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The Southeast economy continues to grow moderately, but contacts' outlooks have become less upbeat since our last report. April retail sales were weaker than a month earlier, partly because of an early Easter that shifted many purchases into March. Recent reports on the tourism and hospitality sector have been very positive, but contacts in Florida have become more concerned about the international portion of the state's tourism sector over the next several months. Builders report single-family construction is still growing slowly, and non-residential construction declined somewhat in the first quarter. Bankers report continued strong loan demand, and firms indicate that funds are available. Factory production has increased slightly since our last report, but manufacturers' outlooks are less optimistic than before. Tight labor markets remain a problem for District firms, but significant wage increases are largely limited to skilled labor. Contacts generally anticipate few price changes over the next several months.
Consumer Spending
According to District retailers, March sales levels ranged from flat to up significantly, while April sales results were weaker. Several department store managers said that March sales benefited from an early Easter, which caused April sales to suffer. Discount department stores reported the strongest results. A majority of retailers said that sales were up slightly in the first quarter compared with last year. Similarly, a majority of contacts said that recent sales met their expectations and that inventories were balanced overall.
Tourism and Business Travel
The tourism and hospitality sector continues to post strong overall numbers, but the outlook is uncertain. Bookings for the cruise industry out of Miami have remained strong since Christmas, and prices are steady. Virtually all cruise lines have large ship construction projects under way. Tourism is robust in West Palm Beach and on Florida's southwest coast, with hotel and motel bookings above last year's pace. However, there is concern about the falloff in international visitors to Miami and to the rest of the state. One contact noted that the decline suggests that Latin Americans may be traveling more within Latin America than in the past. Florida officials hope that wildfires will not slow tourism nor cause as much property damage as last year's fires. Gaming continues to thrive in Mississippi; crowds have been large at the Beau Rivage, Biloxi's newest and largest hotel/casino that opened in mid-March.
Construction
The pace of single-family home construction remains similar to our last report. Most District builders said that construction in late February and March was flat to slightly up on a year-over-year basis. New home sales were also flat to slightly up compared with the previous year, according to builders. The strongest reports came from Florida builders. There is little evidence of overbuilding in District markets. Realtors indicate that home sales were mixed during March, and most said that sales were flat during the early part of April. Both builders and Realtors expect construction and home sales to continue at the current pace for the second quarter.
The pace of commercial construction in the District declined slightly during the first quarter compared with last year. Office, industrial, and retail markets in the region generally remain balanced. Office and industrial vacancy rates have risen somewhat in several key markets, but the increase has been subdued.
Manufacturing
Factory activity picked up moderately since the last Beige Book report, with more contacts reporting increased production, new orders, and a longer factory workweek. New contracts continue to prompt District telecommunications equipment producers to expand output, and a manufacturer of electronic and electrical equipment has recently increased production and employment. Continued national strength in housing and commercial real estate construction is boosting orders for District manufacturers of building materials. Contracts to build cruise ships could eventually be worth over $1 billion to District shipbuilders, according to one contact. Rising oil and gas prices have reportedly improved the outlook for Louisiana companies, whose revenues are positively linked to the oil and gas industry. Production, orders, and the factory workweek are all higher than a year ago at a large Alabama paper mill. Less positively, apparel and steel production and orders remain below levels posted a year ago, and contacts are not optimistic about near-term prospects because of import competition. Manufacturers in a variety of industries are also slightly less positive than before about the outlook for their businesses in the coming months.
Financial
Bankers report that overall loan demand remains robust throughout the District. Consumer and commercial loan demand continues to expand modestly, and automobile loan demand has been strong. Mortgage applications and refinancings have declined slightly since our last report. Intense competition between lenders continues to motivate them to expand into lower-tier consumer markets and may have led to some slight relaxation in terms and covenants in the commercial sector. Supplies of funds appear to be ample.
Wages and Prices
Tight labor markets continue to create problems for a wide range of firms in the District. Shortages of entry-level laborers to fill food service and housekeeping jobs have hurt casinos and restaurants, and some restaurants have been forced to suspend operations because of a lack of workers. A shortage of truck drivers is limiting the number of trucks that companies in Alabama and Tennessee can add to their fleets. Residential builders in Georgia and Florida note acute labor shortages. Wages are reportedly not increasing significantly for unskilled workers; however, more reports indicate rising wage pressures for skilled, higher-level personnel. Non-wage compensation is rising in many areas in the District. One contact reports double-digit salary increases to retain computer talent.
Prices are not expected to change much over the near term, with a few exceptions. Several companies are pressuring suppliers to keep prices stable and continue to squeeze margins to remain competitive. Building material prices, however, are increasing, partly because of strong residential construction markets and to a shortage of drywall. As before, reports indicate rising health insurance premiums.
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Richmond