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Reports from across the District suggest that the pace of economic growth in the Southeast has continued to ease. Descriptions of retail and auto sales growth were varied, but generally on the weaker side. The single-family housing market remained flat to down slightly compared with a year ago, which is in contrast to the continued strength of the commercial market. Contacts noted some planned expansion in manufacturing activity, and accounts by representatives of the tourism and hospitality sector were positive. Bankers reported strong consumer and commercial loan demand with no major signs of deterioration in loan quality. The demand for skilled labor continued to outstrip supply, while some easing in the pressure for lower-skilled workers was indicated. Direct and secondary effects of higher energy and health care costs remained the most cited pressure on prices. The agricultural sector continued to reel from the ongoing drought in many parts of the District.
Consumer Spending
Sales growth reportedly varied considerably among District retailers during the early part of the third quarter. Overall, same-store sales growth was moderate, but most stores said that late summer sales results had fallen below expectations. Merchants in several areas reported that an earlier than usual start to the school year may have damped sales. Inventories were mostly described as balanced, although some instances of deeper than normal discounting were reported. Generally, District retailers remain confident that third-quarter sales growth will come close to year-ago results.
Construction
The single-family housing market continued to perform below last year's high levels in most areas of the District. Over half of the builders contacted said that home construction was equal to or slightly below last year's level during July and August and that sales of new homes weakened during August. However, new home inventories were mostly described as balanced. Reports from real estate agents suggest that existing home sales during July and August were mixed and that inventory levels varied by location and price. Realtors noted that there was little evidence of overbuilding. Looking forward, contacts expected few changes in the single-family market through the remainder of the year.
The commercial real estate market continued to perform at strong levels and growth remained balanced overall. Vacancy rates were generally low and absorption continued at a healthy pace across most of the region. Contacts noted that developers and lenders have become increasingly cautious about speculative construction.
Manufacturing
Three vehicle assembly firms recently announced plans to invest a total of over $2 billion and hire about 5,500 workers over the next few years at plants in Alabama and Tennessee. On a less positive note, in Alabama, a large steel mill is expected to shut down in a few weeks with the loss of about 1,800 jobs. Improvements in the energy sector have increased the demand for products of oil field service companies. However, a plastics manufacturer reported that increases in the cost of petroleum-based raw materials has caused him to cut back production and lay off staff. Reduced building activity, together with weak exports and increased production, has adversely impacted District lumber producers.
Tourism and Business Travel
Reports from the tourism and hospitality sector were generally upbeat. Hotel and resort contacts in south Florida say that the summer months generated better revenues and occupancies than in 1999 and that bookings for the fall are slightly ahead of last year's pace with little discounting. There is continued concern that increased energy prices may eventually discourage travel and tourism to south Florida during the peak winter months. Some reports from northern Florida suggested that earlier school start dates in parts of the District slowed end-of-summer business. Along the Mississippi Gulf Coast, casino revenue growth has slowed markedly from last year.
Financial
Contacts indicated that consumer loan demand continued to be strong, and commercial loan demand was brisk but less vigorous than in previous quarters. Venture capital financing remained active. Overall loan quality was said to be good with no major signs of deterioration. Declines in net interest margins and low deposit growth were noted as increasing concerns for some District banks. Residential mortgage demand was described as soft.
Wages and Prices
Labor markets remained tight, but there has been moderate easing in some sectors, such as the apparel and the paper and lumber sectors, because of weaker product markets. A construction industry spokesman said that more subcontractors than before were looking for work. Another contact noted that skilled labor such as nurses and IT professionals remained in short supply. Several reports suggested that businesses have reacted to continuing labor shortages by increasing the amount of overtime and by investing in productivity enhancing technology.
Energy and health care continued to be the primary sources of pressure on input costs, and increases in stainless steel prices, the price of plastic, and transportation charges were described as indirect results of rising energy prices. A large District company was reportedly expecting a 14 percent increase in health insurance premiums in 2001.
Agriculture
The drought continued to take a large toll in many parts of the District through the summer months, with the loss in production estimated to be over 50 percent for some crops. Low product prices, together with higher energy costs and increased use of irrigation, has further impacted farm profitability. Large parts of the District, including all of Georgia and parts of Florida, remained eligible for federal agricultural disaster assistance.
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Richmond