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The District economy continued to expand at a moderate rate during November, largely matching the slower pace noted in the last report. The outlook is for a continuation of slower growth through the remainder of the year. Retailers' reports were generally subdued, with warm weather stalling apparel sales in many parts of the region, while larger automobiles and sport-utility vehicles were selling more slowly than a year ago. Growth in Thanksgiving retail sales appeared to be strong, particularly at discount stores. New residential and nonresidential construction and sales continued to soften in the District. Factory activity also slowed, but some new projects were announced in the transportation equipment sector. Reports from the tourism and hospitality industry were more positive than in our last report. Loan activity remained strong but was expected to slow in the near term. Labor market pressures eased slightly, while reports of price increases remained limited.
Consumer Spending
Unusually warm weather through the middle of November dampened apparel sales in many parts of the District, and larger automobiles and sport-utility vehicles were also selling more slowly than a year ago. Some retailers reported that sales results during early November had fallen below expectations, and there were more instances of higher than desired inventory levels than in the last report. Stores reported mostly brisk sales during the Thanksgiving weekend, with the strongest reports coming from discount retailers. The use of discounting and other sales promotions appeared to be more widespread than last year. Many District retailers said that they expect fourth-quarter sales results to moderately exceed last year's levels.
Construction
Single-family home construction and sales remained sluggish. New home sales declined notably during October and early November compared with a year ago. Homebuilders continued to report slow customer traffic and greater use of price concessions. However, inventories were mostly described as balanced. Most realtors and builders contacted anticipate further slowing in the housing sector through the first quarter of next year.
Nonresidential construction also slowed, continuing a trend from the third quarter. Office vacancy rates rose moderately in several key markets, although net absorption continued to be strong in most areas. Industrial vacancy rates fell in some markets. Multifamily construction continued to slow, with several locations experiencing higher vacancy rates. Reports continued to indicate little near-term risk of oversaturation in the commercial real estate market. Overall District construction employment payrolls in October were estimated to be around 1.5 percent higher than a year ago, which was the slowest annual growth since 1992.
Manufacturing
Activity slowed in many manufacturing industries, but contacts reported new orders or planned expansions in some areas. Nissan recently chose a Mississippi location for a new plant to produce sport-utility vehicles and minivans. The facility will reportedly cost nearly $1 billion and eventually employ around 4,000 workers. Also, some District shipyards gained new contracts for ships, and work at drilling rig fabricators continued to expand. In response to slower demand, cutbacks by producers of heavy-duty truck and trailers continued, and the slowing housing market is reported to have resulted in closings and layoffs at several producers of housing materials. Production has also continued to slow at many of the District's paper mills.
Tourism and Business Travel
Most contacts were cautiously optimistic about the winter tourist season in Florida and along the Mississippi Gulf Coast. Major Miami convention and tourist hotels reported strong forward bookings. Rising passenger traffic through Miami International Airport over the next six months is anticipated. With recreational travel to the Middle East having been largely curtailed, many travelers are expected to opt for travel to Florida and the Mississippi Gulf instead. There was an unexpected surge in demand for hotel rooms in Tallahassee during late November.
Financial
Bankers indicated that strong consumer and commercial loan demand continued to fuel overall growth in bank lending in the District, although demand for automobile loans slowed slightly and mortgage demand was mixed. Reports suggested that the number of nonperforming loans and charge-offs has increased but remains at relatively low levels. Banking contacts expected overall loan growth to slow in the near term.
Wages and Prices
Overall labor market conditions loosened slightly in the District. Many firms observed that unskilled and semi-skilled workers were easier to find than earlier in the year. However, skilled and professional staff remained scarce. Local technology companies reported making increased use of foreign temporary workers to meet demand. Reports also suggested that hospitals are having great difficulty attracting and retaining key personnel.
Reports of price increases were more frequent than in our last report, but limited to certain sectors. Some contacts mentioned increasing prices for industrial commodities such as copper and aluminum. Higher fuel prices have caused problems for local truck manufacturers and transportation firms. Health care costs continued to increase throughout the District, while lumber and paper prices were down notably. A few reports noted accelerating wage growth.
Agriculture
Cotton production forecasts for 2000 have been revised lower for Georgia and increased for Mississippi, Louisiana, and Tennessee. In Florida, the damage from the citrus canker remained limited, and the initial forecast for this season's orange crop is 3 percent higher than last season.
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Richmond