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Most Sixth District contacts report a modest expansion of overall economic activity in recent weeks and a weaker outlook than in the July report. Retail sales improved slightly, but single-family home sales were somewhat weaker, and multifamily home construction has begun to moderate. Recent manufacturing activity has weakened slightly. The tourism sector remains robust, and loan demand continues to expand moderately. Employers are increasing benefits to retain workers in tight labor markets, but intense competition and long-term contracts are expected to keep prices stable.
Consumer Spending
District sales improved overall in August after a mixed July, as most contacts reported that sales were up slightly compared with a year ago. Recent back-to-school results, however, have been spotty. Some merchants said that the early start of school had shifted purchases earlier than usual and will likely dampen sales figures somewhat in the short term. Inventories are balanced and retailers expect that third quarter sales will be flat or slightly up compared with last year.
Construction
Reports from real estate contacts indicate that single-family home sales during July were above year-ago levels but were somewhat weaker in August. Most District builders reported that new home construction was up slightly in July and August on a year-over-year basis, while new home sales were flat to slightly up. Many Realtors report that listing inventories are too low in their area, although they believe new home construction is adequate. Looking forward, builders expect construction activity to remain at high levels through the end of the year. Real estate agents expect third quarter home sales will be strong but fourth quarter sales will weaken. Multifamily construction has begun to moderate in many District markets. Commercial real estate markets remain generally healthy throughout the region; construction levels are considered strong, and vacancy rates remain at historically low levels.
Manufacturing
Factory activity slowed slightly, according to the latest reports, with weakness in some sectors supported by strength in others. Most contacts are not as optimistic as in the last report about future prospects and do not plan to add significantly to job rolls over the next few months. The resolution of the General Motors strike has District assembly plants working overtime to make up for production losses. The region's chemical industry is benefiting from the strong U.S. economy and low oil and natural gas prices, as evidenced by new plant announcements and expansions. Despite some weakness in oil prices that has slowed onshore drilling, demand for deepwater offshore drilling rigs is stimulating capital investment activity. Less positively, weakness persists for District apparel producers. A large regional apparel company plans to cut as many as 4,000 jobs over the next three years, as the company shifts production to other countries. A decline in Asian orders, excess industry capacity, and weaker foreign currencies have forced the temporary closure of a large pulp operation.
Tourism and Business Travel
Central Florida theme parks continue to report strong tourist activity. Over 2,200 new hotel-motel rooms have been added to the Orlando area over the last year to accommodate the increasing number of visitors. A new trade-expo facility under construction near Orlando and expansion of existing facilities in Orlando reportedly will make the area the world's largest convention center within a few years.
There is concern from tourism officials that the weak Canadian dollar may cut back visits to south Florida from Canadians, but a new marketing campaign targeted at Latin America is expected to help lift the number of south Florida tourists from those countries. Airline passenger activity is up by over 6 percent in Atlanta from a year ago with a double-digit increase in international passengers.
Financial
Banking contacts throughout the Sixth District report that loan demand continues to expand at a moderate rate. Consumer loan demand remained healthy, while the commercial and mortgage markets continue to experience strong demand. Consumer loan quality has not deteriorated despite the high levels of bankruptcies, and bankers say they are not tightening standards. Competition continues to be heavy for loans and deposits.
Wages and Prices
Tight labor markets continue to pressure District employers. Companies are boosting benefits to recruit and retain workers. One manufacturer notes that they have recently increased the base pay rate for all information technology people by 15 to 20 percent to keep from losing them. A large residential builder says that a shortage of skilled trade workers is causing significant delays and price increases. In Louisiana, labor shortages at local shipyards are forcing some yards to forego business. About 5,000 to 7,000 welders and other skilled laborers are reportedly needed for the state's shipyards.
Competition and long-term contracts are expected to stabilize prices for the foreseeable future for the majority of firms contacted. Slumping oil prices are hurting smaller energy extraction companies in Louisiana, and weak prices are causing pulp and paper producers in the region to cut back their operations. However, residential builders note increasing materials prices.
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Richmond