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Summary
According to business contacts, economic growth in the Sixth District remained robust in April and May. Merchants reported that sales were above year-ago levels and that inventories were balanced. Auto sales improved slightly. Residential housing sales and construction remained at high levels, and commercial real estate markets improved marginally. Factory activity was mixed, but truck and rail shipments strengthened. Reports from the hospitality and tourism industry were positive, as were most responses from the financial sector. The hiring picture continued to improve overall, especially for durable manufacturers and services, but weakness persisted in some nondurable manufacturing industries. Businesses and consumers noted continued escalating prices for fuel, building materials, and metals.
Consumer Spending
Reports from District retail contacts indicated continued strength in May. Most contacts reported that sales exceeded year-ago levels and met expectations. The strongest reports came from Florida retailers. Inventories were described as balanced. Women's apparel, children's apparel, jewelry, shoes, and home-related products continued to sell well in most parts of the District. Retailers anticipate that second-quarter sales will also exceed year-ago levels. District auto dealers reported that vehicle sales improved slightly in April but remained off on a year-to-date basis. Contacts from major regional auto auction centers reported that used car prices firmed for the first time in the last two years.
Real Estate
District single-family housing markets remained robust overall in May, although some softening was noted for both new and existing home sales. According to most Realtors, home sales were up slightly in May. Home prices continued to rise, with builders pointing to rising material costs. The outlook among contacts remained upbeat, with home sales and construction levels during the second quarter expected to surpass last year's strong levels.
Modest improvements continued to be noted in District commercial real estate markets, but construction remained at low levels. Rising steel costs and cement shortages challenged many developers. Improvements in District commercial real estate markets are expected through year-end, but construction is expected to remain at low levels.
Manufacturing
Manufacturing activity was mixed. Steel producers reported strong orders and increasing profits, but fabrication businesses were under pressure because of higher steel prices. Increased demand helped furniture producers; some automotive suppliers and producers continued to add jobs. The lumber and building products industry reported continuing strong orders and profits; for example, a manufacturer of roofing material was operating at capacity. The fabric portion of the textile industry continued to experience weak demand and poor pricing power, whereas activity in the carpet industry was healthy. The District's industrial chemical producers continued to pare payrolls, reportedly because of high energy costs and foreign competition.
Transportation
Regional truck and rail shipments continued to post above-average gains through the first quarter. District trucking contacts reported strong demand for freight but a shortage of drivers. First-quarter airborne shipments rose sharply for Atlanta and Miami airports.
Tourism and Business Travel
Reports from the District's tourism and hospitality industry remained positive. Spring tourism was characterized as "great" in South Florida , with booking numbers indicating continued strong activity during the summer. The weak dollar reportedly prompted more Europeans to visit South Florida as well as domestic visitors to go there instead of overseas. Traffic out of Orlando International Airport was reportedly back to pre-9/11 levels for the first time. Hotel operators in Nashville and Atlanta said that business travel was back, evidenced by the increasing number of groups holding meetings.
Financial
Responses from the financial sector were mostly upbeat. Reports from community banks throughout the District were positive. Asset quality and loan demand continued strong, and past dues remained low. Small business loan demand improved and one report noted that higher rates on term loans were not dampening demand for money. Demand for industrial and commercial loans also continued to improve modestly.
Employment and Prices
Hiring improved overall, especially among small businesses. Construction-related firms, some service firms, and manufacturers of autos and vehicle components added jobs. Layoffs continued at apparel producers and in the industrial chemical sector, however.
Reports again indicated rising input prices and increasing purchaser costs. High building material prices remained a problem for residential and commercial builders. Some businesses passed on higher fuel costs to customers. Florida hotels boosted room rates and restaurants raised prices.
Agriculture
Dry weather conditions prevailed through the end of May for growers in areas of Florida and Georgia , but heavy rains reduced fieldwork days in Louisiana and Mississippi.
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Richmond