Contacts reported that economic activity in the Sixth District remained subdued during the spring. Merchants' sales reportedly matched year-ago levels, and inventories were largely in balance. Retail sales continued to be driven by discounting and promotional activity. Contacts noted that new factory incentives led to an uptick in regional vehicle sales during May. Low mortgage interest rates continued to support the housing sector, especially in low- and mid-price markets, whereas commercial real estate markets remained weak. Reports from the travel and hospitality industry noted a modest improvement during late April and May, while most manufacturing sector contacts reported that activity remained lackluster and hiring and capital spending plans were restrained. Labor markets continued to display little sign of improvement, and employers remained reluctant to hire full-time employees. Lower fuel prices benefited District transporters, but health-care cost increases continued to adversely affect many businesses in the region.
Retail contacts reported that May sales were near year-ago levels. Most indicated that spring results were in line with expectations and that inventories were balanced. Regional consumer confidence surveys noted an improvement in consumer sentiment since the end of the Iraq war. Promotional activity and discounts remained widespread in the retail sector, particularly in apparel. Retailers anticipate that sales in the second quarter will be near last year's level. Several District car dealers reported improving vehicle sales in May. Contacts noted that factory incentives appeared to be behind the better-than-expected results. Nonetheless, most dealers reported higher-than-normal vehicle inventory levels. Used car sales continued to be weak.
Low mortgage rates continued to drive District housing markets in late April and during May. Most homebuilders reported that new home sales and construction either equaled or exceeded year-ago levels. However, some contacts noted that heavy rains across much of the District had delayed several projects in May. Reports from District real estate agents indicated that home sales during late April and May were similar to year-ago levels, with low- and mid-price segments being the strongest performers. Several contacts in south Florida noted that home sales, although still at a high level, had slowed some from the robust pace of last year. Contacts from the District's commercial real estate markets reported relatively low levels of activity in late April and during May. Vacancy rates remained high in most parts of the region and sublease space continued to put downward pressure on rental rates.
Manufacturing activity remained sluggish in late spring, according to most reports. Several contacts noted that although their outlook was more optimistic, hiring and investment plans remained on hold. Some job losses were reported in the chemical industry because of higher natural gas prices, and producers of lumber and plywood reported high inventories. Pulp and paper and textile industry contacts noted low demand and a renewed focus on cost cutting. Defense-related production was characterized as "bright" by several contacts, and suppliers to the housing construction industry reported steady demand. In Alabama, plans for new facilities to supply parts to Hyundai, General Motors, and Saturn have been announced.
Tourism and Business Travel
Reports from the tourism sector were mostly positive in late April and during May. Some hotels and restaurants in south Florida reported an increase in the number of domestic travelers who had reconsidered plans to travel abroad. The increase in domestic traffic helped offset a reported decline in the number of overseas arrivals. Contacts also noted that discounting and late bookings continued to be the norm in the cruise industry. Central Florida theme parks announced summer discounts and new attractions in an attempt to increase the number of visitors. Revenues from Gulf Coast casinos were up from a year ago according to reports, and plans for a new casino in Biloxi, Mississippi, have been announced. Atlanta's hotel industry continued to struggle because of the low volume of business travel.
Banking and Finance
Responses from the financial sector were mixed in late April and May. Deposit growth at regional banks remained moderate and nonperforming loans were at relatively low levels, according to most reports. In many parts of the District, mortgage activity was very strong, whereas corporate and commercial lending remained weak. A few reports did note a mild increase in residential foreclosures during the first quarter. Small-business loan demand remained soft overall, but a modest pickup in demand was noted in a few areas. Contacts reported continuing inactivity in local venture capital markets.
Wages and Prices
Reports suggested that firms continued to leverage existing staff by increasing hours and, or adding temporary personnel rather than hiring permanent employees in late April and during May. Some contacts observed that there was also an increase in the amount of outsourcing. Fuel prices declined during May, but other pricing trends were little changed. District trucking companies were more optimistic because of lower diesel prices. Contacts remained concerned over continuing increases in health insurance costs. Many employers were reportedly shifting some of the costs to employees.
Heavy rains across the District in May were welcomed by most farmers, although some fieldwork was delayed in parts of Alabama, Mississippi, and Tennessee. A bumper regional winter wheat crop boosted bulk shipments out of the Port of Brunswick.