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Most Sixth District business contacts reported that economic activity continued to expand at a solid pace during late November and December. Retail sales were generally positive and met expectations over the holiday season, while tourist activity increased. Housing markets continued to moderate in some areas, whereas manufacturing activity expanded and the demand for freight services remained solid. Reports suggest that regional labor markets continued to firm, with the demand for skilled workers in the construction industry particularly strong. Most business contacts reported difficulty passing on cost increases because of competitive pressures. However, energy surcharges persisted, and higher costs remained a concern in several industries. Storm-related rebuilding was well underway in parts of Mississippi and Louisiana, although activity in the New Orleans area remained focused mostly on cleanup and demolition.
Consumer Spending
Reports from retail contacts were generally positive over the holiday season, with most retailers indicating they achieved sales goals. Strong reports came from luxury retailers and department stores, with the latter sales helped by heavy promotional activity and discounting over the holidays. Many retailers in Alabama, Louisiana, and Mississippi said they had very strong results as consumers continued to replace hurricane-damaged items. The majority of retailers reported that they were satisfied with inventory levels. Merchants' outlook for first-quarter sales was largely positive. Vehicle sales were mixed in December. Domestic dealers reported weak demand as modest promotions failed to boost sales, whereas demand for imported vehicles remained strong. Sales in storm-damaged areas were boosted by purchases of replacement vehicles.
Real Estate
Single-family housing activity moderated, including some Florida markets, but remained at high levels overall. Realtors and builders in Florida reported that inventories had increased as sales of existing and new homes slowed in December. According to homebuilders, construction and repair work remained brisk in Louisiana and Mississippi. Most contacts outside southern Louisiana and Mississippi anticipate home construction and sales will moderate further over the next few months, but will remain at healthy levels. District commercial real estate markets continued to improve modestly. However, construction was reportedly being limited by higher material prices and ongoing labor shortages.
Manufacturing and Transportation
Overall, reports from the manufacturing sector were positive during late November and December. Several storm-damaged operations along the Gulf Coast have restarted. For example, one of the largest sugar refineries in the nation located near New Orleans has reopened following extensive repairs. Most oil refineries affected by the hurricanes were back on line, and one petroleum refiner noted increasing production and employment. However, gas processing remains disrupted, with repairs proceeding slowly. Automotive suppliers continued to locate or expand close to the newer assembly plants in the District. Positive reports also came from the building materials and the defense and aerospace industries. Weakness in the textile industry and some segments of the automobile industry were noted. Trucking contacts reported that freight demand remained solid. However, some noted lower margins because of high fuel costs. Driver shortages are still a major concern. For instance, activity at the Port of New Orleans was reportedly limited by a shortage of truck drivers.
Tourism and Business Travel
Information from the tourism sector was positive in November and December. Contacts at Florida theme parks reported a good holiday season and were optimistic about the near-term outlook. In South Florida, international visitor counts remained strong and hotel occupancy rates were up from a year ago. Reports suggest that major hotels in Nashville are also doing well. The Georgia Aquarium in Atlanta opened in late November and sold over 200,000 annual passes in its first month of operation. A large convention has recently recommitted to New Orleans, and reopened casinos in Biloxi added to optimism regarding the recovery of the tourism industry in those areas.
Banking and Finance
Financial activity remained generally positive. There were some reports of slowing in refinancing and residential loan applications, with most refinancing activity concentrated among homeowners with adjustable rate or interest only mortgages. Commercial and industrial financing activity was mixed. In Florida, residential construction loan demand was said to be slowing, but remained at high levels.
Employment and Prices
Payrolls continued to expand during late November and December, and the demand for both skilled and unskilled labor was strong, according to most contacts. Retail contacts noted more difficulty filling seasonal positions than a year ago. Some construction companies, mainly in storm-affected areas, reported that there is an extreme shortage of carpenters, brick masons, sheetrock-installers, plumbers and electricians. Some workers were said to be relocating to the Gulf Coast to take advantage of job opportunities. Nonetheless, a general shortage of workers in New Orleans continued to be a problem that was causing many businesses to operate with abbreviated hours. In Florida, a shortage of workers for the winter tourist season was noted.
Most businesses reported that competitive pressures were limiting the pass through of cost increases to customers. However, energy prices remained a concern for several industries. Contacts noted that suppliers of petroleum-based products are continuing to increase prices and most reports indicated no rollbacks in energy surcharges. Some large vendors have said that they plan to keep surcharges, but adjust them based on energy prices. The plant manager of a major chemical facility reiterated that increases in natural gas prices, a major input in their operations, have resulted in higher prices for petrochemicals. Some commercial builders reported that materials prices are increasing faster than they can be passed along, and are concerned that some projects could be delayed or cancelled as a result.
Natural Resources and Agriculture
Weather conditions were generally favorable for fieldwork and harvesting in most areas of the District. Florida's citrus industry received a boost from higher orange juice prices. Poultry industry contacts reported weaker overseas demand because of Bird Flu concerns.
Oil and natural gas production continued to recover in the Gulf of Mexico. Oil production has returned to over 70 percent of pre-storm levels and natural gas production is back to over 80 percent of normal production. Contacts report significant increases in exploration planned for 2006.
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Richmond