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Sixth District contacts reported that conditions in most sectors continued to improve during March, and contacts were generally optimistic about future prospects. First quarter retail sales rose modestly from a year earlier, but District auto sales were below national trends. Residential housing markets were robust, whereas commercial real estate markets continued to suffer from weak demand. Reports from the manufacturing sector indicated that factory activity in the District was improving. Reports on tourism were also encouraging, and industry contacts suggested a favorable short-term outlook for that sector. District employment has not risen significantly, but firms were reportedly hiring more temporary staff, and extending work hours in the manufacturing sector. Significant price increases were reported in health care, insurance and fuel.
Consumer Spending
Contacts reported that first-quarter retail sales were up modestly compared with last year. Easter results were described as flat to up slightly compared with a year ago. About one-half of the retailers contacted said that March sales were in line with expectations. Most merchants indicated that inventories were balanced, although a few noted higher than desirable inventory levels. The outlook for second-quarter retail sales is generally positive. Car sales in the District remained disappointing in March, although some improvement from February levels was noted. According to contacts, car sales in the District lagged behind the rest of the country, and some heavily advertised car and truck segments failed to reach their sales objectives for the first quarter. A modest improvement in sales during early April was noted in some reports.
Real Estate and Construction
Favorable buying conditions continued to boost single-family housing activity in the District during March, and the outlook by industry contacts remained upbeat. According to real estate brokers, March home sales were flat to slightly up compared with a year ago in Alabama, Florida, Louisiana and Tennessee; Georgia results were more mixed and Mississippi's were described as weak. The strongest market was for mid-priced homes, and some Florida Realtors reported a shortage of homes on the market. Led by the strength in Florida, District housing construction ranged from flat to up significantly in March compared with last year. In contrast, commercial real estate markets remained weak across the District in March and new construction was limited. Vacancy rates rose in the first quarter as office and industrial space continued to suffer from weak demand.
Manufacturing
Reports from the manufacturing sector were mixed, but some signs of improvement emerged during March. Firms producing health-care equipment noted increasing orders. Building supply firms reported stronger orders for residential construction products, although weak commercial real estate markets continued to plague suppliers. Most manufacturing contacts are maintaining lean workforces, preferring to expand work hours rather than hire additional workers as production increased. Most capital expenditure plans remained limited. However, some high-tech companies had rehired workers to finish projects that were put on hold last year. The auto industry continued its expansion in the Southeast with the announcement by Hyundai that it will locate its first U.S. auto plant near Montgomery, Alabama. The plant is expected to generate around 2,000 jobs and provide a significant economic boost to a region hurt by job losses in the textile and apparel industries.
Tourism and Business Travel
Most reports indicated continued improvement in the District's hospitality and tourism sector after last year's steep decline. Florida theme parks and resorts were busy in March and were adding to payrolls. Rental car prices increased and cruise lines were operating at near full capacity without the need for deep discounted pricing. Contacts noted some concern about the possible negative impact of rising fuel prices on the number of visitors driving to District tourist destinations this summer.
Financial
Consumer lending remained strong across the District in March. Contacts reported that the volume of problem loans increased but remained at manageable levels. Real estate loan growth was strong, and no significant deterioration in credit quality was reported. Little new activity was noted in the venture capital sector, and direct business lending remained lackluster.
Prices and Labor
Increased insurance and health-care costs were noted by businesses across the District. In addition, petroleum prices spiked higher in March, and construction industry contacts reported an increase in the prices of metal products. According to contacts, most companies in the District remained reluctant to add significantly to permanent payrolls in the short-term. However, some reports noted increasing use of temporary workers. Skilled health-care workers remained in short supply in most of the District.
Trade
According to contacts, trade disputes over steel and poultry affected port traffic in Georgia, Mississippi, and Louisiana. Steel shipments through the Port of New Orleans were down sharply in March. Russia's ban on U.S. poultry exports reduced outbound shipping at Gulfport and Pascagoula. The poultry export ban is a significant blow to the District's poultry industry, which had been expanding shipments to the Russian market over recent years.
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Richmond