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Reports from Sixth District business contacts were mixed in April and May.
While most retail merchants indicated that sales rose at a solid pace and expressed
an upbeat near-term outlook, some segments reported lower demand. Auto sales
were varied, and dealers noted that sales of SUVs and large trucks were especially
soft. Residential construction remained steady with sales near year-ago levels
in most parts of the District. However, sales weakened in Florida, especially
in the condominium market. Nonresidential construction advanced at a modest
pace, and factory activity was mixed. Regional transportation companies continued
to report strong demand for their services, and Florida's tourism industry
posted good results in the spring. Bank loan demand continued to slow in parts
of the District. Employers in several industries noted difficulty in obtaining
skilled workers. Upward cost pressures were reported in many industries, whereas
the ability to pass on these higher costs to customers remained mixed.
Consumer Spending
Most District retail contacts reported healthy levels of sales and traffic in
April and May. Total sales were described as being above year-ago levels. Merchants
near Katrina-damaged areas continued to report very strong sales because of
the influx of evacuees. Inventories were described as a bit heavy overall, but
most merchants were still comfortable with their position, and continued to
express a positive near-term outlook. The weakest retail reports came from discount
retailers and restaurants. District auto sales were mixed in April and May.
Dealers noted that sales of SUVs and large trucks were soft, while more fuel-efficient
models performed better. Most contacts noted that demand for compact and hybrid
models was strong and that inventories were light.
Real Estate
Homebuilders and residential real estate contacts reported that single-family
home construction and sales were near year-ago levels in most parts of the District.
However, Florida reports noted slowing in both construction and sales in April
and May. Inventories of homes for sale in Florida remained higher than at the
same time last year. In addition, Florida condominium sales continued to weaken
with several project cancellations reported. Florida homebuilder contacts anticipated
that new home sales and construction would remain near current levels, while
Realtors expected further slowing in home sales. Some parts of Katrina-damaged
areas in Mississippi noted a modest improvement in residential construction
activity, and some demolition work had begun in the New Orleans area.
Gradually declining vacancy rates and positive absorption indicated healthy
demand in nonresidential real estate markets across the District. However, construction
has only picked up modestly according to most contacts. The pace of nonresidential
redevelopment in hurricane-hit areas remains modest, although some parts of
the Mississippi coast were further along.
Manufacturing and Transportation
Manufacturing activity remained mixed in April and May. Suppliers of construction
materials continued to report strong demand. The auto production industry posted
varied results. Another foreign auto parts supplier chose a District site for
its first U.S. factory which will create 250 jobs. However, lower sales of some
large SUVs and trucks have led to production cutbacks at several District assembly
plants. Textiles also remained under pressure; a large regional textile firm
will permanently close its factories in the District this summer, and approximately
2,000 jobs will be eliminated as a result. Several manufacturing firms reported
that they were hesitant to move ahead with expansion plans because of uncertainties
regarding input prices and future demand.
Strong demand for truck and rail services has continued to benefit most regional
transportation companies. Generally, pricing has remained firm, allowing most
trucking companies to recover part of the higher fuel costs. Driver shortages,
especially for long haul truckers, have continued to cloud the otherwise favorable
business outlook.
Tourism and Business Travel
The tourism industry posted positive results in April and May, but the outlook
is uncertain. Contacts reported that tourism in South Florida was booming, especially
among the five-star properties. Miami hotels reported very strong occupancies
and room rates. A record number of people are expected to visit Orlando theme
parks by the end of the year. However, Florida tourism officials remain wary
as the hurricane season approaches. Some cruise lines out of Miami promoted
discounts as much as 20 percent compared to last year's prices on late
summer cruises in the Caribbean, reportedly because of hurricane fears.
Mississippi's coastal casinos continued to rebound. Mississippi Gulf
Coast gaming revenues in April were back to approximately 60 percent of year-ago
levels. The largest impediment reported for the tourism industry there is the
scarcity of hotel rooms in the area.
Banking and Finance
Banking conditions in the District remained largely favorable. However, loan
demand softened in some areas, led by a decline in the volume of mortgage applications.
Some contacts also noted slower automobile and C&I lending. By most accounts,
credit quality and deposit growth remained strong.
Employment and Prices
Contacts continued to report tight labor markets in many areas. A growing number
of employers expressed difficulty in attracting new employees to South Florida,
reportedly because of housing affordability issues. A shortage of housing has
also hampered labor availability in the Gulf Coast region.
Most reports note continuing upward price pressures, especially for building
materials and energy-related goods. Builders reported that prices for concrete,
steel, copper, and zinc continued to move higher. High crude oil prices have
pushed up the costs of petroleum-based goods such as PVC, roofing, and asphalt.
Several contacts in coastal areas noted higher insurance costs. Despite these
pressures, however, the ability to pass on higher costs to customers remained
mixed. Slowing demand and strong competition were the most often cited reasons
for not being able to raise prices.
Agriculture and Natural Resources
Improved weather conditions helped most District crops. Cotton conditions were
generally improved, and sugarcane production is projected to recover from last
year's hurricane damage. Meanwhile, poultry prices remained down because
of weaker foreign demand. Prospects for oil and natural gas production from
the Gulf of Mexico improved as the largest hurricane-damaged platform came back
online, and is expected to reach full pre-Katrina production levels by the end
of June.
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Richmond