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Reports from most contacts suggest that growth remains moderate across much of the District. Retail sales continue to exceed year-ago levels, but only slightly. The single-family housing market is operating at healthy levels throughout much of the District despite subdued growth in general areas. Overall, manufacturers indicate that activity is improving slightly in the District and loan demand is holding steady. The tourism industry finished up a strong summer and the outlook remains good. Reports of wage and price pressures are infrequent.
Consumer Spending
Most District retailers reported that recent sales exceeded year-ago levels. However, July's sales were much stronger than August's on a year-over-year basis. Several retailers attributed the weaker August sales to the unusually early start at many schools, which shifted purchases into July. Most retailers said that back-to-school sales had met their expectations; however, a notable minority said that receipts had been below their expectations. Overall, retailers expect third quarter sales will slightly exceed year-ago levels.
Construction
Reports indicate that recent home sales and construction activity have varied by area. However, the majority of contacts report that sales and building within the single-family market has been similar to last year in both July and August. In some places, the market is now reported to be suffering from too much inventory, but most areas continue to report that inventories are about right. Looking forward, most builders expect construction in the fall to equal last year's levels. Realtors also generally expect that third quarter sales will be similar to those of a year ago.
District commercial real estate markets remain strong. Office markets continue to improve as vacancy rates continue to drop in key District markets and construction continues at a healthy pace. Speculative office construction is underway in several District markets. The industrial market also remains strong across most of the region; however, lack of suitable land is slowing development in several places. The weakest segment of the commercial real estate market continues to be multifamily housing. Several markets report declining occupancy rates and more use of incentives to attract new renters. However, occupancy rates and rents are expected to rebound by the first of next year, as the pace of new construction slows.
Manufacturing
Manufacturers gave mixed reports. Most of those contacted said that the U.P.S. strike caused some interruptions of production but none indicated irreparable damage. Apparel jobs continue to shrink except for firms with special niches. Nine Mississippi apparel plants have closed and more than 850 garment worker jobs have been lost in the state this year. An industry spokesman attributes most of the closings to foreign competition. A military contractor notes that the market for their defense goods remains flat. More positively, production is increasing for some paper and electronic and electrical equipment companies. The volume of shipments has increased in the chemical industry, and steel and machine shops report increasing output and sales. The average factory workweek and factory payroll are increasing for some lumber and wood product firms. Shipyards along the Gulf Coast mostly continue to report new orders and expect further increases in the coming months.
Tourism and Business Travel
Tourism finished the summer season on a strong note with high hotel and motel occupancy rates and good attendance for most regional attractions. Year-to-date occupancy rates are above those of last year for Orlando, and average room rates are up by nearly 10 percent. According to early reports, an encephalitis scare did not dissuade tourists from attending Florida's attractions during the important Labor Day holiday. Orlando International Airport's major carriers have approved a $1.2 billion expansion program that will allow the airport to keep pace with airline passenger growth into central Florida. The cruise industry out of Miami and Port Canaveral continues to report good results. Louisiana's 14 river boat casinos reported strong revenues in July with increased numbers of gamblers.
Financial
In the past few weeks loan demand has varied by area and type of loan. Bankers' reports on the strength of consumer and automobile loan demand are mixed. Commercial loan demand is generally reported to be flat. Mortgage lending is slightly weaker than last year but bankers expected it to increase. Consumer loan quality is reported to be holding steady.
Wages and Prices
Wages remain stable in most industries. There are a few reports of increasing material and finished goods prices but they are not widespread. Although low unemployment rates in parts of the region are making it difficult for high-tech firms and some others to find qualified employees, companies are using part-time workers and students to fill lower-level positions. Firms are also bolstering employment rolls by tapping into retirees re-entering the workforce and attracting workers with flexible work hours. Geoscientists, petroleum engineers, and shipfitters are in especially high demand along the Gulf Coast because of a resurgence in the energy and shipbuilding sectors. Price increases are limited to a few industries. Paper prices are expected to continue to increase over the next few months. Shipyards report increasing prices for raw materials as do some metal producers. However, a large chemical producer and an apparel producer note falling product prices.
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Richmond