January 16, 2002
Economic conditions in the Southeast were mixed during December and early January. According to contacts, retail sales were mediocre, and vehicle sales declined for some makes and models. Residential real estate markets remained solid, but weakness in commercial real estate markets persisted. The manufacturing sector also remained weak, but there were indications of a modest pickup in orders for some industries and more stability in employment levels. Bank loan activity was still concentrated in the consumer sector, although a modest increase in demand for financing of mergers and acquisitions was noted. Travel activity improved further from the lows experienced after September 11, but hotel occupancy was still below normal. An early January snowstorm temporarily disrupted economic activity in parts of the District. Inflation indicators were mostly subdued. Consumer Spending
Deep discounting was widespread during the holiday season as retailers
struggled to make sales. Sales results were mixed across product
types, and discount stores continued to fare better than other types
of retailers. Apparel sales were difficult because of unusually
mild weather in early December. Sales of home electronic and other
home-related products were generally strong. According to contacts,
post-holiday traffic was down compared with recent years, although
some also noted that the amount of clearance merchandise available
was also lower.
December vehicle sales were mixed. Car sales were reported to have declined sharply for some makes and models, but there were gains in light truck segments and for popular SUV models. Meanwhile, used car dealers reported large inventories and weak prices.
Real Estate and Construction
The District's single-family home markets continued to perform well
in December. The demand for low- to mid-priced homes was strong,
while the demand for high-priced homes remained soft in several
markets. Contacts suggested that home sales may have equaled or
surpassed year-ago levels in December, while the pace of new home
construction was near the level of a year ago.
Commercial real estate markets have changed little since our last report, with conditions remaining weak in most areas. Vacancy rates increased in some markets, and the increasing abundance of sublease space across the District kept absorption low. Construction levels have slowed considerably over the year, and current commercial construction is dominated by build-to-suit and government projects.
Manufacturing
Factory activity remained weak in December, and further job cuts
were announced in several industries. Some companies reported reductions
in part-time workers and the elimination of extra shifts. However,
reports were also more mixed than in recent months. Several firms
noted a modest pickup in new orders and were rehiring some of their
recently laid-off staff. Also, while one large auto manufacturer
was considering cutting capacity at a District assembly plant, some
other auto producers in the District were working overtime to keep
up with demand. The District's defense contractors continued to
benefit from contracts for a variety of projects, and a producer
of health-care products announced plans to expand capacity because
of continued strong demand.
Tourism and Business Travel
Travel activity continued to improve in December from the lows experienced
following September 11, but hotel occupancy was still below normal
in several locations. In south Florida, occupancies remained held
down by the decline in international tourists. The size of the price
discounting for hotel rooms, cruises, and rental cars has lessened
in markets where traffic has nudged higher. Activity at Mississippi
Gulf Coast casinos remained solid. The New Orleans economy will
benefit from hosting the Super Bowl in early February, and early
bookings for the Carnival season are encouraging. An unexpectedly
severe snowstorm in parts of the District in early January disrupted
travel activity.
Financial
Loan activity remained mixed. The consumer sector was robust in
most parts of the District. Refinancing and home equity loan activity
was "booming," according to some contacts. Delinquency rates on
consumer loans continued to increase but remained at low levels
overall. Commercial loan demand remained soft, but banks reported
some increase in merger and acquisition activity in the District.
Wages and Prices
Wage and price pressures were subdued in the District. According
to some reports, the size of year-end bonuses or pay increases for
salaried workers was lower than in recent years. Hospitals continued
to hire aggressively and offer large signing bonuses. Reports again
suggested that recent price increases have been limited to health-care
costs, security costs, and insurance premiums. Home price increases
continued to moderate, while previous sharp declines in prices for
hotel accommodations and other travel-related services abated in
areas where demand has recovered. Low energy prices continued to
moderate gas and oil extraction activity in Louisiana.
Agriculture
Crop producers in the District remain pressured by low market prices.
Prices were well below year-ago levels for cotton, soybeans, and
peanuts. However, lower crop prices have helped reduce feed costs
for the District's large poultry industry as well as cattle producers.
Early indications suggest that the 2001 sugar harvest will fall
short of last year because of recent drought conditions, but prices
for Florida's citrus products continued to improve on reports of
weaker growing conditions in Brazil.