March 15, 2006
Federal Reserve Districts
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Most reports from Sixth District business contacts continued to be upbeat in late January and February. Retailers posted strong results and auto sales improved. Reports from the tourism sector continued to be positive. Most industrial contacts reported an increase in activity, although weakness was cited for textiles and some auto producers. Real estate contacts noted further slowing in several housing markets, while new nonresidential development remained modest. Labor markets were described as firm in most areas, and shortages in several sectors were noted. Energy-related costs remained elevated, and construction industry contacts noted concern about rising labor and material costs. Non-energy consumer price increases remained moderate.
Consumer Spending Merchants reported strong sales since the last report. Many contacts suggested that sales during late January and February benefited from the redemption of holiday gift cards. Rebuilding and replacement of lost and damaged items continued to boost sales near hurricane-damaged areas. Several retailers in hard-hit zones have reopened, and smaller specialty shops in New Orleans reported better-than-expected sales. Going forward, District retailers anticipate modest sales growth over the next several months.
Auto sales improved slightly in late January and February. Strong demand for imports and U.S.-assembled foreign models continued to offset disappointing sales of domestic-branded vehicles. However, contacts noted that domestic vehicle sales received a boost from commercial fleet sales. Import dealers reported healthy activity in February, although demand for trucks and some SUV segments remained sluggish.
Real Estate Residential real estate activity continued to slow in late January and February, but still remained at high levels. Reports from Realtors noted a deceleration in both new and existing home sales, while most homebuilders reported that new home construction was similar to year-ago levels. Condominium development showed signs of weakening as several developers put projects on hold because of soft pre-sales or escalating construction costs. Commercial development remained at modest levels, but most contacts reported improving conditions and steady absorption rates. Redevelopment in Hurricane Katrina-affected areas continued to be dominated by cleanup and debris removal.
Manufacturing and Transportation Manufacturing activity picked up in late January and February for most sectors, although weakness remained for textiles and domestic-branded auto producers. Defense, building products, and transportation equipment producers reported stronger activity. Some aerospace and shipbuilding firms received new contracts, and several forest product producers and saw mills were said to be operating at capacity. A manufacturer of steel door and window frame units for commercial buildings reported backlogs of municipal/governmental type projects. A tractor-trailer manufacturer has increased the pace of hiring at a new plant to meet increased demand. On the downside, two large textile mills announced layoffs. Both companies indicated the decision to cut payrolls was a result of rising import competition and slow sales. Auto-related suppliers of U.S.-branded vehicle assembly plants noted slower demand.
According to most manufacturing contacts, near-term capital investment plans were modest. Several noted that they had recently completed expansions or capital improvements. The owner of a rock and gravel company, however, reported preparations for a large capital expansion, and a steel manufacturer reported capital spending plans related to efforts to improve productivity.
Freight demand remained strong in late January and February. Contacts noted improved business conditions and tight capacity in rail and truck transportation. Despite last year's storm-related disruptions and higher diesel costs, one major regional rail company reported improved revenues.
Tourism and Business Travel
Banking and Finance
Employment and Prices
Most businesses continued to report that competitive pressures were limiting their ability to pass through input cost increases to customers. In Florida, contacts noted that commercial construction costs were going up so much some projects were put on hold. Louisiana and Mississippi officials are concerned about funding major rebuilding projects in light of rising labor and material costs. Concrete, glass, and sheetrock price increases were reportedly driving up building costs. Energy-related costs remained elevated and prices for products made with petroleum derivatives were expected to remain high. Contacts feel that uncertainty and volatility in energy markets mean that energy-related surcharges are likely to stay in place into the indefinite future.
Natural Resources and Agriculture
Shut-in oil and gas statistics improved marginally. For crude oil, 25 percent of federal offshore Gulf of Mexico production remains shut-in, while 15 percent of natural gas is shut-in. Lower demand, because of moderate winter temperatures, has offset production losses, keeping natural gas stocks significantly above their 5-year average.