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Summary
According to business contacts, economic activity in the Sixth District remained positive in June and early July. Several retailers, however, noted that sales have been slower than in previous months. Auto dealers, in particular, reported disappointing June sales. Residential housing construction and sales remained vigorous, while commercial real estate markets posted modest improvements. Industrial contacts reported improving manufacturing activity, and demand for transportation services was strong. Tourism activity remained solid, while business travel improved and responses from the financial sector were upbeat. The demand for labor continued to improve in some sectors, although only marginal wage increases were reported. Several contacts noted price increases for selected goods.
Consumer Spending
Reports from District retail contacts indicated sales during June and early July had slowed from previous months. Overall, most contacts said that sales during June and early July were flat to slightly higher compared with a year ago. Retailers in Georgia and Florida were said to be hopeful that a tax-free week at the end of July would boost sales. New vehicle sales in June were lackluster, although new cash incentives reportedly boosted traffic and sales in early July. District contacts reported that weak June sales performance extended to some previously strong selling segments. Used car dealers noted a continued pick-up in demand, with some reporting improving prices on some classes of vehicle.
Real Estate
District single-family housing markets remained robust in June and early July.
Reports were strongest among Florida contacts, and especially within the condominium
segment. Home sales and construction were similar to strong year-ago levels
in most other parts of the District. Home prices continued to increase in many
areas, and contacts continued to note higher building material costs. There
was concern expressed by some Realtors that home sales may moderate through
year-end, but most contacts anticipated District housing markets will remain
at high levels.
Optimism continued to grow among commercial real estate contacts as modest
improvements in leasing activity were noted and the amount of sublease space
declined. Construction remained at low levels but reports of plans for new development
increased. The majority of commercial construction underway was in the retail
sector.
Manufacturing and Transportation
Manufacturing activity continued to improve in several industries. For instance, contacts reported increased demand for drilling equipment, manufactured homes, heavy trucks and trailers, and processed building materials. These producers were boosting inventories of finished products in response to the growing demand. However, one contact suggested that inventories for linerboard for shipping containers was low because strong demand had outstripped capacity. Producers of chemical products reported improving pricing, and some had increased inventory levels to take advantage of bulk purchasing discounts. Contacts reported new projects and jobs created in the defense and aerospace sector in Alabama. Some tractor and trailer manufacturers were running at full capacity and several noted difficulty meeting delivery dates for orders. The transportation equipment industry was reportedly expanding production in the region, and demand for transportation services by manufacturers remained strong. More layoffs were recently announced in the District's apparel industry.
Tourism and Business Travel
Reports from the District's tourism and hospitality industry were positive in June and early July. In south Florida, activity was very strong, bolstered by international visitors. Hotels reported strong occupancy numbers and some restaurants posted record sales. A few reports indicated that business travel was increasing and that bookings for conventions and business meetings for upcoming months were strengthening.
Financial
Responses from the region's financial sector were mostly upbeat. Loan quality was good, and past dues remained low. Higher rates on term loans had not dampened loan demand, according to some. Indeed, several contacts noted continued strong activity in the real estate sector, especially in Florida. Demand for industrial and commercial loans was reported to have improved only modestly. The pace of merger and buyout activity in the banking industry picked up, and several reports noted that layoffs are likely when branch offices are consolidated.
Employment and Prices
Demand for workers remained strong in several sectors, such as healthcare, construction,
hospitality, and security. Staffing service contacts reported that the demand
from the manufacturing sector was also picking up. Employment advertisements
in several major newspapers increased significantly from a year earlier. Only
modest wage increases were noted in general. One report suggested that manufacturing
wage increases were lagging other sectors, because of the large pool of available
workers from past layoffs.
Several reports cited instances of rising prices for building materials and
food products, and that these were mostly being passed on to final users. Contacts
noted that some food prices had increased notably over the past few months.
High prices for lumber, metals, and cement remained a challenge to builders,
although strong demand has made it easier to pass on these higher costs in new
building projects.
Agriculture
Above normal precipitation slowed farming activity across the District. Excess
soil moisture conditions were reported in areas of Alabama, Louisiana, and Mississippi.
Recent USDA estimates placed cotton acreage higher than expected and contacts
expect some further downward pressure on prices. Poultry exports from the District
continued to improve.
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Richmond