April 25, 2007
Federal Reserve Districts
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Reports from District contacts indicated, on balance, that business activity continued to expand modestly in March and the first half of April. Retail sales increased while auto sales remained mixed. Reports on the tourism and hospitality industry were generally positive. Residential home sales and construction continued to decline in most areas, most notably in Florida. In contrast, commercial construction exceeded year-ago levels in much of the District. Factory activity was mixed, with sluggishness reported in industries linked to residential housing and strength noted for defense contractors. Labor markets remained relatively tight, with continuing shortages of skilled workers in parts of the District. Price increases for some commodities and building supplies slowed, but several contacts noted that fuel, labor, and insurance costs were accelerating. Drought and freezing temperatures damaged District crops in the early spring.Consumer Spending
According to District retailers, sales rose modestly in March compared with a year ago, while traffic was not as robust as earlier in the year. Some merchants noted that higher temperatures in early spring boosted sales of warm weather apparel and lawn and gardening products. Most contacts indicated that they were pleased with current inventory levels and anticipated that sales growth will remain modest over the next several months.
District car sales continued to be mixed, with strong sales reports coming from import brand dealers while domestic brands lagged. Two major import distributors reported strong demand for fuel-efficient and economy models, which offset weaker performance from trucks and SUVs.Tourism and Business Travel
Reports on the tourism and hospitality industry were generally positive. Contacts noted a stronger than expected spring break crowd this year in Florida and good summer pre-bookings. Foreign visitors continued to boost South Florida's tourist industry and several hotels have increased room rates. Casino revenues remained strong and were close to pre-Katrina levels on the Mississippi Gulf Coast. Most attractions and major hotels in New Orleans are reportedly open for business, and although visitor numbers remained below pre-Katrina levels, hotels reported 95 percent occupancy throughout the last weekend of Mardi Gras.Real Estate
Most District real estate contacts reported that new and existing home sales were below year-ago levels in March. Reports from homebuilders in Florida indicated that the sales decline moderated in March, whereas Georgia builders experienced weaker sales. New home construction remained low in most areas, and many District builders anticipated further modest decreases in construction levels.
Existing home sales in the District were slightly weaker on a year-over-year basis. The majority of Realtors contacted anticipated that home sales will remain below year-ago levels over the next several months.
Reports from District commercial real estate contacts indicated that the pace of development during the first quarter exceeded year-ago levels. Most noted that backlogs were equal to or greater than at the same time last year. While some weakness was noted by several Florida contacts, the outlook among commercial developers in other parts of the District was mostly positive.Manufacturing and Transportation
Manufacturing activity remained restrained, especially for industries linked to residential housing. In addition to reports of slowing demand among building materials manufacturers, the decline of new housing starts has slowed new orders for construction equipment. In addition, a producer of heavy duty trucks noted lower orders, and the apparel industry continued to suffer as a large District producer announced further layoffs. More positively, a manufacturer of carpet tiles, mainly for commercial applications, reported strong demand. District firms continued to win defense contracts, and plans to further expand the auto and steel industries in Alabama were announced.
District transportation contacts reported weak freight demand in March through mid-April. A major regional rail company noted lower automobile and housing-related shipments.Banking and Finance
Banking conditions in the District were generally stable. There was a slight increase in delinquencies and foreclosures, but contacts said that this was not a major problem for most District-based banks.Employment and Prices
Contacts indicated that labor markets remained relatively tight in March and early April. Layoffs at some building material and apparel manufacturers were noted, but labor shortages were also reported in many parts of the District. For instance, a regional software maker has had to look overseas to recruit highly-skilled labor. Vacancies continued for nurses and teachers throughout the District, as well. Some reports of shortages for lower-skilled workers were also noted, especially in the hospitality industry. In South Florida, a shortage of affordable housing was said to be limiting the supply of low-skilled workers.
Prices for some building supplies declined during March and early April, whereas gasoline prices spiked higher. Several small service firms cited increased pressure to raise prices because of factors such as higher labor, fuel, health insurance, and property insurance costs.Agriculture and Natural Resources
Drought-like conditions in Alabama, Florida, Georgia, and Mississippi have reportedly lowered the outlook for some crops. In addition, the early April cold snap seriously damaged several fruit and grain crops in Georgia, Alabama, and Mississippi.
Contacts reported that demand was very high for oil and gas service companies in the Gulf area, as deepwater exploration and new production remained high priorities for the major producers.