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According to most District contacts, growth remained steady in the Southeast and the outlook remains positive. Retail sales continued to exceed last year's levels in June and inventories remain balanced. Single-family home sales and construction are also running above last year's figures, and commercial real estate markets remain healthy. The manufacturing sector has slowed somewhat from our last report. Recent fires in Florida dampened travel to the state, while along the District's Gulf Coast, tourism has increased. Bankers report moderate loan demand. Tight labor markets remain a problem for many regional employers, but wage increases are not widespread. Most contacts continue to report that prices are stable because of the competitive environment.
Consumer Spending
According to retail contacts, sales during June were up slightly compared with a year ago, while sales results in early July were mixed. As in our last report, most retailers said that recent sales had met their expectations, although a notable minority was disappointed with the latest results. Most merchants continue to report balanced inventories and expect third quarter sales will exceed the prior year's level slightly.
Construction
Once again, reports from real estate contacts indicate that home sales during June were above year-ago levels in most areas of the District. Most District builders reported that new home construction was up slightly during June and early July with no signs of overbuilding. Commercial real estate markets remain healthy throughout much of the region. Office development generally continues at a strong pace; however, several markets are showing some signs of slowing. The industrial market remains stable in most areas, and retail markets remain healthy in most areas. Multifamily construction continues at a strong pace despite rising vacancy rates in several key markets.
Manufacturing
The factory sector appears to have weakened a bit, with slowing current output and new orders, when compared with our most recent beige book report. Margins continued to be squeezed for regional apparel producers because of offshore competition; these companies are reportedly restricting inventories because of cheap imports flooding the market. The General Motors strike is adversely affecting parts suppliers in Alabama and Tennessee, as well as all but one of the District assembly plants. Several paper mills in Alabama have opted for downtime because of high inventories and decreasing sales. More positively, shipyards in New Orleans are thriving with large new contracts. Several chemical plants are also expanding in Louisiana. Shipments are increasing for producers of electronic and electrical equipment.
Tourism and Business Travel
Fires in Florida have resulted in a temporary setback for the state's important tourism and hospitality industry. Some hoteliers in Miami reportedly were discounting rooms and offering attractive travel packages to draw visitors. The smoke from the fires forced the closure of a major highway for four days and the cancellation of a major stock car race at Daytona Beach, resulting in an estimated economic loss of $300 million to the Daytona area. Theme parks remained packed in the immediate Orlando area and hotels there had few vacancies. One contact noted that some hotels and motels near the fires reported booming business, thanks to the many firefighters they were housing. In other parts of the District, riverboat gambling revenues are up from a year ago in Louisiana, and more hotel rooms are about to come online in New Orleans. Labor shortages are constraining the continued expansion of casinos along the Mississippi Gulf Coast.
Financial
Overall loan demand has continued its moderate pace of expansion throughout the District. Consumer, commercial, and automobile loan activity remain healthy, and mortgage demand and refinancing activity continue to be brisk.
Wages and Prices
Although contacts note some escalation in wage and benefit costs, competition continues to restrain passing on costs to consumers. Pressure in the technology field is especially intense because of worker shortages. Production at some Tennessee companies is reportedly growing more slowly than projected because they can not fill certain positions, and many hotel operators there have resorted to recruiting employees from other countries under special temporary visas. Benefits such as stock options, extended vacation plans, and bonuses are increasingly being used to recruit and retain employees. Productivity enhancements have about reached a peak for some firms contacted, and profits are expected to begin to suffer.
Goods prices remain stable with a few exceptions. In the oil service sector, daily rental rates for supply vessels have plummeted. Paper prices continue to suffer because of competition and lackluster sales.
Agriculture
A drought throughout the Southeast has caused a great deal of distress to crops despite recent scattered rains. Hay and corn for livestock feed have been in short supply throughout the region. To date, the drought has cost $405 million in lost gross farm receipts in Georgia, with cotton, hay, peanuts, corn, and tobacco being the hardest hit sectors. In Florida, the drought has thus far cost the state $175 million in farm revenue and about $300 million in commercial timber. Corn yield in Alabama is expected to be 50 to 70 percent of the normal level; the heat has also lowered dairy production by about 20 percent and has stunted chicken growth.
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Richmond