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The pace of current economic activity weakened again slightly, but the outlook among business contacts remains positive. Retail sales have been generally flat across the District since our last report and inventories remain high. The pace of new home construction has changed little, while new home sales have improved somewhat. The manufacturing sector is currently described as soft, and overall loan demand continues to be mixed. The tourism sector has been especially hard hit in Florida by declines in the Latin American economies. Tight labor markets continue to put upward pressure on wages and impact business growth, while prices have been generally stable.
Consumer Spending
Overall comments from District retailers indicate that retail sales during October and early November in the region have been flat. About half of the merchants contacted said that recent sales levels had fallen below their expectations and most said that inventories were currently high. Apparel sales have been mixed. Several retailers attributed slow apparel sales to unseasonably warm weather. As a result, half of the contacts said that discounting was greater than normal for this time of the year. However, most merchants continue to expect that fourth quarter and holiday sales will be up slightly compared with last year, and are currently optimistic about good post Thanksgiving Day weekend sales.
Construction
Most District builders contacted reported that the pace of single-family home construction in October and early November was similar to our last report, flat-to-slightly up on a year-over-year basis. However, new home sales improved from our last report. Realtors and builders continue to report balanced housing inventories; however, builders in areas of Georgia and Florida complain that there is a shortage of suitable lots. Looking forward, about half of the Realtors contacted expect home sales during the fourth quarter to exceed last year's levels, while most builders expect new home construction to be flat in the fourth quarter. Commercial construction within the District remains at strong levels. After moderating recently, District multifamily permits have rebounded somewhat.
Manufacturing
Production and new orders for the region's factory sector are soft compared with a year ago, but the outlook remains generally positive. Contacts report that the District's paper producers continue to cut back operations, pare inventories, and scale back capital expansion plans because of decreased Asian demand. New orders and the factory workweek continue to decline for apparel producers. There are more reports that regional steelmakers are operating far below capacity and are laying off workers because of foreign imports. Low oil prices are causing oil companies, engineering firms, and related fabrication shops to reduce payrolls. More positively, Louisiana's petrochemical industry continues to benefit from low energy prices and is planning robust capital spending over the next two years. New orders have increased for manufacturers of building products and a large producer of lumber and wood products. Companies producing transmission products for digital communications and computer data storage products have announced expansion plans. Some of the District's aerospace firms are adding to factory payrolls.
Tourism and Business Travel
The outlook is less upbeat for the tourism and hospitality sector. Negative fallout from turbulence in foreign markets is adversely affecting south Florida and Florida's Gulf coast because of the decline in Latin American tourists. South Florida's high- end resorts report strong seasonal bookings. However, decreased forward bookings and occupancy levels at some moderately priced south Florida hotels are prompting concern that middle income tourists may opt to stay home this year. Although strong bookings are reported by central Florida hoteliers, they fear that many Canadian tourists will stay away because of the weak Canadian dollar. Statewide revenues from riverboat casinos in Louisiana have been adversely affected by hurricanes and storms, but the gaming industry continues to expand in the region.
Financial
Bankers throughout the Sixth District report that overall loan demand has been mixed by type of loan lately. Consumer and automobile loan volume remains healthy, and mortgage demand continues to be strong as consumers continue to consolidate and refinance debt. There have been some reports of slowing on the commercial loan sector side as commercial real estate and speculative financing have become more selective. Consumer and commercial loan quality have held steady.
Wages and Prices
Finding and retaining workers continues to be difficult, and this is affecting business expansion and putting upward pressure on wages. Contacts say that their most common concerns are the cost and availability of labor. One contact notes that any capital investment he makes is to increase efficiency and decrease labor costs. Contacts, also, point out that employee retention sometimes requires increased perks and benefits in addition to salary increases. In one case, a dearth of qualified laborers is limiting the ability of a commercial contractor to bid on additional projects. Most industry contacts indicate a stable price picture. Contacts continue to report relatively low oil, paper, and steel pricing with little chance for an upturn in the near term. Foreign and domestic competition is expected to continue to hold back price increases for most material and finished products in the foreseeable future. The healthcare industry was the only sector reporting notable pricing increases for this beige book.
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Richmond