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The Southeast economy continued to post moderate growth into late winter, and contacts are mostly upbeat about the near-term outlook. Although merchants' reports on sales have been mixed, most expect improvement over the next few months. Prospects for the tourism and hospitality sector are positive, with continuing expansions of attractions and properties. Residential construction and sales weakened a little but remain at high levels. Commercial real estate markets are healthy but with some modest deceleration in new construction. Factory production has been sluggish in sectors primarily affected by foreign imports, but other sectors are adding to payrolls. Bankers report continuing strong loan demand. Tight labor markets are adversely impacting high-tech employers, but reports note mostly stable wage changes for other employers. Prices are expected to hold steady over the next few months, with a few exceptions.
Consumer Spending
Recent sales reports from District retailers during January and February were mixed. Most managers said that recent sales had generally met their expectations. The strongest sellers have been women's and children's apparel, cosmetics and home-related products, while men's apparel sales have been weak. Most contacts said that inventories were balanced overall. The majority of retailers anticipate that first quarter sales will be flat to slightly up compared with last year and second quarter sales will be slightly better.
Tourism and Business Travel
Reports from the tourism and hospitality sector remain positive. Bookings at a large resort in Miami are above those of a year ago, and spokesmen are upbeat about recent expansion plans. Miami tourism officials characterize occupancies and room rates as "very good." The south Florida cruise industry reportedly had its best year ever in 1998, and 1999 bookings are strong. Occupancy rates in metro Atlanta hotels improved in 1998, ending three years of declines. Hotel operators are optimistic and expect occupancy to continue to grow at a moderate rate in 1999. Mississippi's casinos had a record year in 1998 with revenue up 10 percent from 1997; their outlook remains positive based on early 1999 figures. The Beau Rivage casino in Biloxi is slated to open in mid-March and will employ 4,200 people.
Construction
Most District builders report that the pace of single-family home construction in January was up slightly compared with a year ago, and new home sales were generally flat. During February, they report new home construction and sales weakened somewhat on a year-over-year basis. According to District Realtors, home sales were flat to slightly up in both January and February. Inventories are generally balanced, although several builders in Florida and Georgia indicated there was a shortage of lots. Looking forward, the majority of builders expect home construction will be flat during the first and second quarters compared with last year, and Realtors anticipate home sales during the same period will approximate those of last year.
Contacts report that the pace of commercial construction in the District declined somewhat during late winter, but overall, office, industrial and retail markets in the region remain healthy. Office and industrial vacancy rates have risen somewhat in several key markets but the increase remains subdued.
Manufacturing
Factory activity has been mixed. The number of operating drilling rigs in Louisiana has reached new lows, and contacts report that layoffs in support industries are beginning to mount. Auto parts producers report sluggish orders. A manufacturer of auto components with plants in Mississippi and Louisiana is closing, displacing 635 workers. Foreign competition has resulted in new announcements of more layoffs in Georgia and Tennessee's apparel industry. More positively, some high-tech sectors continue to expand. New orders and the factory workweek are increasing for District producers of electrical and electronic equipment. A large domestic order for set top boxes for cable television has helped to offset slumping overseas sales for a Georgia company. Plans have recently been announced for two new computer plants in Mississippi. The continued boom in high-speed telecommunications is resulting in plant expansions around the District.
Financial
Bankers report that overall loan demand and lending remain strong throughout the Southeast. Consumer loan volume has continued to expand. Commercial sector lending and demand for mortgage refinancing and purchases remain robust. There has been no systematic trend emerging from reports of increasing or decreasing credit quality standards across the District.
Wages and Prices
Although labor markets are tight throughout the District, wage pressures remain relatively stable, according to most contacts. Bonuses and incentive pay are cited as growing components of compensation. Despite this, per-unit labor costs basis are declining for some firms as a result of downsizing, reorganization, and outsourcing. Some companies are limiting wage increases of non-high-tech jobs in order to offset costs in the high demand occupations. A few job categories remain, such as those in information technology, where wages have been increasing. In some parts of the District, foreign immigration is helping to alleviate labor shortages. In Nashville, more companies are planning to cut payrolls this spring than in the recent past, indicating some easing of the labor shortage there. Prices are expected to hold steady over the next few months, according to most contacts. Health-care costs are expected to continue to rise. Prescription drug prices are escalating, and health maintenance organizations are increasing premiums.
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Richmond