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Summary
Reports from contacts around the District indicate that moderate growth continues and the outlook is positive. July sales results have been up moderately compared with a year ago, and this trend is expected to continue through year-end. The tourism and hospitality sector continues to post strong numbers. Residential construction slowed recently but remains at strong levels, while commercial construction is slightly ahead of last year at this time. Manufacturing has slowed recently, but contacts remain upbeat about future prospects. Overall loan demand continues to be healthy despite a slowdown in mortgage refinancing. Demand continues to be extremely strong for available workers, but wage pressures remain largely subdued. With only a few exceptions, District contacts report stable prices.
Consumer Spending
According to reports from District retailers, sales results during June were mixed, but improved in July. Most merchants said that sales were up slightly to significantly in July and met or exceeded their expectations, and inventories are balanced. Women's apparel and home-related products have been the strongest sellers in the region, while men's and children's apparel and cosmetics have had mixed results. A regional department store announced that, because of fierce competition, they would be closing their 12 stores in Georgia and their 37 stores in Florida. Looking ahead, most retailers expect third- and fourth-quarter sales will be up slightly from a year ago, and they have not adjusted planned fourth-quarter inventories to deal with potential Y2K problems.
Construction
District builders indicate that single-family home construction growth during the second quarter was flat to slightly up. During July, home construction slowed a bit on a year-over-year basis when compared with June. However, new home sales improved somewhat in July, with the strongest reports coming from Florida. A notable minority of builders and Realtors said that home inventories were low. Several builders complain that a shortage of lots and the continued shortage of key building materials are slowing construction and pushing home prices up. Looking forward, most builders expect construction to be flat during the third quarter, while the outlook among Realtors is more mixed.
Through midyear, the pace of District nonresidential construction is similar to that of a year ago. Construction is slightly ahead of last year in Florida, Georgia and Tennessee, and below year-ago levels in Alabama, Louisiana, and Mississippi. Office, industrial, and retail markets in the region generally remain balanced. The pace of District multifamily construction through the second quarter is ahead of last year; however, permits have declined in Alabama, Georgia, Mississippi and Tennessee.
Manufacturing
Factory output slowed for some manufacturers since the last report, but most contacts are positive about the long-term outlook. Cheap imports and weakness in denim, yarn, and apparel markets have forced the closure of a 100-year-old mill in Georgia and a 400-employee plant in Alabama. The strong housing market, however, is boosting demand for other textiles such as carpet and home furnishings. Other District producers are also said to be benefiting from housing demand. For example, new orders are rising for a plywood producer, production is up for a window manufacturer, and employment is increasing at an appliance producer. Wood pulp, paper, and packaging shipments are reportedly beginning to rebound. Less positively, a large Alabama steel producer has filed for bankruptcy because of competition from foreign imports. Funding problems for the F-22 fighter plane have put about 1,500 workers' jobs in jeopardy at a Georgia plant. Oil company mergers are resulting in further job cuts in Louisiana's petroleum industry.
Tourism and Business Travel
Most reports from the tourism and hospitality sector continue to indicate a favorable picture. Airport traffic, hotel occupancies and future bookings to southwest Florida are at record levels. South American travel to Miami is reportedly recovering, following a slump in the year's first quarter. Tourism in Palm Beach, however, is down a little from last year's record summer. Walt Disney World's "millennium celebration" is expected to attract more visitors to the central Florida theme park. Along the Mississippi Gulf Coast, gaming receipts are at high levels, and casinos continue to expand.
Financial
Loan demand continues to expand at a healthy pace throughout the Sixth District. Consumer and commercial loan demand remain robust. Despite a slowdown in refinancing, overall mortgage demand continues to be healthy, and automobile loan demand is strong. Even as competition for quality loans is becoming more prevalent, overall credit quality and loan standards remain unchanged.
Wages and Prices
Labor markets remain tight in the District, but most contacts report little evidence of accelerating wages. Temporary employment agencies report continued high demand for anyone who can work in information-technology jobs. Contacts in metropolitan areas and resorts cite a continuing shortage of service-industry workers, especially at restaurants and retailers. There are reports of some upward pressure in salaries and wages because of a shortage of health-care professionals in parts of the District.
Most contacts report that prices are stable and are not expected to change much over the next few months. Notable exceptions were increasing prescription drug costs and continued price increases for many building materials, including drywall, brick, framing lumber, and insulation. One Florida contact notes that most firms he deals with believe that they have cut all inefficiencies out of operations and that the time is approaching when they will have no choice but to hike prices.
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Richmond