November 4, 1992
Overview
According to contacts in the Sixth District, economic activity edged
higher in September and October, though the pace was more sluggish
than in August. Manufacturers indicated that industrial production
slowed somewhat across the District. Apartment development and
commercial construction remained slow, but home builders and
realtors again reported healthy activity in single-family markets.
Retailers reported moderate increases in sales of both durable and
nondurable goods. Business and consumer loan demand has been flat,
and contacts reported that the recent wave of mortgage refinancings
has begun to subside. Wages and prices have remained stable and
several firms indicated that recent attempts to raise product prices
have not been successful.
Consumer Spending
Retailers reported moderate sales increases in September and early
October. Consumer expenditures continue to be concentrated on
purchases of nondurable items, but retailers noted that sales of
durable goods have also shown some improvement. Although most
merchants expect upcoming holiday sales to surpass weak year-ago
levels, they are monitoring inventories closely and are determined
not to enter the holiday season with excess accumulations. Auto
dealers continued to report mixed results, but a growing number saw
sales increases in September compared with month-ago and year-ago
levels.
Tourism remains a bright spot in the Sixth District economy. Contacts reported that air passenger traffic, particularly international arrivals, is significantly above year-ago levels. Convention attendance has exceeded 1991 levels and industry contacts indicated that advanced bookings through mid-1993 offer the promise of another good year.
Manufacturing
With some notable exceptions, factory activity in the District has
slowed somewhat in recent weeks. According to industry contacts,
economic weakness in Europe has reduced the demand for exports while
cutbacks in federal contracts from the Department of Defense and
NASA have also dampened the demand for manufactured goods. Contacts
also cited the slow pace of the national economic recovery as an
additional source of the poor demand for industrial products.
Nevertheless, a majority of manufacturers contacted remain
optimistic that business conditions will improve over the next
several months and relatively few firms have reported reductions in
labor force levels.
Although there has been a general lull in industrial production across the District, there are some exceptions. Producers of building supplies, carpeting, and other home furnishings have seen an increase in new orders as a result of the hurricane rebuilding effort. Apparel manufacturers have also reported increases in new orders and production for moderately priced goods, particularly denim products. However, rather than hiring new workers to meet higher production levels, most firms reported that they have simply increased the number of hours worked by existing employees.
Construction
After taking into account seasonal variations, realtors reported
that single-family home sales have been relatively good in most
parts of the District. Sales are still concentrated in the low-to-
mid price range, and contacts noted that there is persistent
weakness at the upper end. Abundant inventories of existing homes
for sale have kept prices relatively stable. Builders reported that
single-family home construction has continued at a steady pace, and
some builders have seen an increase in speculative building.
Builders and realtors are cautiously optimistic for the fourth
quarter.
Multifamily construction remains slow in most areas. Even though several contacts noted improvement in occupancy rates, effective rental rates remain too low to justify new building. Similarly, new commercial construction activity remains weak, with speculative office building close to zero.
In south Florida, realtors reported that the hurricane rebuilding effort is underway. According to contacts, a majority of activity is concentrated in residential construction, and some expect it to take up to three years to rebuild all destroyed homes. Contacts also reported that vacancy rates in Miami's central business district have fallen temporarily as firms have taken short-term leases while damaged facilities are repaired.
Financial Services
Bankers around the region reported that loan demand was flat or up
slightly in September and early October. The recent wave of mortgage
refinancings has peaked, but many loans remain in the processing
pipeline, waiting to be closed. Contacts reported that commercial
loan activity was flat in most areas of the District but that
consumer lending activity has increased slightly. Contacts in Miami
have seen an influx of new deposits from insurance settlements
related to hurricane damages, but as of yet there has not been much
change in commercial or consumer loan demand.
Wages and Prices
Most firms reported that their materials input prices were unchanged
in recent weeks. Although some firms have attempted to raise the
prices of their final products, competitive pressures have made it
difficult to sustain these increases. And because of the relative
slackness in District labor markets, there have been no reports of
increasing wage pressures.