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Most Sixth District business contacts reported that the pace of economic activity
remained solid during June and early July. Disruptions from recent tropical
storms along the Gulf Coast are expected to have only a limited impact on overall
economic activity. Retail sales were up modestly from last year, and vehicle
sales benefited from new price discounts. Housing markets remained at robust
levels, although some slowing in activity was noted in several Florida markets.
Improvements continued in commercial real estate markets. Reports from manufacturers
were generally upbeat and most reports on tourism and business travel were quite
positive. Loan demand remained strong, especially in the housing segment, although
some lenders noted concern about the pace of condominium development in South
Florida. Contacts reported that labor markets improved, and shortages continued
in construction-related trades in several parts of the District. Price increases
were reported for industrial commodities, building products, energy-related
goods, and healthcare.
Consumer Spending
Reports on retail sales during June and early July were generally positive.
Most contacts indicated that sales were up modestly from a year ago and were
in line with expectations. Inventories were described as balanced. Higher gasoline
prices did not appear to be having a significant impact on non-gasoline retail
sales overall, although some discount retailers noted reduced spending per customer.
Building supply and home improvement stores in Florida benefited from a two-week
tax holiday in early June on hurricane-related supplies. Most contacts said
they expect sales to rise slightly in the third quarter compared with last year.
District vehicle sales improved in June. Several contacts cited a new round
of price discounts by domestic suppliers as boosting traffic and sales. Demand
for foreign brands remained strong.
Real Estate
Home construction and sales in the District remained at high levels during June
and early July, although some deceleration was noted in a few Florida markets.
Realtors reported that sales in June rose slightly compared with last year,
while reports from builders were more mixed. Shortages of homes for sale continued
to be a problem in Florida, and some builders noted a shortage of available
land for development. Several Florida builders indicated that labor shortages
were an additional restraining factor. Overall, builders expect new home construction
to increase in Florida and remain steady throughout the rest of the District
in the second half of the year. Early reports on Hurricane Dennis suggest that
structural damage was not as widespread as last year, but repairs may add to
backlogs for many contractors.
Solid improvements continued to be noted in commercial real estate markets
across the District as expansion plans and new projects moved forward. Contacts
noted that office vacancy rates remain elevated on several markets but are generally
trending lower.
Manufacturing and Transportation
Reports from the factory sector were positive. Production of building products,
lumber and gypsum board, and cement remained at high levels because of strong
residential construction. Manufacturing activity in defense-related industries
continued to be strong. A large refinery in Mississippi announced plans for
an expansion to increase production by about 25 percent. Contacts in manufactured
housing, machine tool, heavy truck, and electrical equipment sectors also cited
healthy levels of activity. Paper and packaging production was mixed; "away
from home" paper products were selling well, while shipments of packaging
material were off from levels seen earlier in the year. Hurricane Dennis reportedly
resulted in the temporary shut-in of some oil and natural gas supplies in the
Gulf.
Most District transportation contacts reported good freight demand through
mid-year, although some noted a slower pace than earlier in the year. A shortage
of qualified drivers continues to be a concern for many trucking companies.
Tourism and Business Travel
Despite the early start to the tropical storm season, most reports on tourism
and business travel were positive. In addition, most contacts indicated that
high fuel prices were not having a significant impact on travel overall. Tourist
activity in South Florida was very strong, and the prospects for the remainder
of the summer season were positive. Miami hotels reported high demand with record
occupancy and increased room rates. Theme park contacts stated that they were
enjoying a strong summer, with attendance ahead of last year’s pace, and
Orlando area hotels noted high occupancy levels. Reports from Tennessee destinations
and the Mississippi Gulf Coast were also upbeat. Convention business in Atlanta,
New Orleans, and Orlando improved.
Banking and Finance
Financial conditions in the Sixth District remained stable. Loan demand remained
strong in most areas, but concerns about the possibility of excessive condominium
construction in parts of Florida were noted by several contacts. Asset quality
remained high.
Employment and Prices
Reports suggest that labor markets tightened in some sectors and temp hiring
increased in June and early July. For instance, a contact at a large temporary
staffing company said that their business was extremely strong and that the
company was starting to see shortages of both skilled and unskilled labor in
several sectors.
Prices for lumber and other building products as well as several industrial
commodities continued to drift higher, and most businesses have reportedly been
able to pass on some of these increases to their customers. Rising energy prices
and healthcare costs continued to be noted by most contacts.
Agriculture
Tropical storm Cindy and Hurricane Dennis caused only limited damage to regional
crops. Crop conditions for cotton and peanuts were favorable, according to recent
USDA reports. Florida contacts noted that citrus canker continued to be found
throughout the Indian River Citrus District.
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Richmond