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Reports from contacts indicated that overall economic activity in the Sixth District was mixed in June and early July. There was a modest improvement in retail sales and continued strength in most single-family housing markets. A small improvement in commercial real estate was noted by some contacts. Reports from the financial sector remained generally positive. However, manufacturing activity continued to be lackluster and only a few contacts reported that they planned to increase capital spending. Early summer travel in the region fell below industry expectations in most areas. Labor markets continued to be sluggish overall. The service sector reported some employment increases, but layoffs persisted in the manufacturing sector. Contacts noted ongoing increases in the price of insurance, pharmaceuticals, and natural gas.
Consumer Spending
Reports suggested that retail sales increased modestly during June and early July in the District compared with the same time last year. Sales were largely in line with retailers' expectations and inventories were balanced and remained low in most cases. Discounting and promotional activity was widespread. Retailers were mostly optimistic about sales growth for the rest of the year but were not yet ready to increase inventory levels substantially. District auto dealers gave reports of mixed sales in June and the first part of July. Sales of domestic brands in June outpaced expectations somewhat, although sales were slightly below year-ago levels. Japanese brand distributors posted strong gains, whereas several import dealers noted disappointing sales results.
Real Estate
Single-family markets continued to perform strongly overall in June and early July. Single-family home sales continued to be driven by low interest rates according to contacts. Available reports on second-quarter commercial real estate activity noted some small improvements, principally with regard to leasing activity and net absorption. There were a few scattered reports of interest in new commercial developments in parts of the District.
Manufacturing
Manufacturing activity remained subdued in June and early July. Most reports suggested that firms remain reluctant to buy new equipment. For example, the demand for machinery repair has remained relatively strong in comparison to the weak demand for new machinery. Weakness in the aviation market has led to layoffs at an aircraft engine plant. Also, increasing natural gas prices have reportedly resulted in layoffs in Louisiana's petrochemical industry. In addition, there were reports of new closures of textile mills in the region because of foreign competition and slack product demand. More positively, suppliers to the defense industry continued to report strong order flows. For instance, shipbuilders in New Orleans reported some new military contracts. Also, a company that supplies parts for the auto industry reported increasing production levels because of the new vehicle assembly plants opening in Alabama and Mississippi.
Tourism and Business Travel
Reports on the District's hospitality and tourism sector were mixed in June and early July. In Miami, overall tourism conditions were better than the same period in 2002, but still significantly trailed pre-9/11 levels. In Orlando, a theme park cut employment levels recently because of lower-than-expected attendance. A large cruise line based in south Florida reported a recent spike in booking activity and projected a robust second half, but noted that passengers were purchasing tickets closer to sailings at reduced rates. So-called drive-to tourist destinations continued to report better performance than those relying on air traffic. Hotels catering to business travelers continued to report low occupancy levels and little improvement in recent months.
Financial
Responses from the financial sector were mostly upbeat in June and early July. Contacts reported that home-related loan demand remained solid. Residential refinancing activity remained strong throughout the District. Credit union loan volumes were said to be strong, and one report noted a slight increase in commercial loan demand. Problem and past-due loans were reportedly low and manageable. While demand for business loans continued to be weak overall, some venture capital firms were reported to be selectively considering new investment in the technology area.
Wages and Prices
Reports suggest that labor markets remained sluggish in June and early July. The service sector continued to add staff at a moderate rate, whereas layoffs in the manufacturing sector persisted. Employment growth was strongest in Florida. Business contacts noted little change in hiring plans. Some were utilizing "just in time" employment practices; hiring temporary staff and/or increasing hours to meet changing demand conditions. Price changes varied across sectors. Contacts continued to report double-digit increases in insurance and pharmaceutical costs, and several reports suggested that natural gas prices were expected to continue to increase over coming months.
Transportation
District trucking contacts reported that demand for transportation services continued to improve in June. However, higher diesel and insurance costs has squeezed profit margins for many smaller operators. The demand for new truck equipment remained quite low.
Agriculture
Tropical storm Bill saturated wide areas of the District in early July and reduced fieldwork in many areas. Plantings of corn, soybean, tobacco, and wheat are reportedly higher this growing season, whereas the cotton and peanut crops are lower than last year. According to one report, cotton growers in Georgia have planted some 50,000 fewer acres this year in the face of lower demand from local and foreign mills.
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Richmond