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Southeastern economic activity continues to expand at a moderate pace, according to business contacts. Merchants report that sales have met their expectations, which were above levels of a year ago. Home sales have been boosted by low mortgage interest rates, but weather problems have limited building in some parts of the region. Nonresidential construction spending remains healthy, with new speculative building underway. Factory activity is mixed, with weakness in some sectors balanced by strength in others. The tourism and hospitality industry continues to post impressive numbers. Consumer and commercial loan demand is growing moderately. Contacts expressed concern over labor shortages for skilled and unskilled workers; however, reports of escalating wages are infrequent. Overall, prices remain stable.
Consumer Spending
According to retail contacts from across the District, retail sales were up year-over-year in both January and February; however, February sales were slightly weaker than January's. Most retailers agreed that recent sales had met their expectations, and inventories are in good shape. Apparel continues to be a strong seller. Sales during the first quarter are expected to exceed last year's sales slightly.
Construction
Reports from real estate contacts indicate that both new and existing home sales were stronger in February than a year ago. These contacts say low mortgage rates are boosting sales in most areas of the region. Home construction activity has been subdued in some parts of the District because of inclement weather. However, inventories remain generally in balance. Several contacts noted that lower priced or starter homes are the strong sellers in their market. Looking forward, a slight majority of uilders expect new home construction will be up compared with last year in the first and second quarters; most real estate agents agree.
Commercial real estate markets remain healthy throughout the region. Most suburban and central business district office markets are recording rising occupancy rates and rentals, and a considerable amount of speculative office construction is underway. The industrial sector has begun to show some signs of slowdown, as new supply and vacancy rates move up in several markets. Retail markets remain healthy across most of the region. Overall, both developers and real estate agents' outlooks remain optimistic for the year.
Manufacturing
Factory activity varied by industry. Contacts note further slowing in the region's apparel sector, with the closure of one large plant and declining orders for others. A few small apparel companies that have found a market "niche" are reportedly doing well. Some contacts note that apparel companies are feeling negative "Asian effects," with slower sales to foreign markets. More positively, the outlook has improved for a plywood producer and a manufacturer of building products that experienced the factory workweek and shipments weakness not long ago. In Louisiana, oil field projects are maintaining a steady pace, and there is an overall optimistic outlook for the industry. Chemical producers are reportedly more concerned with the regulatory climate than that of the Asian situation, as many plant expansions are underway.
Tourism and Business Travel
The tourism and hospitality industry remains robust, according to most contacts. Theme park expansions, along with a number of hotels currently under construction, or in the planning stages, are indicators of the positive outlook for central Florida's tourist industry. Although the weather in the Northeast has been unusually warm, south Florida contacts report that March bookings have been strong. Louisiana's Department of Tourism expects 1998 to be another good year and is stepping up encouragement of foreign airlines to expand flights into the state. Revenues for Mississippi's tourism and hospitality industry rose substantially in 1997, and the state's tourism and hospitality official reports double-digit increases in inquiries.
Financial
Banking contacts report that loan demand has been expanding moderately throughout the Sixth District. Consumer and commercial loan demand are growing, and mortgage-refinancing activity continues to be brisk. Auto loan demand remains healthy, especially in the luxury car segment.
Wages and Prices
Wage pressures remained constrained, according to most contacts, but labor shortages are a cause for concern. Along the Mississippi Gulf Coast, job fairs in casinos and department stores are becoming frequent in order to help ease labor shortages. Employers in Louisiana's shipbuilding industry are frustrated by their inability to find qualified workers. In Tennessee, technical centers have contracted with several industries and are beginning apprenticeship programs to help provide a continuing supply of skilled workers. Contacts also say that workers skilled in the construction trades are in demand as are general laborers. The majority of retail merchants report that labor costs have risen between zero and 4 percent, year-over-year.
Prices remain mostly stable as businesses struggle to keep costs down. Some contacts report that improved productivity from computers and high-tech goods are helping employers to hold the line on price increases. Some firms are pushing for lower benefits for workers as a result of rising benefit and medical costs. One contact reports that the "Asian crisis" is benefiting his suppliers by allowing them to make purchases at significantly reduced prices, although others note that multi-year pricing agreements are keeping costs stable.
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Richmond