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District economic activity remained sluggish in most sectors during February
and March, according to contacts. Labor market conditions were largely unchanged
in March compared with February, with firms reluctant to hire new full-time
workers. Retail sales continued to be around last year's level, whereas auto
sales slipped below their year-earlier pace. The District's travel industry
had a mixed report, with domestic travel increasing but fewer international
visitors. Although home sales continued to be strong, market imbalances persisted
in the commercial sector. Weakness in most manufacturing industries continued,
with the strongest reports coming from defense contractors. Higher oil and natural
gas prices negatively affected most sectors of the District's economy.
Consumer Spending
Reports from retail contacts suggested that retail sales in March were near
year-ago levels, although several contacts reported lower sales caused by the
late Easter holiday. Some retailers also noted that while sales declined at
the outset of the war in Iraq, they rebounded relatively quickly. A number of
merchants engaged in aggressive discounting and promotional activity, whereas
discount retailers indicated that their performance remained relatively strong.
Most retail contacts reported that inventories were balanced and anticipate
that sales in the second quarter will be near last year's level. According to
domestic automobile industry contacts, new vehicle sales were below year-ago
levels in March, reversing gains posted earlier in the year. Some dealers attributed
weak SUV and high-performance car sales to lower consumer expectations and higher
fuel prices. Import dealers continued to gain market share in the District.
Construction
District housing markets were still being driven by low mortgage rates in February
and March. Most contacts reported that home sales during February mirrored year-ago
levels, but the responses were more varied during March, with some areas reporting
a softening in market conditions. High-end homes remained difficult to sell
in most parts of the District. Wet weather hampered construction in some parts
of the region. Most metropolitan commercial real estate markets continued to
suffer from an excess of office and industrial space. Government-related work
continued; however, some new projects have been scaled back or postponed because
of tight state government finances.
Manufacturing
The manufacturing sector remained sluggish in February and March, with the main
exception being defense-related production. Reports indicated that overall hiring
and investment spending by manufacturers was down from a year earlier, and some
apparel and electrical equipment manufacturers were cutting production in response
to lower orders. Nonetheless, some reports suggested there had been a modest
pickup in the use of temporary workers in the light industrial sector. Shipbuilders
along the Gulf Coast reported a large backlog of military orders. Also, the
new auto plant projects and expansions in the District were proceeding on schedule.
Tourism and Business Travel
Reports from the District's hospitality and tourism sector were mixed in February
and March. Reports from south Florida indicated a successful spring break season
helped offset continued weakness in international travel. Hotel occupancy rates
were up from 2002 levels but still lagged those of 2001. Significant discounting
and late bookings remained the norm in the cruise industry, and some central
Florida tourist attractions continued to struggle with lower attendance. Gaming
industry contacts along the Gulf Coast reported that they were maintaining a
"reasonable customer flow," whereas smaller-than-expected crowds attended Mardi
Gras in New Orleans this year.
Financial
Responses from the banking sector were mostly positive in February and March.
Bankers reported moderate deposit growth, and refinancing activity remained
strong. However, commercial lending remained slow, and venture capital deals
were infrequent. A major concern among banking contacts was the lack of loan
demand in the business sector. By most accounts, bank asset quality remained
under control.
Wages and Prices
Hiring remained slow in February and March as most firms remained reluctant
to commit to adding full-time employees. Instead, businesses continued to stretch
existing labor pools, using part-time workers and overtime when necessary. Reports
indicated little change in most output prices but increases in prices for several
inputs. High natural gas prices in March caused several chemical and fertilizer
producers to suspend operations, while higher diesel costs adversely affected
transportation firms. According to reports, prices for the petroleum-based products
such as roofing, fertilizer, and PVC increased.
Agriculture
District farmers enjoyed mostly favorable early spring weather. With a few exceptions,
crop and livestock pasture areas were reported in good condition. Favorable
yields and stable prices were welcome news for Florida's sugar cane and vegetable
growers. However, grapefruit growers in Florida reported lower prices, and industry
contacts suggested that producers in the Indian River region are likely to register
a loss this year. Meanwhile, higher fuel and fertilizer prices significantly
increased operating costs for farmers throughout the District.
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Richmond