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Contacts report mostly slower growth for the southeastern economy since the previous Beige Book. Reports by manufacturing contacts, while mixed, indicate weakening since the last reporting period. Retail sales have been weak recently, falling below expectations for many merchants. Home sales and construction flattened, but commercial markets remain strong. The tourism and hospitality sector continues to post impressive numbers and industry spokesmen expect a strong summer season. Bankers note strong overall loan demand. Wage and price pressures are being held in check, according to most contacts, despite continuing reports of labor shortages.
Consumer Spending
Most retail merchants reported little or no sales growth during May. They expect second quarter sales will exceed last year's only slightly. While a significant minority said that current sales were weaker than expected, most contacts reported that inventories are currently on target. The majority of contacts report that labor costs for the retail industry have risen between three and five percent on a year-over-year basis in recent months. Product prices are not expected to change much over the next six months.
Construction
Single-family home sales and construction in the District have been flat since the last Beige Book. For the month of May, most Realtors report home sales at levels similar to last year, while a notable minority said that sales were down from a year ago. According to most builders contacted, construction and sales of new homes were also flat in May. The majority of both builders and Realtors report adequate housing inventories and stable home prices. Overall, contacts expect home sales to be unchanged in the second and third quarters and building to be down in the second quarter and flat in the third quarter on a year-over-year basis.
District commercial real estate markets remain strong. Office markets continue to improve as vacancy rates drop in key District markets, and construction maintains a healthy pace. The industrial market also remains extremely strong across most of the region. The weakest segment of the commercial real estate market is multifamily housing, with several markets reporting declining occupancy rates. However, the declines are expected to be only temporary.
Manufacturing
Manufacturers contacted say that production is slowing overall. Spokesmen for the manufacturing sector note expansions in durable goods and continued weakness for some softgoods. Fierce competition and technical advancements continue to force closures and layoffs at apparel plants in parts of the region. More positively, on the durable goods side, military and nonmilitary contracts are energizing aerospace firms. Plant expansions are under way in the electronics and telecommunications sectors. In Louisiana, chemical firms are building new facilities. Tennessee auto parts suppliers report double-digit increases in exports. Increased demand by the energy sector for equipment and supply boats is galvanizing Louisiana manufacturers. The average employee workweek is increasing for a packager, and new orders are increasing for a producer of building products.
Tourism and Business Travel
Mostly positive reports characterize the tourism and hospitality sector. Forward bookings have been strong for south Florida hotels and resorts. On Florida's west coast, the number of visitors has been at record levels. Cruise ship bookings are up from a year ago, and industry spokesmen point to record passenger boardings. Central Florida theme parks continue to announce major expansion projects. Industry representatives are concerned about being able to staff the thousands of new positions created by the expansions over the next few years. One component of the sector not showing these gains is gaming. Profitability in the Gulf Coast's gaming market has flattened in some areas because of the influx of new casinos and casino expansions, although Mississippi's year-to-date gambling revenues have topped those of a year ago.
Financial
Most bankers throughout the District report that overall loan demand is strong. Consumer loan demand has increased slightly, with some weakness reported in automobile financing which parallels the weaker auto sales. Commercial demand continues unabated at healthy levels. Mortgage lending, while below last year's levels, is robust. With loan quality generally holding steady, few bankers are reporting stricter standards.
Wages and Prices
Despite continuing reports of labor shortages, evidence of increasing prices or wage gains is thinly scattered. Skilled and unskilled labor markets are described as very tight in areas with a high proportion of high-tech employment. Larger than average wage gains have been noted for information technology positions. Shipyards along the Gulf Coast reportedly cannot find enough skilled workers to keep pace with the recent business boom. Low unemployment rates in some District cities are making it hard for employers to fill positions or retain experienced workers. However, some employment placement firms report no significant real wage increases in spite of labor shortages, and other contacts note that firm downsizings and restructurings have helped the labor supply in parts of the District. Competitive pressures continue to hold down final-goods prices, according to most contacts.
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Richmond