Although slower than the same period last year, contacts suggest that the Southeast began 1999 with a healthy and balanced economic expansion. Retailers report that post-Christmas day sales and heavy discounting helped to offset a slower than normal holiday shopping season. District home sales and construction increased slightly, and financial activity expanded moderately. Despite some disappointment with the number of visitors during this holiday season, industry spokespeople are optimistic that the tourism sector will accelerate in the first quarter. Manufacturing production and new orders for the region's factory sector are soft compared with a year ago, but the outlook remains generally positive. Tight labor markets continue to be a major business concern, with some signs of increasing wage pressures. Prices generally remain stable.
District retailers reported that holiday sales were up slightly from strong year-earlier levels. Bargain hunters apparently came out in force to take advantage of after-Christmas sales. Most retailers noted that the unseasonably warm weather had clearly hurt winter apparel sales, with some merchants reporting heavy discounting days before Christmas. Although sales volumes have generally fallen below expectations, most merchants report post-holiday inventories are at desired levels. The sales outlook for 1999 is more of the same, with expectations for a flat or a slightly better performance than a year earlier.
Tourism and Business Travel
Miami hoteliers were disappointed with the number of visitors during this past holiday season. Visitors reportedly traveled to the Caribbean and took cruises in larger numbers than usual. Despite a decline in Canadian tourists, tourism numbers are expected to improve in the first quarter because of the Super Bowl and the cold weather in the Northeast and Midwest. Airlines and resorts are fully booked through February. Spokesmen for major players in south Florida's cruise industry are "bullish" for 1999 because of strong bookings. Likewise, hotel owners in south Florida are positive about 1999 and expect prices to rise slightly and occupancies to be stable. Hotel renovations continue and new hotels are being added. Growth in the gaming industry on the Gulf Coast is continuing to cause growth in tourism services such as hotels, restaurants, and retail establishments. Construction is in high gear for a new theme park in New Orleans that is expected to attract 1.4 million visitors annually.
District builders report that the pace of single-family home construction and sales in November and early December was flat-to-slightly up on a year-over-year basis. Realtors and builders continue to report balanced housing inventories. Realtors expect no change in home sales during the first quarter compared with last year's levels, and builders expect new home construction to continue to be flat in the first quarter. Commercial construction within the District remains at strong levels, and District multifamily permits continue to rebound slightly.
Overall factory activity remained sluggish in December. Inventories continue high in the paper industry as the sector continues to struggle in a depressed market. Exports of manufactured goods from Miami to Latin America continue to run below those of a year ago, because of problems attributed to Brazilian markets. Uncertainty in foreign markets is causing the postponement of capital investment for some firms contacted. Reports from the apparel sector continue to be downbeat. A Tennessee apparel manufacturer that has operated for 27 years is moving operations to the Dominican Republic. The factory workweek and
production is down for a producer of men's clothing.
Louisiana's energy sector is curtailing capital investment. Exploration and production budgets continue to be cut by both independent and major oil companies. More positively, many businesses report that they are advancing their investment spending plans to accelerate their Internet capabilities. District shipbuilders continue to receive large contracts and plan to add to employment rolls. Chemical and plastic plants are expanding.
Bankers throughout the Sixth District report that the financial sector expanded moderately as the year began. Overall mortgage demand and refinancing activity remain very strong. Consumer and automobile loan demand continues to grow. After some moderation last year, commercial lending has expanded at a healthy pace. While bankruptcy filings remain a concern, consumer credit quality has not deteriorated.
Wages and Prices
Tight labor markets continue to plague parts of the District. Labor shortages are reportedly a major problem for central Florida theme parks as they continue to expand. In high-tech sectors, employees continue to leave jobs for higher pay elsewhere even after being given substantial increases. Some employers note that they have greatly expanded their recruiting area in order to find skilled employees. Many contacts note that labor shortages were not a problem over the holidays, but they expect sporadic problems beginning in January, as part-time workers return to school. There were some reports of wage pressure as companies try to retain employees in a competitive environment.
Stable prices are expected to continue over the next few months, according to most contacts, with a few exceptions. Significant increases in health care costs are expected in the near term, especially for managed care providers. Softness in refined petroleum prices is expected to continue, and prices for timber are weakening.