March 4, 2009 Federal Reserve Districts Sixth District--Atlanta

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Sixth District economic activity weakened further in January and early February compared with late 2008. Most retail contacts reported that consumer spending declined more than expected. Residential real estate contacts noted that sales continued to slide, although at a more modest pace than last reported. Residential construction levels remained at very low levels. The outlook among commercial real estate contacts worsened as vacancy rates continued to rise. Manufacturing contacts noted further reductions in orders and production. By most accounts, business and consumer access to credit remained tight and loan demand was generally weak. Labor market conditions worsened as more businesses reported cutbacks in hours and layoffs. Price pressures remained subdued throughout the District.  Consumer Spending and Tourism Retail activity remained weak. District contacts reported that sales and store traffic for January and February were disappointing and expectations were lowered for the coming months. Several retail chains reported closing underperforming stores. Auto dealers reported dismal January sales for both domestic and foreign makes. Inventories of District assembled vehicles continued to climb. Tourism activity slowed in most parts of the District. Despite increased price discounting and promotional activity at various attractions, the overall number of tourists visiting Florida fell early in the year compared with late 2008 levels. Reports from New Orleans indicated that hotel occupancy rates for Mardi Gras were on par with 2008 levels. Real Estate and Construction Reports from homebuilders and Realtors indicated that new and existing home sales remained weak during January and early February.  However, sales declines measured year-over-year moderated slightly. Some contacts noted a pickup in traffic, with potential buyers mostly interested in finding deeply discounted homes. Existing home inventories generally rose above year-earlier levels, while new home inventories were slightly below year-earlier levels. Housing starts remained very weak, and the outlook among builders continued to be pessimistic.  However, the uptick in traffic led most Realtors to be cautiously optimistic that sales were approaching a bottom.  Commercial real estate reports were decidedly more negative than previously reported. Vacancy rates continued to rise in many parts of the District and this was putting downward pressure on rents, most notably in the retail sector. Most District commercial contractors reported declines in activity, with more projects postponed or cancelled. Going forward, commercial real estate contacts anticipate that more space will become vacant in coming months and that construction will slow significantly.  Manufacturing and Transportation A majority of District manufacturing contacts noted further declines in production levels and new orders compared with a year earlier. The number of export orders continued to fall, and most contacts reported that inventory levels decreased as well. Contacts remained generally pessimistic about near-term production, employment, and price levels amid severe contractions in demand. District transportation contacts reported that January and early February were very weak. Several trucking contacts servicing retail and building product industries reported a considerable drop in tonnage and lower revenues. Regional rail activity was also down compared with a year earlier, with continued declines in shipments of autos, chemicals, and construction-related items.  Banking and Finance Most District banking contacts reported that access to credit remained tight for both consumers and small businesses for the first two months of 2009, although money was available to customers who met stricter credit standards.  Some contacts reported that job insecurity was having a negative effect on loan demand, with potential borrowers feeling uneasy about taking on additional debt.  Employment and Prices Labor market conditions remained bleak for the District in January and February. Business contacts continued to note reduced hours and layoffs across most industries. Most District contacts reported a continuation of lower input costs. Manufacturers and construction firms reported that prices paid for both raw materials and finished goods declined further over the past two months and are expected to remain soft in the near term.  Several manufacturing contacts noted that final goods prices were relatively stable in January following cuts to prices made late last year. Natural Resources and Agriculture Energy industry contracts confirmed that regional fuel stocks were well above their typical winter levels, even as refineries scaled back operations and underwent seasonal retooling.  Most of the District received much needed rainfall in January.  However some areas in Alabama and Florida continued to report poor soil moisture conditions. The Districts' poultry and cotton producing industries continued to be affected by lower global demand. The recent salmonella outbreak had a significantly negative effect on the local peanut industry, and the severe drop in consumption and uncertain outlook threatens the economies of several rural communities where major production facilities are located. Return to top Richmond Chicago