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Southeastern economic activity continues to expand at a moderate pace, according to business contacts. Most District retailers report that recent sales have met their expectations. New home construction has picked up recently, and overall home sales in March were stronger than a year ago. Manufacturing activity slipped last month, but the outlook remains strong. Reports from the tourism and hospitality industry continue to be positive. Overall, loan demand remains at moderate levels. Contacts continue to express concern over labor shortages for skilled and unskilled workers, but reports of escalating wages are not pervasive. However, contacts noted modest increases in some prices.
Consumer Spending
According to retail contacts, March sales were weak compared with a year ago because Easter was later this year. Early April results were much stronger than the previous year. Overall, most retailers agreed that recent sales had met their expectations, and inventories remain in good shape. Apparel continues to be a strong seller, while home-related sales have been spotty. Contacts expect sales during the second quarter to be up slightly compared with a year ago.
Construction
Reports from real estate contacts indicate that both new and existing home sales were stronger in March than a year earlier. However, sales during the first half of April have weakened slightly. Home construction has picked up noticeably from our last report, with the majority of contacts reporting increased activity compared with a year ago. Both Realtors and builders anticipate modest increases in home sales and construction during the second quarter compared with the previous year. However, they expect the District's housing market to slow somewhat in the third quarter.
Commercial real estate markets remain healthy throughout the region. Most suburban and central business district office markets continue to record rising occupancy and rental rates. The industrial sector has begun to show some signs of a slowdown as vacancy rates have risen slightly. Retail markets remain healthy across most of the region. Overall, both developers' and real estate agents' outlooks remain optimistic for the rest of the year.
Manufacturing
Although fewer contacts indicated production gains than a month ago, new orders are reportedly beginning to rise, and the factory workweek is increasing for most industries. The factory outlook remains positive, with more contacts expecting to increase employee payrolls and capital expenditures in the near term. New orders for aerospace firms should stabilize regional industry employment levels. The shipyard industry continues to expand along the Gulf Coast, and Louisiana's chemical industry is expanding. However, contacts report that low oil prices led to a fall in drilling activity on land; offshore operations continue at a steady pace. Although the beleaguered apparel industry continues to downsize, two contacts report that closed mills are reopening under new owners, producing different products but hiring former mill workers. High-tech investment is reportedly still rising in the region, but that increase has slowed in recent months. Some contacts are concerned that low gasoline prices and market trends toward larger vehicles will continue to hurt the region's economy car manufacturers. Two pulp producers in Alabama shut down for two weeks because of a fall-off in exports to Asia.
Tourism and Business Travel
The tourism and hospitality sector continues to perform well. Airline traffic in and out of Florida remains very strong. Cruise lines out of Miami report the best advance booking patterns in their history. Travel and tourism executives in south Florida continue to have a very positive outlook. Heavy investment by hotel operators restoring flagship properties in the Miami area is another indicator of strength. Hotel-motel tax collections in Palm Beach are up by double-digits through March. Although bad weather is blamed for slumping hotel occupancy rates in central Florida, new attractions at several theme parks should boost tourism this summer. Mississippi casino revenues were up significantly from a year ago.
Financial
Banking contacts report continued moderate growth in loan demand throughout the Southeast. Consumer lending has picked up slightly, and commercial loan demand remains strong. Mortgage loan demand continues to exhibit strength, especially for refinancing. Automobile loan demand has been mixed throughout the region, and most contacts report that consumer loan quality was unchanged.
Wages and Prices
Labor shortages continue to be troublesome in parts of the District, and reports of upward wage pressures are frequent but not pervasive. Skilled personnel in the health professions, construction workers, and computer experts are in short supply in parts of Florida. Chemical process workers and shipyard employees are needed in Louisiana, while employers in Nashville are having trouble attracting unskilled to moderately skilled workers and are continuing to pay at least 10 percent over minimum wage to recruit and retain them. More firms are resorting to hiring lesser-skilled workers at entry-level positions and training them on the job.
A greater number of contacts reported price increases than in our last report but, overall, price increases remain moderate. One contact says that strength in residential construction is expected to continue to stimulate lumber price increases and costs of other building materials. Other contacts report firming oil prices keep the outlook bright for Louisiana's energy industry.
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Richmond