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Reports from contacts across the Sixth District suggest that the Southeastern economy continued to expand moderately through the end of the year. Many merchants reported sales increased over last year's levels, but below expectations. Home sales have been flat recently, while nonresidential construction remained healthy. Manufacturing activity varied by industry. The tourism and hospitality sectors continue to perform well. Overall, loan demand grew moderately through the end of the year. Wage pressures and prices continue to be held in check despite reports of persistent labor shortages.
Consumer Spending
According to most District retailers, sales during December exceeded year-ago levels; however, many merchants reported sales were lower than their plans. Several retailers blamed slow apparel sales on unseasonably warm weather. Traditional retailers were hurt by the increase in nontraditional gifts such as spas and vacation packages. Reports indicate that high-end retailers and small specialty stores experienced a strong holiday season. Competition was intense and resulted in significant discounting by many retailers before and after Christmas. Despite lackluster sales, most retailers report that inventories are close to target, and sales will likely increase slightly in the first quarter on a year-over-year basis.
Construction
Builders reported that new home sales were flat-to-down compared with last December and construction activity was spotty. There are segments of the market where inventories are uncomfortably high. Looking forward, most Realtors expect home sales to exceed last year's levels, both in the first quarter and for the year. Builders anticipate the pace of construction in the first quarter will be similar to that seen during the fourth quarter. Multifamily development shows little change from the last Beige Book. Office and industrial construction remains dominated by build-to-suit projects, although speculative development is becoming more widespread.
Manufacturing
Manufacturing activity varied with strength in some sectors, weakness in others. Contacts report that the economy in certain areas of Alabama is in surprisingly good shape considering the number of apparel job losses; the available labor supply has been absorbed by new and expanding firms. New Orleans contacts note that optimism remains high in the oil and gas sector, where equipment fabrication and manufacturing bookings remain at a strong pace. Although Georgia reports indicate falling new orders and shrinking factory workweeks for apparel producers, and decreasing factory payrolls and employment for some producers of consumer electronics and appliances, new orders are increasing for manufacturers of industrial machinery and fabricated metal products. Contacts in Alabama express concern that because of the Huntsville area's great exposure to the aerospace/defense sectors, some businesses that export or import could be impacted by problems in Asia.
Tourism and Business Travel
The tourism and hospitality industries continue to perform well. Tourism is still strong at central Florida theme parks, where several large expansions are underway. In Miami and Palm Beach, tourism continues to set records. Hotel and motel bookings through March are said to be ahead of last year's at the same time. In Louisiana, casino boat revenues in Baton Rouge are up by double-digits from a year ago, and Alexandria's new riverfront convention center is expected to boost the number of conventions booked to that part of the state.
Financial
Most banking contacts in the Sixth District report that overall loan demand grew moderately in recent weeks. Consumer loan demand increased slightly, while commercial lending remained strong and stable. Mortgage loan demand continued to grow.
Wages and Prices
Reports of labor shortages are continuing in parts of the District. Wage pressures are being held in check, however, according to most reports. In New Orleans, shipbuilders are seeking permission to hire foreign workers to fill their need for welders, shipfitters, electricians, and other workers. Contacts in Nashville report a shortage of labor for all major trade contractor categories. General contractors are reportedly concerned that subcontractors may not be able to acquire enough qualified workers to handle the volume of construction contracted out. Also, in Nashville, trucking executives report that the continued driver shortage is constraining growth. One Nashville company has been forced to idle over 10 percent of its equipment because of the labor shortage.
Prices for materials declined for some manufacturers. Some contacts note that businesses have not been able to increase prices, even though they have been trying; they are reportedly only able to achieve additional earnings through productivity increases. Reportedly, fierce competition is holding down price increases for finished goods.
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Richmond