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Summary
The Southeastern economy continues to expand moderately in mid-fall, according to most contacts. Retail sales exceeded last year=s levels, while home sales and construction varied across the District. Manufacturing activity has changed little and the outlook remains generally positive. The tourism and hospitality sectors continue to post strong numbers, and overall loan demand has increased slightly throughout the Southeast. Despite continuing reports of labor shortages, escalating wages remain isolated to only a few industries.
Consumer Spending
Most District retailers reported that sales in October exceeded year-ago levels slightly. Several retailers noted that overall sales improved with the advent of cooler temperatures during the last half of the month. Early November sales results have been spotty. However, many retailers report that recent sales have met their expectations, and inventories are generally appropriate. Apparel sales have strengthened since our last report, while home-related product sales have softened. Looking forward to holiday sales, most retailers continue to be optimistic. Many retailers expect that big-ticket items and better brands will do extremely well during this holiday season. Generally, retailers expect moderate levels of discounting. Most retailers report that it is extremely difficult to employ and retain good personnel for the holiday rush.
Construction
Reports from contacts indicate that recent home sales and construction have varied by area. However, on a year-over-year basis the single-family market weakened somewhat from October to early November. The majority of Realtors continue to report that home inventories and new home construction are balanced, but a growing number, especially in Tennessee, note rising inventories. Builders across the region continue to report that construction is flat to down compared with last year. Realtors expect home sales will be similar to last year during the fourth quarter, while builders expect construction activity will decline.
District commercial real estate markets remain healthy. Most suburban and central District office markets continue to report rising occupancy and rental rates. A good deal of speculative construction is underway. Retail construction continues to be dominated by grocery store chain expansions and the move by retailers into secondary marketplaces. Multifamily construction has begun to decline in many parts of the District in response to higher vacancy rates and the presence of leasing concessions in several key markets.
Manufacturing
Manufacturing activity was little changed for the current reporting period and the factory outlook remained positive. Several contacts noted that their companies are increasingly investing in ways to promote efficiency, such as using information technology to predict production needs and purchase inventory. Increasing activity in the Gulf of Mexico=s petroleum industry is boosting demand for regional firms producing energy extraction equipment. Less positively, the workweek is decreasing and factory payrolls are contracting for some producers of industrial machinery and textiles. One contact notes that Far East financial market disruptions are expected to adversely impact his electrical equipment sales and orders within the next few months. Some Southeastern manufacturers have been negatively impacted by problems in rail transport caused by the merger of the Union Pacific and Southern Pacific railroads.
Tourism and Business Travel
The tourism and hospitality sectors continue to post strong numbers and the outlook remains positive. Local tourism organizations expect theme parks in central Florida to have above-average attendance for the holidays. The recent announcement of a large expansion by Universal Studios should further stimulate central Florida=s tourism industry. South Florida hotels and resorts report high occupancies and strong advance bookings. Tourism from South America and Europe has been especially strong, with guests reportedly staying a day or two longer than last year. Contacts note that destination hotels in Miami will be packed through the winter season. Cruise demand is at high levels with stable pricing. A drop-off in convention business that led to low hotel occupancy in New Orleans has apparently reversed itself with improved bookings.
Financial
Most banking contacts throughout the Sixth District report that overall loan demand has increased slightly. Consumer loan demand remains flat, and automobile loan demand is mixed. Commercial lending remains strong, mortgage demand has increased. Loan quality varies across the District.
Wages and Prices
Although a continuing labor shortage is adversely affecting parts of the region, reports of escalating wage pressures remain isolated to a few industries. Some contacts, mostly retailers, are concerned about a shortage of holiday workers. A temporary agency reports that their recent orders for holiday help are surpassing last year=s. The boom in casino and industrial construction has reportedly compounded the Gulf Coast=s shipyard worker shortage by absorbing skilled workers; yards are resorting to bringing in skilled workers from overseas. One large chemical plant in the region was forced to curtail its expansion plans because of a dearth of skilled workers. Increasing wage pressures were noted by regional firms bidding for specific technical workers, such as computer programmers, systems analysts, or those with shipbuilding or energy extraction skills. The competitive environment and consumer bargain hunting continue to hold down attempts to raise materials and finished goods prices.
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Richmond