The Sixth District economy continued to post only tepid growth, according to recent contacts. Merchants' sales were slightly above or equal to year-ago results. Lower mortgage rates boosted single-family construction and home sales, but commercial markets continued to slow. The manufacturing sector continued to contract. Lending activity was subdued, particularly in the auto sector. Reports from the tourism and hospitality sector were generally positive. Labor markets eased in parts of the District, and most prices remained stable.
Most District retailers reported that January sales slightly exceeded year-ago levels. However, much of the sales were clearance items left over from a disappointing Christmas. Sales results during the early part of February were down from the previous month and about equal to year-ago levels; these results were largely in line with expectations. Discount department stores again reported the best sales results. Recent strong sellers included women and children's apparel and shoes; jewelry and men's apparel sales were weak. Generally, District retailers anticipate that first-quarter sales will be similar to a year ago. Total auto sales have reportedly weakened considerably, with sales in middle Tennessee, for example, reported as the worst in some time. High gas prices were cited as hurting sales of SUVs and other large vehicles.
By most accounts, January and early February single-family home construction and sales were similar to last year's levels and up from fourth-quarter results. This recent improvement in the housing market was credited to lower mortgage rates. The most positive reports came from Florida, whereas sales were mixed across Georgia. Builders continued to report that housing inventories were in check. Contacts reported that price concessions were present in several markets, including Atlanta and Nashville. The outlook among builders and Realtors is mixed across the region but more positive than in our last report. Atlanta, Nashville, and Orlando were characterized as renters' markets in the multifamily sector.
Commercial construction continued to slow in most of the District. Vacancy rates generally remained at low levels but have increased slightly recently in several office markets, including Atlanta, Jacksonville, and Nashville, as well as in the Nashville industrial market. Office markets in Miami remained strong. Developers and lenders are proceeding more cautiously with new projects in most areas and are requiring higher levels of pre-leasing. Overall, contacts continued to see little risk of a sizable, prolonged downturn in commercial real estate markets in the District.
Factory activity continued to contract. Contacts reported a further downturn in the District's paper industry because of low demand and high natural gas prices. One large paper producer closed plants in Tupelo and Mobile and is trying to sell a plant in Natchez. Some of the largest aerospace, manufacturing, and telecommunications firms in south Florida laid off workers, citing a need to reorganize and become more efficient. High-tech firms continued to pare back operations in Atlanta. Slowing light truck and auto sales led to temporary layoffs at component supplier plants in Alabama. More positively, expansion plans for current vehicle production facilities in Alabama and Tennessee and new plants in Mississippi and Alabama remain on track. District shipyards continued to receive large military and private contracts.
Tourism and Business Travel
The outlook is still bullish for south Florida's tourism industry; room rates and occupancies there are above year-ago levels. Hoteliers are optimistic about the results for the remainder of the peak tourist season, and forward reservations are at high levels. "Snowbirds" are reportedly arriving at Alabama and north Florida beaches in record numbers this year; however, one report indicated that bookings for spring break are down from last year at some hotels. Continued strong convention activity is expected to boost Atlanta's hotel market this year, reducing concerns about the large number of rooms added in recent years.
Loan activity remained sluggish throughout the Sixth District. Consumer and commercial loan demand was weaker than last year, with automobile loan demand especially subdued. Residential mortgage demand was described as moderately weaker, although refinancing activity continued to rebound. Financial institutions were said to have raised credit and monitoring standards for most types of loans, and asset quality remains healthy.
Wages and Prices
Labor markets appear to have loosened in some areas, but most contacts noted little change in hiring plans. Some employers reportedly cut back on temporary help and limited overtime. The recent upswing in layoffs has largely brought the job-hopping phenomenon of the last two years to an end. Information technology jobs are still going unfilled in parts of the District, but turnover has slowed down and the hype of stock options has died. The critical shortage of nurses continued, putting upward pressure on wages.
Competition and weaker demand held down prices for most sectors, with the usual exceptions. Health insurance premiums continued to rise at double-digit rates; these large medical benefit cost increases have become a problem for many employers, and more firms have restructured benefit programs or increased employee co-pays. High energy price increases continued to adversely affect regional industries except for the energy extraction sector. Fuel cost increases forced many small trucking companies into bankruptcy. High fertilizer and pesticide prices are expected to squeeze many District farmers. Several contacts noted that companies cut or held prices steady in order to secure market share in the face of slower demand.