebuilders and Realtors reported that new and existing home sales remained well below year-ago levels during January and early February in most areas. Residential construction activity remained below year-ago levels across the District, but most homebuilders noted that inventories were gradually trending lower. However, many Realtors said that the inventory of existing homes for sale continued to rise despite modest declines in asking prices. The outlook from builders and Realtors over the next several months was somewhat less negative than in previous reports. Contacts noted that the traditionally strong spring-selling season will be crucial in determining the year's performance.
Reports from District contractors indicated that commercial development during January and early February was flat to slightly down on a year-over-year basis. Most contacts indicated that they anticipate a further decline in activity over the next several months.
Manufacturing and Transportation
Manufacturing reports varied by industry. Steel fabrication, energy, and defense-related industries reported strong conditions in early 2008. However, firms providing inputs into residential housing construction continued to report very weak conditions, and many had cut work weeks or pared payrolls as a result. Some auto industry contacts said they were adjusting output levels lower to match sluggish vehicle demand. Manufacturing contacts from most sectors expressed caution with regard to future capital spending and hiring plans.
The lower value of the dollar was said to be supporting exports by District manufacturers, and was also boosting foreign industrial investment in the District. However, freight companies continued to report lackluster domestic demand. Several regional trucking companies cut back operations as a result.
Banking and Finance
Contacts in the banking industry reported relatively tight credit conditions across the District, especially for real estate loans. Concern about the credit availability was also noted by some non-real estate related businesses. Mortgage delinquencies and foreclosures were higher in many parts of the District. However, several contacts noted that borrowers had become more proactive in working with banks on immediate and anticipated credit problems. Loan demand varied across the region, with some contacts reporting increased mortgage refinancing activity in late January.
Employment and Prices
Demand for skilled workers remained strong in several industries, including health care, business and technical services, as well as in the defense- and aerospace-related sectors. However, several firms linked to residential construction and sales reported reduced hours and increased layoffs. Some automakers noted that they eliminated overtime because of production cutbacks. There were also reports from some temporary staffing firms that the volume of job orders had weakened and the number of people applying for temporary positions had increased. Contacts in the hotel/resort industry reported that for the first time in several years they were able to easily fill vacant positions.
Food, petrochemical, and energy-related costs continued to escalate, according to most reports. Increased energy and raw material costs were noted by most manufacturing contacts, but their ability to pass on the higher costs varied. Some specialty-food industry contacts said that recent price increases led some customers to switch to lower price brands.
Agriculture and Natural Resources
District farm areas received needed rainfall in January and early February. However, drought conditions persisted in parts of Alabama, Georgia, Tennessee, and Southwest Florida. Range pasture conditions across the District remained poor.
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Richmond