Sixth District business contacts reported that the pace of economic activity remained quite positive in late January and February. Most retailers reported steady sales growth and balanced inventories, and auto dealers noted that sales improved modestly in February. Homebuilders and Realtors indicated that construction and sales continued to post gains, but have decelerated in many parts of the District outside Florida. In Florida, conditions remained very strong. Nonresidential construction contacts continued to report modest improvement. Reports from the manufacturing sector were mostly positive, and demand for transportation services remained very strong. Tourism officials in Florida were upbeat, with contacts in the central and southern parts of the state noting an increase in foreign visitors. Labor market conditions were generally positive, but businesses continued to approach hiring cautiously. Price increases were noted for several industrial inputs and building materials, and contacts continued to note rising healthcare costs.
Retail sales continued to grow moderately throughout the District. Gift card redemption boosted sales in January according to many retailers, and inventories through February were reported to be generally on target. Merchants noted that sales of women's apparel and home-related goods were particularly strong. District car dealers reported disappointing sales in January, but strong promotional programs improved traffic and sales in February. Industry contacts in Tennessee and Florida reported that commercial and fleet sales were better than expected.
District home sales and construction continued to be strong in late January and February, but the pace slowed from a year ago outside Florida where activity continued to be very brisk. In Florida, builders and Realtors reported very strong activity in housing construction and sales, especially in vacation areas along the coast. Home price acceleration was noted in many Florida markets, especially in south Florida, where some contacts expressed concern over increases in speculative purchases. Nevertheless, buyers continued to line up for new projects. Reports indicated that nonresidential construction continued to improve very modestly in late January and February. Office vacancy rates were gradually declining from high levels in several markets, and lease rates gained some traction.
Manufacturing and Transportation
Reports from the factory sector were mostly positive in late January and February. Several contacts noted that the weaker dollar was helping stimulate exports. However, a firm that imports components for computers and televisions cited increasing costs because of higher import prices. Military spending reportedly remained strong throughout the District. Although industrial power usage increased recently for some pulp and paper manufacturers, industrial power usage declined for textile plants. A large home furnishings manufacturer recently announced the closure of two Georgia facilities, eliminating nearly 600 jobs because of increased competition from imports.
Demand for transportation services continued to be strong. Contacts noted some plants had shortened factory hours because of capacity limitations of regional railroads. Freight demand retained the strong pace seen in recent months, led particularly by healthy gains in international shipments. Trucking contacts reported strong demand and higher profits; firms indicated that they were able to raise prices and pass through higher fuel costs to customers.
Tourism and Business Travel
Reports from the tourism and hospitality sector through February remained positive. The weaker dollar has had a positive impact on the tourism industry in Florida, and the number of European and Canadian tourists reportedly increased over a year ago. Improvement in several Latin American economies has also led to an increase in the number of visitors from that region to south Florida, in particular, where high hotel occupancies, increasing room rates, and growing restaurant sales were reported. In other areas of the state, hotel operators were receiving more inquiries than last year and expect stronger bookings ahead. However, tourism in northwest Florida is rebounding more slowly from the hurricane impacts.
Financial activity remained strong in the District, though some slowing in consumer loan demand was noted. For instance, auto financing reportedly slowed in January in parts of the District. Some banks were said to be paring lending to homebuilders. Commercial loan demand remained at low levels. Overall asset quality at District banks remained strong. Georgia companies attracted venture capital in record amounts in the fourth quarter of 2004.
Employment and Prices
Contacts again reported price increases in healthcare and for some industrial commodities. Energy and building materials prices increased, but contacts also noted an increase in price volatility for several related goods, which was making it difficult to predict short-term business costs. For example, a commercial contractor reported that recent steel price quotes were good for only 10 days. Major Florida theme parks increased their ticket prices. Labor markets were mixed. Businesses are cautiously hiring in parts of the District. A large temporary employment agency reported that business in January was up 20 percent over the same time last year. Help wanted ads were up in parts of the District, which was unusual based on seasonality. Labor shortages were reportedly keeping builders from fully meeting housing demand in Florida.
The outlook for Florida's citrus industry continued to be driven by reduced orange and grapefruit crop estimates. The orange crop, the smallest in over a decade because of hurricane damage, is now further threatened by the spread of citrus canker disease into the state's third-largest citrus producing county. On a more positive note, contacts remain optimistic about global demand for cotton and poultry. Poultry growers in particular are benefiting from firmer prices, lower costs of feed and strong demand.