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Summary
Reports from contacts throughout the Southeast indicate that the District economy is operating at a very high level and continues its moderate pace of expansion. Retailers report sales increases compared with last year, and the tourism and hospitality sector continues to post healthy numbers. The pace of District single-family construction in August was flat compared with July, and new home sales have weakened, but nonresidential construction is slightly ahead of a year ago. Manufacturing activity has been mixed recently, while financial activity continues to expand throughout the District. Labor markets remain tight, and despite increases in some sectors prices are mostly stable.
Consumer Spending
Most District retailers reported that sales during July were up slightly to significantly compared with last year. However, sales weakened in August on a year-over-year basis. Many retailers attributed the falloff in sales to an early school start, which shifted purchases into July. The lone exception was Florida, where retailers received a nine-day sales tax moratorium, which boosted sales in August. Recently, the strongest sellers have been women's apparel, children's apparel and shoes. Most merchants expect third and fourth-quarter sales to be modestly higher than last year's.
Construction
The pace of District single-family construction in August was similar to July, but new home sales weakened notably. Close to two-thirds of the builders contacted said that new home sales were flat to down slightly in August compared with last year. Most contacts report that home inventories are consistent with sales, except in a few markets where inventories are deemed too low. According to builders' reports, third-quarter construction levels will be generally flat, while Realtors expect home sales to be flat to slightly up compared with last year. A slight majority of builders expect new home construction in 1999 to exceed 1998 levels.
The pace of District nonresidential construction is slightly ahead of a year ago but varied significantly across the different states in the District. Contacts in Florida, Georgia, and Tennessee report construction is moderately above last year's levels, while in Alabama, Louisiana, and Mississippi construction is seen at below year-ago levels. Office, industrial, and retail markets in the region generally remain balanced. The pace of District multifamily construction remains similar to our last report, up modestly from a year ago.
Manufacturing
Factory developments are varied among sectors. A machinery producer notes increasing new orders and is adding to payrolls and lengthening the workweek. Production is rising for a manufacturer of industrial chemicals. A firm that makes batteries, flashlights, and other emergency items expects hoarding as year-end approaches and has plans to step up production. Shipbuilding in Louisiana is expected to get a boost from the merger of Avondale Industries with Litton Industries. Less positively, two major aerospace companies in Palm Beach, Florida, have announced layoffs amounting to 3,300 jobs by this time next year. Announcements of apparel plant closings continue to plague the District. The latest shutdown of a Georgia apparel plant will affect over 300 workers, but the workers are not expected to remain unemployed for long. The area's labor markets are tight; a job fair for plant employees attracted over 30 area employers.
Tourism and Business Travel
The tourism and hospitality sector continues to post healthy growth. International passenger traffic to Orlando International Airport has increased by double-digit percentages from last year. Visitors from the United Kingdom accounted for the major growth in international traffic. Gambling tax revenues in Mississippi are up 12 percent for fiscal 1998-1999 over the previous fiscal year, and revenues are expected to rise as recently announced casinos come on line.
Financial
Overall loan demand continues to expand at a moderate rate throughout the District. Consumer and automobile lending remain very strong, while commercial lending has been slowing somewhat. Mortgage and refinancing loan demand have continued to slow, mirroring the pullback in housing activity noted previously. Banking contacts around the District report that credit quality is good and bankruptcies have continued to abate.
Wages and Prices
Continuing tight labor markets exist in the District, but reports of accelerating wage pressures are scattered. Contacts in Atlanta and Nashville say that qualified clerical and sales customer-service staff are becoming increasingly more difficult to find and retain. Help wanted advertising in Nashville papers is up by 50 percent from a year ago, and for the first time in 15 years, staffing companies are running adds soliciting employees for clients. The Mississippi Gulf Coast business community is reportedly planning to hold job fairs outside the state as a means to deal with the labor shortage.
Prices remain generally stable, but more reports than in recent Beige Books indicate increases. Florida contacts indicate that some import prices are beginning to firm as Asian markets recover. Other contacts report that in some parts of the District health insurance and pharmaceutical prices are rising at double-digit rates. One contact notes that the cost of raw materials for chemical producers is rising because of increasing prices of petroleum based feedstock. Although the shortage of building material in parts of the District has been alleviated, earlier price increases appear to be holding.
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Richmond