|
The District economy expanded modestly during December amid further signs of economic deceleration. As expected, holiday sales results did not achieve the high levels of growth experienced last year, and the outlook for the first quarter was soft. Single-family construction and home sales remained sluggish, and nonresidential construction declined in most parts of the District. Manufacturing weakened, and the near-term outlook was for further reductions in factory activity. Overall loan demand, credit availability, and loan quality were at relatively healthy levels but with reports of stricter lending standards and slowing demand in some areas. Reports from the tourism and hospitality sector were generally positive. Labor market conditions eased slightly.
Consumer Spending
Holiday sales growth was low compared with the rates experienced last year, and several retailers said that sales did not even meet their lackluster expectations. Results varied considerably from store to store, but discount department stores generally performed better than department store and mall retailers. Strongest sellers included apparel and toys, whereas jewelry and home-related product sales were sluggish. Many retailers expressed concern about the impact of widespread discounting on profits. At year-end most merchant contacts described inventories as being broadly in balance, but little growth was expected in the first quarter.
Construction
Single-family construction and home sales remained sluggish. Most of the builders contacted said that construction and new home sales fell during November and December on a year-over-year basis. Additionally, more builders reported declines in buyer traffic and greater use of price concessions than in earlier reports. According to real estate agents, fourth-quarter home sales fell below the year-ago level. Builders continued to report that housing inventories were in check, while reports from Realtors were more varied. Looking ahead, both builders and Realtors anticipated a decline in first-quarter activity compared with strong figures of a year ago.
Nonresidential construction declined in most parts of the District, with the notable exceptions of Alabama and Georgia. The multifamily sector experienced a slight rebound in permit issuance during the fourth quarter. Markets were expected to remain reasonably balanced going forward.
Manufacturing
Factory activity in the District has slowed, and the near-term outlook was for more slowing. Wood product firms reported more plant closings because of weak market conditions and industry consolidations. The steel industry continued to scale back because of sluggish demand for products linked to construction and autos, combined with strong import competition. Textile producers reported low capacity utilization and some additional mill closings. A large automobile firm announced it would temporarily idle a plant in Atlanta because of slower demand. Energy costs and stock market uncertainty was impacting capital spending plans for some manufacturing contacts. Some high-tech companies recently announced staff cutbacks. On the upside, Louisiana's energy extraction industry continued to add to employment rolls. The District's shipbuilding and military aircraft industries announced several new contracts.
Tourism and Business Travel
Reports from the tourism and hospitality sector were generally positive. Preliminary reports indicated better than expected holiday travel to south Florida. Hotel occupancies were up from a year ago in Palm Beach and southwest Florida, and expectations remained strong through Easter. However, some cruise ships out of Miami were sailing at less than full capacity, and pricing for the summer is reportedly weak. Central Florida theme parks reportedly had strong attendance over the holidays.
Financial
Overall loan demand and credit availability remained relatively healthy throughout the Sixth District, but there continued to be signs of slowing. Consumer loan demand, especially in the automobile loan segment, has fallen far below last year's levels. Commercial loan demand has softened, and lending institutions have become more selective in loan terms and covenants. Mortgage demand and refinancing activity remained subdued. Financial institutions continued to closely monitor the quality of their loan portfolios; however, there were few new reports of significant reductions in credit quality.
Wages and Prices
The labor market appeared to have eased slightly in certain areas, particularly in manufacturing and construction. Contacts indicated that cutbacks by some Internet firms could also provide relief for the shortage of information technology personnel. Labor shortages persisted in the medical sector. In some other sectors, positions remained unfilled because of a lack of qualified workers.
Competition and lower demand growth continued to hold potential price increases in check for many District businesses. Most contacts said that wage increases had not been passed on to customers in the form of higher prices. Lumber prices remained depressed throughout the region. Some reports noted increases in costs of copper, aluminum, and plastic inputs. Medical costs continued to increase, and insurance premiums have been rising at double-digit rates. Some price increases were reported because of higher fuel costs.
|
Richmond