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Economic activity remained sluggish in June and early July, according to contacts from across the Sixth District. Merchants' sales were disappointing, but inventories remained balanced and the outlook for the third quarter is upbeat. Growth in the District's hospitality and tourism sector moderated as tourist traffic declined in parts of Florida. The factory sector remained mixed with lackluster new orders and limited spending on new technology. New car and truck sales in the District continued to lag behind national figures, although recent incentives improved sales. Single-family housing remained strong, but weakness in the commercial real estate market continued. Financial institutions noted modest improvement in consumer loan demand, and commercial loan demand remained soft. Labor markets were little changed, with few companies hiring on a permanent basis. Price pressures continued to be limited to insurance, healthcare, and steel.
Consumer Spending
Several District retailers reported a slight improvement in June on a year-over-year basis, but sales growth weakened somewhat in early July. Most contacts described inventory levels as balanced. Home-related product sales were strong across much of the region. Retailers remained cautious and continued to monitor inventory levels closely. The majority of contacts anticipate that sales during the third quarter will exceed year-ago levels. Auto sales were below year-ago levels, but SUV sales continued to support the market. A new wave of financing incentives helped improve sales.
Real Estate and Construction
Low mortgage rates continued to be a catalyst to District housing markets. Contacts reported that home sales and new home construction equaled or exceeded year-ago levels during June and early July. The strongest reports continued to come from Florida. Contacts noted that some consumers appear to be investing in homes rather than the stock market. The outlook for the third quarter remains upbeat. Sublease space and weak job growth continued to be a drag on District commercial real estate. Office vacancy rates remained at high levels, but some improvement in office and industrial leasing was noted in several markets. New construction remained largely limited to government and healthcare-related projects.
Manufacturing
Factory activity was mixed. Manufacturers were reportedly cautious about inventory accumulations, and several contacts observed that new orders were keeping pace with current sales. Producers of building supplies reported a lag in industrial sales, but several noted increased demand for household remodeling and repair products. Orders were sluggish for apparel producers. Contacts reported that expansions in the vehicle-manufacturing sector are expected to create about 3,300 jobs over the next few years. Vehicle parts suppliers were "swamped with orders," according to one report. A manufacturer of healthcare products noted an increasing factory workweek. Technology spending in the District was largely restricted to software upgrades, with new investments remaining largely on hold.
Tourism and Business Travel
Reports from the District's hospitality and tourism sector were not as robust overall as in recent months. Contacts in Miami indicated slower-than-expected summer activity. Although occupancy rates remained down from a year ago across the state, hotels were reportedly maintaining profitably by reducing staffing. Cruise ships continued to sail at full capacity without price discounting. Parts of Florida reported better-than-expected results because of a rise in the number of visitors driving to tourist destinations. However, contacts indicated that tourists were spending less, and the average duration of stay was shorter than it was last year. Some segments of the Louisiana gaming industry showed some improvement on a year-ago basis. Business travel remained weak.
Financial
Consumer lending increased moderately throughout the District, and problem assets remained under control in most areas. Banks continued to report little growth in commercial loan demand.
Prices and Labor
Most reports continued to indicate that firms were not adding significantly to payrolls. Increased hours and temporary staff hiring remained the rule for filling openings. Many expansion plans remained on hold. One report noted that the demand for temporary workers in manufacturing was higher than last year.
Price pressures continued to be strong for healthcare and insurance. One contact reported that healthcare costs were expected to increase by double-digits for the third year in a row. The tariff-induced increase in steel prices adversely affected some District manufacturers.
Agriculture
Rains in most areas of Florida helped build up needed soil moisture, but other District areas remained in need of more precipitation. Dry soil conditions affected the yield of cotton crops in northern Alabama. However, cotton growers were encouraged by higher market prices.
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Richmond