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The pace of current economic activity weakened slightly in the Sixth District since the last Beige Book, according to business contacts, but the outlook remained positive. Merchants' sales were somewhat above those of a year ago, and expectations are positive for holiday sales. Factory orders and production weakened recently, but more industry contacts expect recovery over the next few months than was the case in the last Beige Book. The tourism and hospitality sector is mixed with good domestic business, but there is growing concern that weakness in overseas economies will continue to hold back foreign tourists. Commercial construction remains strong; however, residential building and sales have moderated, and the outlook is for slower growth. Tight labor markets continue to constrain District employers, but significant wage escalations remain limited to a few sectors. Prices remain stable, with a few exceptions.
Consumer Spending
According to District retail contacts, sales during September and early October were up slightly compared with last year. Early October sales were somewhat stronger than September sales. However, most merchants said that recent sales had met or fallen below their expectations, and many retailers report uncomfortably high inventories. Apparel sales remain strong, while shoe sales have been weak in recent months. Looking forward, most merchants expect holiday sales will be up slightly compared with last year.
Construction
Most District builders contacted said single-family home construction and sales slowed somewhat on a year-over-year basis. In both September and early October, construction was flat-to-slightly up in most areas of the District, while new home sales for the same period were flat-to-slightly down compared with a year ago. Realtors report that listing inventories are generally balanced, while builders report that new home inventories are adequate. However, in select markets, the dearth of available new home lots is said to be a constraining factor. Looking forward, real estate agents' outlooks are mixed, and builders expect slower activity, but at continued high levels. For the year, most contacts anticipate that they will exceed 1997's levels in terms of both home sales and construction. Commercial construction within the District remains strong, although there is some concern that several of the major markets are at their peak in this development cycle. After moderating recently, District multifamily permits have rebounded somewhat.
Manufacturing
Production and new orders at many regional manufacturers weakened since the last Beige Book. The outlook remained hopeful, however, with more contacts expecting moderate increases in production and new orders over the next few months than the last Beige Book. An Alabama steelmaker has announced recent layoffs and rising inventories, blaming this on increasing imports. Tennessee executives characterize expectations for future furniture and textile businesses as poor. District paper producers continue to operate below capacity, and the near-term outlook calls for little improvement. Low oil prices are causing energy extraction companies in Louisiana to cut staffs. Although the Asian crisis has hurt some regional manufacturers of high-tech equipment, strength in European markets is helping others in the sector. Nevertheless, new orders for exports slipped again for most contacts. More positively, a shipyard in New Orleans is diversifying from mostly military contracts by contracting to build a giant crude oil carrier for a major oil company. A producer of household textiles, such as sheets and towels, has announced expansion plans, although labor intensive apparel companies in the region continue to report declining new orders and downsizing. New orders are increasing for some firms in the region's aerospace industry.
Tourism and Business Travel
The tourism and hospitality sector was shaken up by Hurricane Georges but the effect was short lived. Booked conferences were canceled in New Orleans. Casinos on Mississippi's Gulf Coast were temporarily closed but suffered little damage. Although the hurricane missed Miami, tourism is reportedly down from last year. Domestic tourist traffic to the city has been stable, but a significant drop was recorded for international visitors because of weakness in the Latin American economies. Tampa and Miami hoteliers are concerned that the downturn in overseas tourists may continue through year-end. Hoteliers in central Florida, however, are encouraged by strong bookings. Theme parks there are expected to be packed over the Christmas holidays. International travel through Atlanta continues to grow at a double-digit pace.
Financial
Bankers throughout the Sixth District report that overall loan demand has been mixed among loan types. Consumer and automobile loan volume remain healthy, and mortgage demand continues to be strong as consumers consolidate and refinance debt. There have been some reports of slowing in commercial lending, as speculative commercial real estate financing has become more selective. Consumer loan quality has held steady.
Wages and Prices
Contacts continue to report problems with tight labor markets. Some Florida firms are having trouble finding mid-level managers to fill positions that were downsized a few years ago. Although continued low unemployment rates are driving up wages in parts of the region, most firms are absorbing costs in order to remain competitive in the marketplace. Business expansions and relocations are down in parts of the District because of problems with labor availability. Prices remain stable, with a few exceptions. Paper and steel prices remain weak. Competition is expected to hold back most price increases into the foreseeable future.
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Richmond