December 8, 1993
Overview
Sixth District contacts reported that the Southeast economy resumed
a moderate pace of expansion after experiencing sluggish growth in
the early fall. Retailers said that shoppers began so return to the
stores in large numbers in late October, after a lull in sales
activity. Auto dealers continued to report year-over-year gains in
new car sales. The number of manufacturers reporting current
production increases rose as did those expecting improvements in
future activity. According to builders and realtors, the single-
family housing market remains one of the strongest sectors in the
regional economy, while commercial real estate activity finally has
begun to show signs of slow improvement. Bank contacts reported that
consumer loan demand continued to grow modestly. They noted that,
for the first time in several years, commercial lending is
increasing. Wage increases and prices of finished goods generally
were said so be stable, but several contacts noted that they
continued to see increases in the prices of lumber and other
building materials.
Consumer Spending
After recording disappointing early fall sales, Sixth District
retailers reported that cooler weather and an early start to the
holiday shopping season resulted in a surge of sales beginning in
late October. Although sales of durable goods such as furniture,
appliances, and home electronics remained strong throughout the
summer and early fall, sales of nondurables, particularly women's
apparel, were weak during this same period. In late October,
however, sales of nondurables picked up considerably, and this
improvement was sustained through the end of November. Prior to the
Thanksgiving holiday, most retailers reported that they were only
cautiously optimistic about the prospects for this year's holiday
sales. However, several reported that Thanksgiving weekend sales
exceeded plans and increased their confidence that December sales
will surpass last year's levels by a good margin. Although auto
sales have slowed somewhat from their mid-summer peak, most dealers
continued to see year-over-year sales gains through November.
Manufacturing
According to factory contacts, current manufacturing activity
improved moderately in October and early November, as did the
outlook for future activity. Producers of lumber and other building
materials, carpet, and home furnishings have continued to benefit
from demand generated by relatively strong regional and national
housing markets, and, more recently, from an improvement an
commercial construction. The transportation equipment sector is
receiving a boost from increased production of commercial trucks,
while shipbuilding has improved recently as a result of new orders
for floating casinos. On a less positive note, regional apparel
producers continued to pare jobs; new Defense Department cutbacks
also have resulted in additional layoffs. Although most industry
contacts reported that they had not hired new workers in recent
weeks, the share of firms contacted that plan to begin hiring new
employees within the next six months has been increasing.
Construction
Southeastern realtors continued to report strong single-family home
sales; most agents said that they recorded year-over-year sales
gains in both October and November. Trade-ups and luxury homes are
reportedly selling more rapidly in recent weeks, although demand
remains strongest for both starter and mid-priced homes purchased by
first-time buyers. Low inventories of both new and resale homes have
decreased the length of time that homes remain on the market, which
in turn has stimulated new building activity in many market areas.
Most builders and real estate agents expect next year's home sales
to remain at least at this year's levels. However, builders in some
areas noted that a shortage of developed lots and qualified sub-
contractors was beginning to slow home construction.
While still slow when compared to the 1980s, multifamily and commercial real estate markets have continued to show signs of steady improvement. Vacancy rates for both office and industrial space have continued to edge downward while effective rental rates have climbed. In the last few months a relatively large number of new retail, commercial, and public building projects were announced across the District, along with several new multifamily residential developments. Nevertheless, most contacts do not expect to see an increase in speculative building for at least another year.
Financial Services
Bankers around the region reported that loan demand was up
moderately in November. Residential mortgage lending for new homes
has continued at a strong pace, despite the recent uptick in long-
term interest rates, while other forms of consumer lending also were
reported to have increased during the last month. Improvement in
commercial loan demand, which had been flat during much of this
year, also was noted by several bankers. In particular, they noted
an increase in loans for business expansion, as well as increased
demand for loans to finance construction of new retail outlets.
Wages and Prices
Wages and prices of finished goods generally were reported to be
stable through November. However, several contacts continued to note
that prices of lumber and other building materials have risen since
August.