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Reports from Sixth District business contacts were mostly positive in March and early April. Merchants experienced modestly increasing sales, while vehicle sales were little changed over the month. Real estate contacts noted softening sales in some parts of the District, and declining sales in Florida. Residential construction remained strong throughout the region as builders worked off backlogs. Nonresidential sales and construction improved overall, but there were some reports of commercial projects being delayed because of rising costs. Manufacturing reports were mixed. Strong demand boosted production and hiring in some manufacturing sectors, while layoffs were announced in others. The demand for transportation services remained robust. Reports from the tourism industry were positive, although rising gasoline prices and concerns about the upcoming hurricane season clouded the outlook. Commercial and industrial lending activity strengthened while residential loans slowed in parts of the District. Labor market conditions remained firm with numerous reports of labor shortages, especially in skilled positions. Contacts again cited high prices for building materials, energy, and industrial inputs, while firms' ability to pass on higher costs to consumers varied.
Consumer Spending
Most retail contacts reported that activity during March and early April rose modestly compared with a year ago, and the majority said that sales were above plan. Most merchants contacted said that they were satisfied with their current inventory position. The outlook was upbeat with most anticipating rising sales over the next several months.
The overall pace of vehicle sales was little changed. Contacts noted that imports continued to gain market share while domestic dealers reported lower sales. The demand for fuel efficient vehicles increased. Commercial fleet sales by domestic automakers declined from earlier in the year.
Real Estate
According to reports from homebuilders and residential real estate contacts, single-family home sales softened in some parts of the District during March and early April, and declined in Florida from record levels. Despite this, single-family construction remained strong as builders worked to fill the backlog of orders made last year. As a consequence, home inventories rose in most Florida markets, while there were scattered reports of higher inventories in other parts of the District. Condominium sales in Florida continued to weaken, with more projects cancelled or postponed. Contacts anticipate that recent trends in District housing markets will continue during the second quarter.
District commercial real estate markets continued to experience stronger levels of demand, but overall development remained at low levels. There were scattered reports of projects put on hold or delayed because of rising construction costs. Some contacts noted that projects have been scaled back or redesigned in an effort to rein in costs. The pace of redevelopment along the Gulf Coast remains slow and debris removal continues to dominate activity.
Manufacturing and Transportation
Production and hiring increased in some manufacturing sectors, while new layoffs were reported in others. Recent announcements of an expansion of an aerospace firm and a new vehicle production facility will add thousands of jobs to Georgia's transportation equipment sector over the next several years. Building materials manufacturers throughout the District continued to report robust activity. Tool and die companies reported that business was good, while some steel producers noted improving orders. The textile and apparel segment continued to struggle, however, with plant closures announced in Alabama and Georgia. Demand for transportation services remained strong.
Tourism and Business Travel
Tourism activity remained positive in March and early April, according to most reports. South Florida tourism was characterized as vibrant, and strong attendance was noted for central Florida theme parks over Spring break. A special study for the Florida Commission on Tourism related that although the industry is currently reporting positive advance bookings, there is concern about the potential negative impact of the approaching hurricane season. The new Georgia Aquarium recorded more than 1 million visitors in its first 98 days, greatly exceeding expectations. Six more casinos are expected to be opened along the Mississippi Gulf Coast by the end of summer, in addition to the three that are already up and running. A large New Orleans amusement park announced that it would not re-open in 2006, a setback to the local tourism industry there.
Banking and Finance
Credit quality in the District continued at strong levels and delinquency rates remained low. Loan growth was healthy, but there was some slowing in real estate lending. An increase in commercial and industrial lending activity was noted in March.
Employment and Prices
Labor markets remained tight in March and early April, according to most reports. The shortage of skilled workers continued in many parts of the District, and lower skilled personnel remained scarce in Katrina-affected areas. A staffing firm said that business over the next six months is expected to trend upward because of continuing high demand for labor. Developers throughout the District again relayed concern over a labor shortage in the construction industry. A significant number of merchants surveyed noted difficulty filling positions. A shortage of qualified truck drivers was also noted by several business contacts.
Energy costs were noted as a constraining factor in most industries, and higher input prices continued to affect manufacturers and builders. The ability to pass on higher costs to customers varied across firms. Contacts noted that more building contractors were adding a margin to their quotes to try and protect themselves against further input price increases. However, those with fixed contracts have been unable to pass along cost increases, and some firms have reportedly delayed projects as a consequence. Oil service companies have been able to increase prices for equipment and services because of strong demand.
Agriculture and Natural Resources
Recent dry weather had a mixed impact on regional crops. Vegetable harvesting was in full swing in south Florida. In Georgia, the lack of rains reportedly slowed some livestock pasture growth. Meanwhile, poultry prices remained depressed because of uncertainties related to the impact of the Avian Flu on export markets. Government reports show moderate declines in the amount of shut-in oil and gas in the Gulf of Mexico. By early April, approximately 23 percent of oil and 14 percent of natural gas remained shut-in. A little over 40 percent of the remaining shut-in oil production is attributable to a single platform that is expected to return to production in the second half of this year.
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Richmond