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Sixth District contacts noted a modest improvement in economic activity in July and August, whereas assessments of future prospects were mixed. Retail sales increased, led by autos and positive back-to-school sales. Housing markets remained strong overall, while commercial real estate markets continued to stabilize. Manufacturing output improved slightly. Contacts reported that leisure travel had returned to healthier levels, but business travel in the region remained weak. Labor market conditions were largely unchanged, while price pressures remained limited to a few areas.
Consumer Spending
Back-to-school activity, strong home sales, and automobile sales supported retail activity in the District. Retailers reported that overall sales growth improved in August after lackluster results during July. Most agreed that back-to-school sales rose modestly compared with last year. Home-related product sales were described as strong while apparel sales were mixed across the region. Most contacts reported that retail inventories were balanced. Aggressive manufacturer incentives boosted District car sales in July and August. However, dealers operating national franchises noted that sales in the region still lagged other markets. Despite the generally positive retail results, August surveys of consumer attitudes in Florida and the Atlanta metro area indicated lower levels of consumer confidence.
Real Estate and Construction
Low mortgage rates continued to fuel robust District housing markets. Most builders and real estate agents reported that home sales and new home construction equaled or exceeded year-ago levels in July. For August, the reports were more mixed but remained positive overall. The strongest reports continued to come from Florida. Home inventories varied across the region, with a shortage of supply reported in some Floridian markets. According to reports, several apartment markets in the District continued to suffer as tenants were finding that low interest rates made home ownership an attractive alternative to renting. Lack luster commercial real estate markets have changed little since our last report. Vacancy rates remain at high levels, but reports continued to surface of small improvements in leasing activity.
Manufacturing
Factory activity improved modestly in July and August, and contacts noted a slightly more optimistic outlook. New military contracts boosted the District's shipbuilding and aircraft industries. Auto parts producers continued to announce expansion plans to service the region's vehicle plants. Production volumes were expected to increase for a pharmaceutical manufacturer, and several glass producers noted that they were operating at full capacity to meet rising demand. One report also noted increasing orders and shipments for packaging materials. Less positively, producers of high-tech equipment continued to pare employment rolls. Higher imported steel prices were reported to be severely affecting some metal fabricators. Carpet production, especially for the commercial building segment, remained in the doldrums and contacts noted that demand was not expected to pickup in the near term.
Tourism and Business Travel
Most reports from the tourism and hospitality sector noted some recent improvement in leisure travel in August. However, more of Florida's visitors were reportedly traveling by car than by air, and the duration of visits has declined. Contacts reported that sluggish European and South American economies cut into international travel to the state, although some reports indicated increasing numbers of visitors from Brazil. Mississippi's gaming industry continued to attract customers reluctant to fly to other destinations. Record revenues for Mississippi Gulf Coast casinos were reported for July. Business travel remained weak. In Atlanta and New Orleans, attendance at some recent large business conventions was substantially below that of a year ago.
Financial
Consumer lending continued to increase moderately while commercial loan demand remained weak. Additionally, bankers remained cautious in approving new commercial lines of credit, and some noted tightening standards for approving consumer loans as well. Lower mortgage interest rates drove up mortgage origination and refinancing activity throughout the District. One contact noted a surge in the number of borrowers looking to shorten the term of their loans. The venture capital sector remained largely inactive.
Labor and Prices
With the exception of vehicle manufacturers, part suppliers, and producers of military equipment, reports continued to indicate that firms were not adding significantly to payrolls in August. However, the pace of layoffs appears to have eased back. Most business contacts continued to report that their focus is on cost cutting, and expansion plans remain on hold as a consequence. But some were optimistic that the hiring environment would improve over the next six months. Prices were mostly unchanged with the notable exception of continued increases in healthcare and insurance costs. Many employers were reportedly passing some of these higher costs on to employees and some were also reducing benefits. Prices for building materials were increasing according to several reports, and import tariffs continued to place upward pressure on prices paid for steel products.
Agriculture
Summer rains improved the agricultural outlook in Florida, Louisiana and Mississippi, but drought conditions remained a problem for farmers in parts of Alabama, Georgia and Tennessee. Stronger cotton and corn prices were benefiting those producers not severely impacted by the drought.
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Richmond