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Moderate growth continues in the Southeast. Merchants report that sales have generally met expectations, and the outlook is positive. The tourism and hospitality sector continues to post strong numbers. Residential building and sales have slackened from high levels, and the longer-term outlook has weakened. Commercial construction remains healthy. Bankers note strong loan demand, especially from consumers. Factory production has been mixed across industries, but announcements of new projects have boosted the outlook. Labor markets remain tight as employers search for scarce workers, but reports of accelerating wage pressures are mostly limited to high-tech workers. Prices remain stable with a few exceptions.
Consumer Spending
According to reports from District retailers, sales during May ranged from flat to up significantly on a year-over-year basis. Most contacts say that recent sales have met expectations. Most report balanced inventories, although a notable minority notes high inventories. Women's apparel sales have been strong over the last month, while men's and children's apparel sales have been mixed by store. Looking forward, retailers anticipate second quarter sales growth to be flat to slightly up, while third quarter sales are expected to be slightly stronger.
Tourism and Business Travel
Reports from the tourism and hospitality sector are mostly positive. One Florida contact notes that weather disasters such as hurricanes and wildfires are the only potential stumbling blocks to record receipts this summer. Airline and cruise bookings reportedly remain strong even as prices inch up. Cabin utilization rates on cruise ships are high, even though capacity is up by double-digits from last year for some cruise lines. Advance summer bookings for south Florida resorts are about the same as last year or slightly higher. The ongoing expansion of Florida theme parks is expected to attract more visitors to the state, although there are new concerns of overbuilding. Lenders to hotels and to the amusement and gaming industries in the Southeast say that occupancies and tourist traffic will remain at historically high levels, at least for the near term. Mississippi casinos report record revenues, and new projects have been announced.
Construction
Reports from District builders on single-family construction and new home sales in April and May show little consensus. Many builders continue to note material and lot shortages, which are slowing construction. Builders anticipate construction levels to be flat to slightly up compared with last year during the second and third quarters. Realtors also report that home sales have been mixed recently. Listing inventories and new home inventories are described as balanced in most parts of the District. Real estate agents' second quarter outlooks varied widely, while third quarter expectations are weaker.
The pace of commercial construction in the District remains similar to our last report. Office, industrial, and retail markets in the region generally remain balanced. Downtown office markets in the region continue to improve, while many suburban markets have experienced slight increases in their vacancy rates. Industrial vacancy rates have also risen in several key markets, but the increases remain subdued. Retail construction remains robust, although several large retailers are exiting some local markets or scaling back on the number of stores.
Manufacturing
Manufacturing activity is mixed across industries, but recent announcements brighten the long-term outlook. Contacts in Louisiana are disappointed that layoffs and cutbacks continue in the oil industry despite rising energy prices. A large military contractor has announced layoffs at a Georgia facility. Future operations at an Alabama steel mill are uncertain because of a continued influx of cheap imports, according to industry spokesmen. However, employment and new orders are increasing for Georgia producers of electrical and electronic equipment and machinery. In addition, two major announcements boost the long-term outlook for the District's factory sector. The recently announced plans by Honda Motor Company to build a $400 million 1,500-worker facility to produce minivans or SUV's in Alabama has economic developers crowing, as does the announcement that Dell Computer will build a new plant in mid-Tennessee, resulting in thousands of new high-technology jobs.
Financial
Despite a slight moderation of activity in some sectors, overall loan demand remains quite strong throughout the District. Consumer loan demand remains very robust, and commercial demand remains healthy overall despite some reports of slowing. Automobile loan demand is holding steady, and mortgage demand and refinancing activity have continued to slow. Although bankruptcy filings have fallen, consumer credit quality and loan standards remain unchanged.
Wages and Prices
Contacts report a continuing struggle to locate and retain skilled workers. Employers are reportedly using a wide variety of means to acquire workers while resisting greater-than-average wage increases. Bonuses and incentives are becoming increasingly important factors in compensation. Increased dependence on part-timers and consultants, as well as a greater willingness to allow employees to work at home, are holding down costs for some District firms. However, companies are spending more on training as the skill level of available workers falls. Employers of skilled workers are broadening employee searches to a regional and national level.
Most contacts report a stable price picture, with some exceptions. Health insurance premiums are increasing at double-digit rates in some parts of the District. Prices of building materials, especially sheetrock, are rising. Airfares are increasing.
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Richmond