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According to contacts, the Sixth District's economy continued to display sluggishness during September and early October. Retail sales were at around year-ago levels and auto sales have been disappointingly low. The strength in low- and mid-priced housing markets continued, but sales of higher priced homes remained weak in many areas, and the demand for office and industrial space continued to be lackluster. Industrial activity was generally subdued apart from the defense and automobile sectors. Contacts from the tourism and hospitality sector reported weaker-than-expected results for the summer. Labor market conditions were largely unchanged, while price pressures remained limited.
Consumer Spending
According to most retail contacts, sales during September were near year-ago levels. Contacts reported that competition remained intense, and discounting and promotional activities were at higher than normal levels for this time of year. Most noted that sales during September had met or fallen below their expectations. Inventories were reported to be in balance overall, although some contacts noted that apparel stocks had accumulated because of unseasonably warm weather during September and early October. Inventories were being closely monitored, and in some cases inventories were being reduced in advance of the holiday season. The majority of retail contacts anticipate that holiday and fourth-quarter sales will be flat to modestly higher when compared with last year.
By most accounts, September car sales results were lower than expected and had fallen below weak year-ago levels in some areas. Dealers reported both softer traffic and sales, particularly during the first part of September when financing incentives on 2003 models had been more limited. New car registrations in the District through August lagged the nation and were moderately below levels for the same period last year.
Real Estate and Construction
Robust District housing markets continued to benefit from low mortgage rates during September and early October. Realtors reported modest home sales growth in September, while several homebuilders noted that new home sales growth had pulled back moderately. Reports indicated that single-family home construction exceeded year-ago levels during September in most parts of the District. The strongest reports continued to come from Florida. However, the demand for higher priced homes remained weak in much of the District, and high vacancy rates and low demand for new space continued to plague commercial real estate markets. Commercial building activity was mostly limited to the public sector.
Manufacturing
Factory activity remained sluggish in September. Some firms reported modifying manufacturing processes to attain greater efficiency or were closely monitoring inventory levels in order to keep costs under control. Most business contacts indicated a continued reluctance to undertake major investments. However, federal government defense spending was stimulating the District's manufacturing sector. Several manufacturing firms have received military contracts this year. In addition, a major shipyard was awarded a large contract for navy ships and the District's aviation sector got a boost with new military orders. Less positively, port problems on the West Coast did cause some auto producers in the region to cut back on production because of a parts shortage.
Tourism and Business Travel
Most reports from the District's hospitality and tourism sector were more downbeat than previously. South Florida tourism was unexpectedly weak over the summer months because of a larger than anticipated decline in the number of out-of-state visitors. Some resort properties in south Florida decided to close until the winter season. Business travel remained at low levels and attendance at professional conferences and seminars was down. Back-to-back storms temporarily shut casinos along the Mississippi Gulf Coast and hurt the New Orleans tourist trade during September and early October.
Financial
Consumer lending continued to increase moderately but commercial loan demand remained weak. Most contacts reported stable or growing deposits. Mortgage lending was again the largest portion of loan volume. Loan quality problems remained at moderate levels, according to most contacts. Some business contacts noted that financing for inventory accumulation purposes was unusually tight.
Labor and Prices
Most reports continued to indicate that businesses were reluctant to add to payrolls during September and early October. Some firms were reportedly meeting current production schedules by using more overtime, and increasing the use of part-time and contract personnel. Other employers were holding down costs by reducing overall staff numbers.
As before, health care costs continue to escalate and this has cut into business profits, whereas higher co-pay levels has reportedly lowered non-healthcare household spending. Steel prices remain high for suppliers in the auto industry and others. Local lumber prices slumped in early October after rallying earlier in the year.
Agriculture
Florida citrus crops and sugar production benefited from adequate rainfall and warm temperatures during September. Recent tropical storms brought needed rainfall to dry areas in the Florida Panhandle, Alabama and Georgia. However, excessive rainfall hurt the soybean crop in parts of Louisiana and Mississippi and heavy winds damaged some sugar cane fields in south Louisiana.
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Richmond