June 13, 2007
Federal Reserve Districts
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Reports from District contacts indicated, on balance, that business activity continued to expand modestly in April and May. Most retail store contacts indicated that sales were similar or up slightly from a year ago, whereas auto sales weakened. Reports from Florida's tourism sector were mixed, while other areas noted improving conditions. Builders and Realtors noted that residential home sales and construction remained at low levels, and weakness was especially evident in Florida and Georgia. The pace of commercial construction activity, on the other hand, continued to exceed year ago levels. Manufacturing reports varied, but the long-term outlook improved with the announcement of new plants and expansions in steel and auto-making industries. Reports on hiring remained positive on net, and several industries continued to report difficulty finding skilled labor. Contacts observed that several raw material prices had stabilized, but businesses also reported that they were facing steep increases in energy, transportation, and health-care benefits costs. Severe drought conditions adversely effected crops and livestock in Alabama, Florida and Georgia.
Consumer Spending and Tourism
Reports from the tourism and hospitality sector varied. Although first-quarter visitor numbers declined slightly in Florida compared with a year ago, numbers for the Memorial Day weekend exceeded expectations in several parts of the state. Contacts also noted that Florida's luxury hotels continued to post high occupancy levels. Industry officials indicated that, while high gasoline prices have not had a negative impact on vacationer's plans, summer travelers may be more conservative in their spending because of the higher transportation costs. New Orleans' Louis Armstrong International Airport reported year-to-date airline passenger numbers up nearly 45 percent from a year ago, but tourism officials did not expect a full recovery in visitor numbers for several more years. Meanwhile, gaming revenues for April were at record levels for the Mississippi Gulf Coast.
Reports from District commercial contractors indicated that the pace of non-residential development during April and May exceeded year-ago levels. However, some softening was reported by Florida contacts. The outlook among most commercial contractors remained positive.
Manufacturing and Transportation
The District's longer-term manufacturing outlook brightened with several new announcements. For instance, Hyundai announced a $270 million engine plant expansion in Montgomery to build four-cylinder engines for the North American car market. Honda announced a $64.5 million expansion at its Lincoln, Alabama, facility. ThyssenKrupp AG said it will build a state-of-the-art steelmaking complex near Mobile, Alabama. The $3.7 billion plant is expected to have 2,700 employees by 2010.
Transportation contacts reported sluggish freight demand in April and May. Slower activity in housing and autos were cited as factors contributing to the lower performance. Some contacts also noted slower demand from commercial construction customers in Florida.
Banking and Finance
Employment and Prices
Although several raw materials prices have stabilized, businesses reported that they were facing large increases in energy, transportation, and healthcare benefits costs. Residential and commercial builders noted lower prices for materials and construction equipment. However, a producer of electrical equipment reported increasing prices for the firm's metal and plastic inputs. Most reports on wages cited modest increases, although stronger wage gains were noted in some industries such as shipbuilding and oil rig fabrication.
Agriculture and Natural Resources