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Summary
Sixth District business contacts reported that the pace of economic activity was robust in March and early April. Retail sales were generally strong, although auto sales were mixed. Reports on tourism remained upbeat, particularly in Florida where foreign visitors boosted overall activity. Housing construction and sales continued strong in most areas, while commercial markets displayed further improvement, albeit from low levels. Strong demand conditions boosted most manufacturing industries. Hiring expanded at a modest pace with numerous firms indicating they were relying on temporary staffing firms to fill job openings. Higher fuel prices raised operating costs for many producers and service providers. Overall, firms noted that they were able to pass along a portion of these increases to their customers.
Consumer Spending
District retailers reported that March sales exceeded expectations, in part
because of strong Easter-related activity. Once again, very strong results were
reported from tourist destinations in Florida. Apparel sales were solid in most
areas of the District. Merchants commented that they anticipate positive second-quarter
sales relative to a year earlier, although several contacts noted concern that
rising fuel prices may have dented discretionary consumer spending. District
auto dealers had mixed results in March. Foreign-brand vehicles continued to
perform well throughout the region, and some Florida contacts also noted positive
sales of some domestic brands. However, overall purchases of domestic full-size
trucks and SUVs were below year-ago levels. Most dealers stated that used car
sales had improved from weak 2004 levels, and auction prices were higher.
Real Estate
Overall, March single-family home construction and sales remained near high year-ago levels. Moreover, both Realtors and builders in Florida continued to report record levels of activity. The demand for residential housing remained extremely strong in Florida, and shortages of homes for sale were noted by several contacts. In addition to single-family homes, condominium construction and sales were vigorous in Florida. Most contacts agreed that District residential construction will likely remain strong in the short-term, but some slowing is anticipated in the second half of the year.
Improvements continued to be noted in commercial real estate markets. Retail development remained solid across the District, and industrial projects have been gaining pace as firms move forward with expansion plans. Office development was also improving, with plans for several new office towers.
Manufacturing
Reports from the factory sector continued to be positive. Some manufacturers increased production and lengthened workweeks in response to rising demand. Solid activity was noted by contacts in most industries, including carpet, building materials, machinery, and manufactured housing. In addition, contacts in the forest products and pulp and newsprint industries were optimistic about current and future activity.
Tourism and Business Travel
The tourism and hospitality sector remained strong in March and early April. In Florida, activity continued to be bolstered by foreign visitors. Bookings were characterized as "robust" at major central Florida theme parks, and passenger counts at cruise lines were high. The hospitality industry along Florida's panhandle continued to improve as hurricane-related repairs brought more rooms on line. Hotel occupancy remained strong along the Mississippi coast. Some convention hotels in Atlanta noted a recent upturn in business.
Financial
Financial activity in the District was brisk. Loan demand remained at high levels and some areas that experienced a slowdown in early 2005 noted an increase in activity in March. Contacts reported that consumer loan activity was expected to remain robust in the second quarter. Bankers also noted steady deposit growth, with several institutions expanding facilities and increasing hiring to meet demand. A modest improvement was also noted in commercial loan demand.
Employment and Prices
Labor markets improved modestly in March. Temporary employee hiring remained brisk, especially in the business services sector. Several contacts reported that they expected the pace of hiring to slow because of the rising cost of employee healthcare benefits and a lack of qualified applicants in some industries. For the trucking industry, in particular, the availability of qualified drivers remained limited.
Contacts again reported price increases in several sectors. For instance, building materials prices edged higher again, and petroleum-based goods such as plastics experienced notable price increases. Several contacts noted that they have been able to pass on higher energy and materials prices to their customers.
Agriculture
Rains severely slowed fieldwork for most District growers in March and early April. Also, Florida's citrus industry continued to monitor the impact of canker disease. So far, about 4,500 acres have been destroyed because of canker but up to 10,000 acres may be cleared before the disease is brought under control. The outlook for the District's poultry and cotton industry was reported to be positive because of strong export demand.
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Richmond