December 7, 1994
Overview
According to business contacts, the Southeast economy grew at a
healthy pace through the end of November, although recent year-over-
year gains have been smaller than they were earlier in the year. The
holiday shopping season got off to a good start over the
Thanksgiving weekend, with most retailers reporting that sales had
met or exceeded their optimistic expectations. Tourism and business
travel remain above year-ago levels in most of the District, and
recent reports indicate that many Florida tourist markets have begun
to see a rebound. Factory activity in the District was reported to
be mixed, with strength in some industries offsetting weakness in
others. Single-family home sales and construction slowed on a year-
over-yen basis in November, but multifamily and commercial
construction continued to show improvement. Reports of increasing
wage pressures have become more frequent in the last month, and
firms in a growing number of industries say that they are having
difficulty finding qualified workers. Although many contacts
continue to report rising raw materials prices, most producers
continue to indicate that they have not raised prices of their own
products.
Consumer Spending
A majority of the District retailers contacted after the
Thanksgiving holiday weekend said that sales generally had met or
exceeded their expectations. The strongest selling items were
reported to be gift items and home-related products, although
apparel sales also were relatively brisk. Retailers generally said
they expect holiday sales to exceed last year's levels by between 5
and 7 percent. However, several retailers predicted that December
sales will be dominated by promotions and discounts similar to those
offered during the last several years. Although most retailers said
that unexpectedly pleasant weather put a damper on sales in early
November, the return of cooler weather in the second half of the
month brought shoppers back into the stores. Auto sales around the
District were said to be flat with some dealers noting year-over-
year declines.
Manufacturing
Reports from manufacturers were somewhat mixed in November, with
weakness in a few industries offset by strength in the majority of
others. At the same time, most firms indicated that they were
optimistic about their prospects for the next six months. Firms in
the paper, wood, chemicals, and aluminum industries all continued to
report increasing levels of current activity. Auto makers and auto
parts suppliers again commented on strong demand for their products.
Although many District manufacturers of lumber and other building
materials said that they were operating as near capacity, several
firms indicated that current shipments have begun to slow. Firms
producing home appliances, heating and cooling equipment, and
carpeting also noted a slowdown in current shipments, although
several carpet producers reported that exports had begun to pick up.
Reports from the apparel industry, however, were much less positive,
with most firms reporting declines in output as well as the factory
workweek and payrolls.
Tourism and Business Travel
Tourist and business travel remain a bright spot in the District
economy. Hotel occupancy rates were reported to be well above year-
ago levels in Atlanta, Nashville, and New Orleans, while tourism
along the Gulf coast continues to flourish. Although tourist travel
to many Florida destinations remains below year-ago levels, winter
bookings were reported to be up, particularly from Latin American
and Canadian visitors. Several major resort areas in Florida
recently have announced expansion plans aimed at reversing the
attendance slump of the last year.
Construction
Single-family home sales and construction slowed throughout the
District in November; however, real estate agents emphasized that
the level of activity in most market areas remains near the strong
year-ago performance. Builders reported that new home inventories
have begun to increase slightly, and home prices generally have
stabilized. Some realtors have begun to report price concessions on
the part of sellers. Looking forward, realtors and builders
generally expect the pace of home sales and construction to decline
in 1995, although overall activity is expected to remain relatively
high.
In multifamily and commercial real estate marks by contrast, real estate agents continue to report improving conditions. Apartment occupancy levels were described as extremely high in many District market areas. Apartment rental rates have continued to rise, and in recent weeks plans for several new multifamily developments were announced. Commercial realtors also reported falling vacancy rates and improved leasing of industrial, office, and retail space. Commercial construction has accelerated in many areas of the District. However, shortages of qualified labor continue to push building costs up.
Financial Services
Reports on loan demand from bankers in the District were mixed in
November. While some contacts noted that the demand for home
mortgage lending had declined substantially, others reported
increased commercial and industrial lending. Consumer loan demand
was generally described as flat, while auto lending declined
modestly. Several banks noted that the competition for loans remains
fierce. Both commercial and consumer loan default rates remain near
lows for the past decade.
Wages and Prices
Wage pressures were again described as on the rise amid tightening
labor markets. In addition to the construction sector, food service
and retail establishments have begun to report difficulty in filling
available positions. This has been particularly true of retailers
who have sought to hire temporary employees for the holiday shopping
season. As a result, an increasing number of firms report that they
have had to offer wage increases in order both to attract new
workers, as well as to retain current employees. According to
manufacturers, raw materials prices also continue to rise. However,
many firms reported that they have not been able to increase their
prices because of intense competition. Although most retailers
concurred that competitive pressures have kept a lid on price
increases to this point, many indicated that they expect their
suppliers to increase prices on many items after the first of the
year.