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Federal Reserve Districts

Sixth District - Atlanta

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Southeastern economic activity expanded moderately in early spring, and contacts are mostly optimistic about future prospects. Merchants' sales have met or exceeded expectations, and retailers anticipate that second-quarter sales will better year-ago numbers. Residential sales and construction have slowed in most markets, but commercial construction has picked up. Although overall factory output has been soft recently, new contracts are aiding some producers. Loan demand remains strong throughout the District except for housing, and the outlook for the tourism sector remains positive. Labor costs are still under pressure because of continued labor scarcity throughout the District. Contacts report increasing prices for a number of commodities and services.

Consumer Spending
According to District retailers, a late Easter this year diminished March sales and shifted purchases into April. Most retailers opined that in early April sales were up slightly compared with a year ago, and recent sales have met or exceeded expectations. Inventories are balanced. Children's apparel, cosmetics and shoes are selling well, while men's apparel sales have been weak. Most merchants anticipate that second-quarter sales will exceed year-ago levels.

Reports from builders around the District indicate that single-family construction activity in March and early April varied considerably from market to market compared with a year ago. Overall, new home sales weakened slightly from March to early April on a year-over-year basis. Reports from Realtors also noted that home sales in March compared with last year varied, but home sales in early April were weaker than sales a year ago. Realtors and builders agree that activity is slowing in their markets. Looking ahead, the majority of contacts anticipate home sales and construction levels during the second and third quarter to fall below last year's levels.

Overall nonresidential construction picked up recently; however, activity has not been uniform across the District. Construction reportedly rebounded strongly in Georgia, Mississippi and Tennessee, while activity in Florida also improved from the first of the year but remained below year-ago levels. Construction growth continued to accelerate in Alabama, while commercial construction slowed somewhat in Louisiana.

Reports from the industrial sector were mixed. Some factory contacts note delays of capital purchases because of increases in interest rates. Other industry spokesmen report a slowdown in "speculative" technology investment. A tool manufacturer and a sewing plant in Tennessee, and an electronics producer in Georgia, are shifting jobs to Mexico in order to remain cost competitive. Higher energy prices are also affecting the factory sector. A company manufacturing truck tractors notes declining orders, forcing cuts in production and layoffs. Conversely, in another part of the District, companies manufacturing equipment used in drilling rigs are expanding and reporting new contracts. A District shipyard is undertaking its largest expansion ever on the strength of new contracts. The region's pulp and paper industry is experiencing improving activities, based partly on the strength of exports, according to one contact. A health care product producer reports slowing activity as customers work down inventories built as a hedge against possible Y2K problems.

Tourism and Business Travel
The tourism and hospitality sector continues to post strong numbers and the outlook is for more of the same. Travel to south Florida is robust with brisk airline, hotel and car rental business. Bookings at hotels and resorts continue to equal or better last year's record pace, and summer bookings have managers optimistic. Along the Mississippi Gulf Coast, recent revenues reported by casinos were the second highest since gaming began there. Officials are concerned that Opry Mills, a new entertainment and shopping center opening in Nashville, will have difficulty finding 3,500 employees needed to staff the center because of the area's low unemployment rate.

Bankers throughout the Southeast indicate that overall loan demand remains strong, and there is little evidence of a slowdown in planned business investment. Some financial institutions have stopped absorbing interest rate increases and are passing them on to corporate borrowers. This is beginning to hurt some commercial projects. There are reports that recent financial market volatility has resulted in delays of planned public offerings by some District companies. A few lenders have implemented slight increases in consumer loan rates, but current consumer and automobile loan demand remain unaffected. Residential lending and refinancing demand remain weak throughout the Sixth District, and overall credit quality is said to be healthy.

Wages and Prices
Tight labor markets continue to impact the District, although the more frequent reports of increasing wages remain scattered. Employers continue to rely on overtime to fill employment gaps. Local retail managers in some chains reportedly have been given authority to set wages to compete locally. Other firms are offering substantial signing bonuses to attract scarce labor. Contacts are concerned about finding staff for business expansions and are offering incentives, such as subsidized day care and flexible work hours, to retain current employees.

More contacts than before report increasing prices. Stainless steel, copper, plastics, and lumber prices are increasing. Newsprint and asphalt prices have also risen recently. Many companies polled, from furniture movers and garbage haulers to air-freight firms, say that they are adding fuel surcharges to prices because of higher fuel costs.

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Last update: May 3, 2000