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Reports from around the District suggested that the pace of economic activity remained subdued. While overall sales were up somewhat, on a same store basis, retail sales results were flat. Apart from Florida, single-family real estate markets were below last year's strong levels, and commercial markets experienced continued softening in most areas. In the banking sector, reports indicated that commercial loan demand remained at low levels, whereas mortgage loan activity was mixed, and auto loan volume had increased recently. The manufacturing sector continued to contract as firms worked to further reduce inventory levels. The tourism sector was generally upbeat despite some slowing in business travel. Employers reported that labor market supply conditions had improved, although demand for additional workers was slowing in many sectors. Cost increases were reported because of higher prices for insurance and fuel.
Consumer Spending
Retail sales results varied a great deal across the region and by store type. Overall, same store sales were flat during March, although early April sales were trending flat to up slightly relative to last year. The recent sales results met or slightly exceeded retailer's expectations, and inventories were generally in balance. Sales of shoes and children's apparel have been particularly strong recently in many areas, whereas reports on adult apparel and home-related products have been uneven. Retailers anticipated sales growth would pick up only slightly in the second quarter.
Construction
The District's market for new single-family housing was flat to down in March and early April in most parts of the District. However, home sales and construction increased from a year ago in most Florida markets, and relatively low inventories there were reflected in continued price escalation. The inventory of new high-end housing in Atlanta and Nashville was reported as rising. Some realtors noted a slight improvement in existing home sales during early April.
Overall, reports on commercial construction indicated that most markets remained healthy, although activity continued to soften and developers were reportedly becoming increasingly cautious about future activity. More sublease office space was re-entering the Atlanta market and the amount of available industrial space had also increased there. The office vacancy rate declined during the first quarter in downtown Jacksonville and in the Nashville metro area but demand for new space remains subdued. Construction activity in the multifamily market has slowed noticeably so far this year. Many industry experts expected continued sluggishness this year.
Manufacturing
The majority of reports from the factory sector continued to note reduced production and further inventory adjustments in March and early April. New product orders remained weak in general and particularly in the durable goods sector. Continued inventory problems in the technology and telecommunications sectors were noted, and pulp and linerboard businesses had further cut production levels in order to reduce inventories. A vehicle producer periodically halted production recently to cut inventories, and some automotive component manufacturers have postponed planned expansions. A regional steel producer is shutting down operations because of strong foreign competition and low output prices. On a more positive note, oil and gas exploration has continued to spur the shipbuilding industry to hire new workers and build new offshore supply vessels in Louisiana and Mississippi shipyards.
Tourism and Business Travel
Reports were mostly positive about the District's tourism and hospitality industry. However, some slowing in business travel activity was noted in Atlanta. Miami contacts indicated a possible record tourist season this year. The cold northern weather appeared to contribute to high occupancy levels at Florida resorts and motels. Although there is some worry that high fuel prices may slow summer tourism, recent bookings were very strong. Less positively, the Florida cruise industry has experienced somewhat of a slump for the first time in several years, due in part to excess capacity and moderating demand.
Financial
Recent loan activity varied considerably across the District. Overall consumer loan demand picked up slightly, and there was some strengthening of previously sluggish automobile loan market. Commercial loan demand continued to be lower than last year, and some banks have tightened loan approval standards and covenants for their business customers. Residential mortgage demand was mixed, while refinancing remained strong. Financial institutions increased provisions for loan losses, but have not experienced any serious declines in asset quality. There remained a dearth of new venture capital and IPO activity in the District.
Wages and Prices
Employers reported that labor market supply conditions had improved overall, although demand for additional workers was slowing in many sectors. There has been a continued reduction in hours worked recently and more layoff announcements. For some employers, this loosening has made filling vacancies easier.
Overall price inflation continued to be subdued in the District. The largest price increases were those associated with health insurance and fuel. Most agricultural crop prices remained depressed. Nonetheless, the just completed sugar cane harvest yielded a record crop and substantially higher prices than last year. Vegetable prices had also risen recently because of the low yields in Florida.
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Richmond