Sixth District business contacts indicated that overall economic activity remained weak from mid-April through May. Several retailers and auto dealers reported that sales were disappointing, but tourism activity continued to be positive. Reports from homebuilders and Realtors indicated that home sales and prices remained below year-ago levels. However, most Florida homebuilders we contacted stated that new home sales were flat to slightly up on a year-over-year basis. District contractors indicated that commercial development remained soft and most industrial contacts reported that production and shipments were down from year-ago levels. Banking industry contacts reported loan demand for all types of loans was slightly lower. Labor markets displayed additional signs of weakness with contacts in several industries citing plans to limit hiring and, in some cases, reduce payrolls. Further price increases were noted in energy, metals, and agricultural goods. Business' ability to pass through higher input costs to customers varied.
Consumer Spending and Tourism
District merchants reported that the pace of sales decelerated from year-ago rates during late April and May, with overall activity described as below expectations and inventories higher than a year ago. Weakness in building materials and home-related durables persisted. The outlook among retail contacts was mixed, but most did not expect a significant increase in sales in the near-term. Most auto dealers reported disappointing sales during late April and May for both domestic and import brands. Inventories of trucks and SUVs were up significantly in early May, according to industry reports. Demand remained healthy for hybrid and small-engine vehicles, however. Tourism-related sales in the District remained strong with international visitors boosting activity in Florida, and the New Orleans convention and tourism sector continued to improve.
Reports from homebuilder and Realtor contacts indicated that new and existing home sales remained below year-ago levels in April and May in most areas. For the first time in over two years, Florida homebuilders reported that new home sales were flat to slightly up on a year-over-year basis. Sales of new homes outside Florida were described as below year-ago levels. Realtors in Florida and other Sixth District states conveyed that existing home sales remained below year-ago levels. Both homebuilders and Realtors continued to note declining
home prices throughout the District. New home inventories continued to moderate while inventories of existing homes increased.
Reports from District contractors indicated that the pace of commercial development was below that of a year-ago. The majority of contacts continued to report that commercial construction declined during late April and May compared with a year ago. Order backlogs continued to shrink while material costs continued to rise.
Manufacturing and Transportation
Most industrial contacts reported that production and volume of shipments were down from year-ago levels. In addition, many cited higher production costs and cuts in employment or hours. Slumping home sales and weak construction have led to layoffs in District companies producing items such as carpet, appliances, and building materials. Automobile production continued to decline as well. Steel, defense-related, and energy-related production increased further, according to contacts.
Trucking and rail contacts reported lackluster activity in late April and May. Freight demand remains soft, and escalating diesel prices have added pressure to several regional trucking firms. Regional rail activity was reportedly down through mid-May from year-ago levels, with a sharp drop in shipments of automotive and construction materials offsetting gains in coal and farm products. Inter-modal shipments were down slightly from year-ago levels.
Banking and Finance
District contacts reported loan demand for all types of loans was trending slightly lower. Demand for mortgages was particularly weak, while consumer and retail loan demand was described as soft. Commercial loan demand was reported as mixed and varied by location. Lenders are applying stricter underwriting standards for most types of loans. Deposit growth was generally described as restrained at District banks.
Employment and Prices
Labor markets weakened in late April and May with many construction firms and building materials suppliers noting plans to decrease their labor force. Contacts in several other industries plan to limit hiring in the immediate future and, in some cases, cut payrolls as well.
Fuel and petrochemical price increases were noted across the District. Increases in the prices of metals and agricultural goods were also observed. There were more reports of these price increases being passed on. However, notable exceptions were construction firms, building materials producers, and businesses that were restricted by existing fixed-price agreements with their customers.
Spring rains improved agricultural conditions across much of the District. However, some areas in Florida have had no significant rainfall since April. With dry pasture conditions, Florida ranchers are reporting hay shortages and are selling off livestock to relieve grazing pressures. Agricultural firms across the region noted higher costs of fuel, fertilizer, and feed. Market conditions for local poultry and cotton remained favorable because of strong global demand and a favorable international pricing environment.