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Reports from Sixth District business contacts indicated that the pace of economic activity slowed somewhat in June and early July. Retailers reported a slight increase in traffic and sales, but their outlook was less optimistic than the last report. Tourism reports were generally positive, however, significant concerns were expressed over the potential impact from the oil spill on the Gulf coast. Residential real estate contacts suggested that the pace of new and existing home sales slowed, and their outlook was pessimistic. Commercial real estate remained weak. Manufacturers saw a slight deceleration in activity as the pace of new orders and production growth slowed. Banking credit conditions remained tight and loan demand was subdued. Businesses continued to increase the hours worked of existing staff and to expand their use of temporary hires. Permanent hires were less apparent. Transportation and material costs rose slightly, but most firms expressed no intention of passing these increases along to consumers.
Consumer Spending and Tourism
Most District merchants noticed a slight increase in traffic and sales in June and early July. Retailers also mentioned that despite the uptick in sales, they continued to keep inventory levels low. Although most merchants have reported improved conditions since the beginning of the year, sales levels remained well below pre-recession levels. The outlook among retailers was more subdued than in previous months. Automotive dealers reported that sales improved from a year ago.
Overall, tourism continued to show signs of improvement compared with last year. Reports from Miami and New Orleans indicated that business-related travel and convention bookings remained positive. Leisure travel was positive in most District destinations except for the Gulf coast where significant concerns were reported over the oil spill and its impact on tourism. Hospitality contacts in the area remarked that some cancelled bookings have been substituted by the presence of clean-up crews, oil company workers, and the National Guard. Contacts not located along the Gulf coast have stated that there have been increased bookings as a result of deflected business from oil-affected areas.
Real Estate and Construction
District residential real estate brokers and homebuilders reported that home sales weakened notably in June and early July on a year-over-year basis. Contacts also indicated that sales fell on a month-over-month basis. However, several brokers remarked that June sales were boosted by closings associated with the housing stimulus. Buyer traffic continued to soften across the region. Realtors noted that existing home inventories rose outside of Florida on a year-over-year basis, while Florida inventories declined modestly. Similar inventory trends were seen on a month-over-month basis. New home inventories remained below the year-earlier level, and construction activity softened from already weak levels. Both Realtors and builders shared concerns about the housing market going forward; the outlook weakened and sales growth over the next several months is anticipated to be slightly negative.
Nonresidential construction activity continued to be weak. The majority of contacts noted that the pace of commercial development was below the year-earlier level and backlogs remained at low levels. Vacancy rates were high across the District and contacts witnessed downward pressure on rents. The outlook for the rest of the year remained negative.
Manufacturing and Transportation
Almost half of District manufacturers contacted stated that new orders and production grew at a slower pace in June than in the previous report. The number of firms experiencing higher levels of orders decreased notably compared with the previous report, while the number of contacts planning to expand production in the near future dropped as well. Freight activity remained above weak year-earlier levels, led by increased shipments of motor vehicles, metals, and chemicals.
Banking and Finance
Industry reports indicated that banking conditions weakened across much of the District. Several bankers reported that credit remained available to qualified customers. Consumers seemed reluctant to take on additional debt, however. Contacts also cited declining credit card use as consumers continued to deleverage. Business loan demand was also muted.
Employment and Prices
Private payroll employment increased slightly through early July across the District, although many businesses maintained a strong preference for increasing existing staff hours and using temporary staff rather than hiring full-time, permanent employees. In addition, the outlook regarding labor market conditions along the Gulf coast remained tempered by the impact from the oil spill.
Despite reports of raw materials and transportation cost increases, most firms conveyed no plans to pass the increases on to consumers. Several contacts remarked that excess production capacity and competition continued to put downward pressure on prices in a variety of sectors.
Natural Resources and Agriculture
Local energy prices and oil production have remained mostly stable since the onset of the oil spill in late April. Gulf of Mexico crude inventories continued to hover near the top of their average range for this time of year. Nonetheless, a number of businesses expressed concern about the potential impact on long-term energy production and employment from the deepwater drilling moratorium. Industry reports noted recertification of deep and shallow water rigs/wells was underway. Meanwhile, contacts indicated that Gulf ports were operating normally and commerce along the Mississippi River remained uninterrupted.
Dry conditions and high daytime temperatures have resulted in some crop stress in parts of the District, but conditions overall continued to be good for cotton and citrus crops. Cotton plantings have increased on a year-over-year basis.
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Richmond