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Sixth District business contacts indicated that overall economic activity weakened in March and early April. Several retailer and auto dealer contacts noted that sales were moderately lower than a year ago. However, most tourism industry contacts reported that spending remained positive on balance. Residential real estate activity continued to be weak, with many areas noting high inventories and price declines. Commercial development was also below year-ago levels in most areas. Manufacturing varied by industry, with energy, defense, and aerospace production remaining steady, while automobile and construction-related production declined. Banking industry contacts continued to report tight lending standards throughout the region. On balance, labor markets weakened, with contacts in several industries reporting a pull-back in hiring and an increase in layoffs. Contacts continued to note concern over rising food, energy and raw materials prices. Drought conditions eased somewhat in March and early April.
Consumer Spending and Tourism
Most District merchants continued to report weak sales during March and early April compared with a year ago. Inventories were described as mixed, with nearly half of our contacts reporting that levels were even with a year ago and many others citing rising inventories. Retailers' outlook was less positive than in the previous report, with more merchants expecting slower sales over the next several months.
District vehicle sales continued to weaken. Dealers reported disappointing sale volumes in March, despite added incentives for slow-selling trucks and SUVs. Sluggish consumer demand for new vehicles has resulted in inventory accumulation for both domestic and foreign brands.
Reports on hospitality and tourism indicated continuing strength through March. New Orleans contacts noted continuing improvement in the city's tourism and convention activity. Gaming revenues from the Mississippi Gulf Coast resorts also strengthened. Reports from Florida were also largely positive, with many destinations there benefiting from an increase in international visitors, especially from Europe.
Real Estate
Homebuilders and Realtors reported that new and existing home sales remained well below year-ago levels in March. Several homebuilders noted that traffic had picked up somewhat, although sales had not. Most Realtors reported that buying interest remained very weak. Home prices continued to trend lower in most parts of the District, while inventories remained at high levels. Overall, District housing markets are expected to remain subdued in the near term. Most contacts suggested that the spring selling season will be pivotal to the year's performance.
Reports from District contractors indicated that commercial development had weakened. Nearly half of our contacts reported that commercial construction declined significantly during the first quarter of 2008 compared with a year ago. Meanwhile, order backlogs continued to shrink throughout much of the District. Contacts noted a sharp increase in material prices, while labor costs growth held fairly steady. Expectations for commercial development for the remainder of the year have weakened.
Manufacturing and Transportation
Reports from manufacturing contacts continued to be mixed. Energy, defense, and aerospace industries reported steady growth. However, industries related to residential housing continued to report production cutbacks and declines in new orders. Automobile production also declined. Reports continued to indicate that the lower value of the dollar had resulted in expanded export activity. Demand for domestic freight services continued to be weak, and high diesel prices were reportedly lowering the profitability of many trucking companies that have not been able to pass on higher fuel costs to their customers. Regional rail shipments through mid-March indicated weakness in autos and housing-related goods, but gains in deliveries of agricultural goods, chemicals, and metals.
Banking and Finance
Contacts in the banking industry continued to report tight credit conditions across the District. Mortgage loan applications continued to be closely scrutinized, and consumer and business loans are also facing tighter standards. Small business borrowers are reportedly being adversely affected as a result. New business and consumer loan demand softened, although utilization rates for existing lines of credit increased.
Employment and Prices
District employment activity was generally subdued in March. Several businesses indicated they were trimming their hiring plans, and several reported leaving vacancies unfilled. Some were also cutting back on hours and cutting part-time employment. According to contacts, construction-related businesses continued to lay-off staff, or substantially trimmed their seasonal hiring plans. Stronger hiring reports came from the coastal regions where post-Katrina rebuilding efforts were still getting underway. Shortages of skilled workers continued to be noted by some contacts, particularly in the healthcare industry. Several contacts also reported that they were hesitant to part with skilled employees despite weaker economic activity because they wanted to have a quality workforce in place when conditions improved.
Increases in food and energy-related prices were noted across the District at both the wholesale and retail levels. Raw materials prices, especially metals, were also accelerating according to several contacts. The ability of businesses to pass on these higher material costs to their customers varied.
Agriculture and Natural Resources
District farm areas received more rain during March and early April, providing temporary relief to drought-stricken areas. Current market conditions for poultry and cotton are favorable as higher prices have boosted the near-term outlook. Higher citrus production and inventories in Florida and Brazil partly contributed to softening prices for those goods. Refinery utilization was weaker because of seasonal factors tied to routine maintenance.
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Richmond