March 18, 1992
Overview
According to Sixth District contacts, economic conditions have
improved somewhat since January. Retailers generally report modest
sales increases, especially for nondurables. Auto dealers reported
increased showroom traffic but relatively small gains in car sales.
Most manufacturers reported steady or higher new orders and
production. Bankers saw a firming in demand for business loans and
continued improvement in loan portfolio quality. Home sales
increased again, although some realtors noted that the recent rise
in mortgage rates has dampened activity. Single-family home building
gathered momentum, and if sales remain at higher levels, contractors
and suppliers expect further acceleration during the spring. Aside
from rising lumber prices, input and output prices have remained
steady under very competitive conditions.
Consumer Spending
Over half the retail contacts reported higher sales from weak year-ago levels; the remainder reporting flat consumer spending. Gains
were still concentrated in nondurable items such as apparel.
However, sales of some types of durables began to show signs of life
in February. Several contacts reported significantly improved
furniture sales, the first positive news for that product line in
several months. Auto dealers said that while showroom traffic
increased, sales gains were only modest. Most retail contacts remain
cautiously optimistic, expecting a pickup in sales during the second
half of the year. This caution is reflected in lean inventories and
conservative placement of new orders. Contacts in the region's
tourism and convention industries expect increased activity.
Convention bureaus in New Orleans, Orlando, and Atlanta report that
advance bookings continue to exceed year-ago levels.
Manufacturing
Most factory contacts reported steady or higher levels of new orders
and production from early in the year. Nearly three-quarters of the
contacts expect business activity to strengthen over the next six
months. Brisk sportswear demand has stimulated production for some
apparel producers. Producers of construction-related materials are
expanding employment in response to improved orders. An industrial
equipment producer noted recent improvement in business activity and
a coincident upturn in production.
However, carpet mill contacts characterize current demand as flat, although improvement originating from new home construction is expected. Several consumer durable producers remain concerned about conservative consumer spending. Generally, profit margins remain thin because of keen competition. Consumer electronics producers noted that continued declines in finished goods prices are encouraging increased levels of offshore production.
Financial Services
Loan demand in the region was mixed through February. Mortgage
refinancing continues at a record pace, but the flood of applicants
is abating. Other types of consumer lending remain sluggish. Bankers
report that business loan demand is flat or slightly higher in
recent weeks but is still generally below year-ago levels. Most
banking contacts report improvement in loan portfolio quality.
However, the size of existing loan portfolios in most banks
contacted continued to contract in early 1992.
Construction
Most realtors report increasing home sales in January and February,
and newspapers are selling more real estate ad lineage. However,
several realtors noted some slowing in purchases coincident with the
recent rise in mortgage rates. Home sales remain strongest in the
lower price range, but some contacts are now seeing improved sales
in the trade-up market. Although home inventories are being
absorbed, realtors suggest that an adequate supply is on the market,
especially of luxury homes.
According to contractors, single-family home building accelerated more than seasonally through February. Builders are relatively optimistic but fear an increase in mortgage rates. Multifamily activity remains moribund.
Commercial construction remained dormant. However, several commercial realtors reported that the office leasing market is in the early stages of recovery, aided by the reduced new supply of office space coming to the market.
Wages and Prices
Retail and factory contacts report that input and output prices have
remained relatively constant under intense competitive pressure.
However, manufacturers expect higher input prices in the second half
of the year. Home builders have seen lumber prices jump and some
expect price increases in other construction materials during the
spring as more activity pushes product demand higher. Ample natural
gas inventories have been swollen by the mild winter, forcing prices
lower and initiating cutbacks in domestic exploration and
production. No general acceleration of wage pressures has been
reported.