Regional Economic Conditions and Consumer Spending

JMay 23, 2007

Moderator: Welcome to Southeastern Economic Perspectives, an occasional podcast from the Federal Reserve Bank of Atlanta. The following discussion provides insights into the Southeastern economy from the Atlanta Fed's regional research team. Michael Chriszt, director of international and regional analysis, who analyzes and reports on economic conditions in the Sixth District, will discuss the region's economy, focusing on labor markets and housing. Following his remarks, Whitney Mancuso, an economic analyst who is a specialist in real estate, retail, and state government, will comment on consumer spending.

Michael ChrisztMichael Chriszt: Regional data and reports from our business contacts indicate that economic activity in the Sixth District continues to expand modestly despite the downturn in housing markets. Residential housing construction remains very soft in the Southeast, with the most severe downturn continuing in Florida markets. March data show that sales of existing homes were down over 25 percent, and permits for new residential construction were down over 50 percent on the year-over-year basis. Both Realtors and homebuilders in Florida tell us that they do not expect conditions to improve soon.

Housing is weak elsewhere in the Southeast but not as bad as in Florida. Georgia permits are also trending down and are off year-ago levels by roughly 25 percent. Georgia Realtors and homebuilders are also not expecting improvement through the summer. Outside Florida and Georgia, permit growth is also negative, but much less so, around 10 percent year over year. Gulf Coast rebuilding is helping support permit growth in the District but not enough to offset the large declines experienced elsewhere.

We continue to watch the data and listen to the expectations of our contacts in the industry. As of now, the permit data we see, combined with the comments from Realtors and homebuilders, leads us to conclude that the housing downturn in the District has not yet bottomed out.

How does the weakness in the housing sector translate into the broader regional economy? Well, today, there are few signs outside Florida that the housing correction has spilled over significantly into the general economy. One indication that the economy is holding up is that, despite the slowdown in housing-related industries, labor markets are fairly strong. The states of the Sixth District added nearly 120,000 new jobs in the first four months of the year. And the unemployment rate for the region held steady for the fourth consecutive month at 4 percent. Some business contacts noted layoffs at building material manufacturers and by apparel producers, but labor shortages for both unskilled and skilled positions continued to be reported in many parts of the District. For example, our contacts in the hospitality industry and tourist areas continue to report severe labor shortages. Some IT firms are experiencing difficulty filling positions, and vacancies for nurses and teachers remain unfilled throughout the District.

Weakness can be found in certain sectors of the economy that are most directly tied to housing, namely construction. For example, construction employment in Florida has declined in the last three quarters. Elsewhere in the District, construction employment is holding up. Another way to gauge if the housing slowdown is affecting the broader economy is to look at personal consumption. My colleague, Whitney Mancuso, is with me and I'll ask her to discuss what's happening in the District's retail industry.

Whitney Mancuso: According to reports from District retailers, sales grew moderately in April compared with a year ago. However, the majority of merchants reported that April sales were below plan and anticipate only modest sales growth over the next several months. Florida retailers in particular noted weaker sales of furniture and construction materials. Data on retail sales are not readily available at the state level, so we look at sales tax revenue to gauge trends and consumer spending. What we see is that outside of Florida, sales tax revenue growth remains positive. Sales tax revenues are not as strong as they were in 2005 and early 2006, but year-over-year growth in the District states outside of Florida is around 5 percent, using the three-month average.

In Florida, sales tax receipts are clearly slowing. Year-over-year growth turned negative in January and remains there. Florida tax data show that sales slowed in the automotive, consumer durable goods, construction, and business investment sectors. Sales of taxable construction materials, home improvement, and furniture were all down. Therefore, to date, we see no clear evidence that the slowdown in housing has translated into a more general economic weakness, except in Florida.

Moderator: Thank you, Michael and Whitney. Again, we've been listening to Atlanta Fed regional research team members Michael Chriszt and Whitney Mancuso provide insight into housing and the Southeastern economy. This concludes our Southeastern Economic Perspectives podcast. Thanks for listening and please return for more podcasts. If you have comments, please send us e-mail at