October 21, 2009 Federal Reserve Districts Sixth District--Atlanta

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On balance, information from Sixth District business contacts suggested that economic activity pulled back somewhat in September. Retail and tourism-related spending was below expectations according to most contacts, while automobile dealers reported that sales had dropped following the expiration of the "cash for-clunkers" program. Reports from real estate contacts indicated that home sales continued to improve in most areas, although the pace of the improvement slowed somewhat in September. Commercial real estate conditions deteriorated further as vacancy rates rose, rents declined, and more planned commercial projects were delayed or cancelled. A small majority of manufacturer contacts noted a modest decline in production and orders in September. Most contacts in the banking sector reported that credit conditions remained tight. The pace of layoffs in the District continued to slow, but most contacts also indicated that they were not looking to hire in the near term. Overall, inflationary pressures remained subdued, with most contacts noting that input and output prices were flat to down slightly over the month. Consumer Spending and Tourism District retail contacts indicated that traffic and sales were somewhat below their modest expectations in September. Both sales and inventory levels remained below year-ago levels. Merchants were keeping inventories lean, managing them at "just in time" levels. The outlook remained mixed, with roughly two-thirds of retail contacts anticipating flat or declining sales over the next three months and one-third expecting an increase. Auto dealers across the District reported poor traffic and low sales of new vehicles in the wake of the cash-for-clunkers program. A contact in the auto repair industry noted a further decline in activity that they associated with the reduction in the stock of older vehicles because of the program. Used-car sales held relatively steady over the month. Tourism-related spending in the District remained weak in September. Industry contacts reported that hotel reservations, particularly related to conventions, were down. Room rates continued to decline, as well, in most locations. Cruise-line occupancy rates remained solid. However, this was attributed to very deep discounting. Hospitality industry contacts expect subdued activity to persist over the next few months. Real Estate and Construction District homebuilders and Realtors both reported that the pace of home sales had softened slightly since the last report. Despite this, homebuilders noted an increase in traffic with several contacts reporting that the credit quality of potential buyers had improved as well. Demand for low- to mid-priced homes remained relatively strong, supported by the first-time home buyer tax credit and increased interest by investors. However, most contacts continued to note downward pressure on home prices from foreclosures and short-sales. The majority of homebuilders and contractors observed construction remained very low. The sales outlook among both builders and Realtors over the next three months was less upbeat than reported in August. Private-sector commercial real estate activity weakened further in September. Vacancy rates continued to rise across all segments, and contacts continued to cite downward pressure on rents. Developers reported fewer backlogs, and more projects were delayed or cancelled. The outlook among contractors remained unchanged since last reported, with most anticipating activity to continue to decline into 2010. However, contractors in some parts of the District noted that federal stimulus monies were starting to help spur some public-sector activity. Manufacturing and Transportation A small majority of manufacturing contacts noted moderate declines in orders and production during September. In addition, four-fifths of our contacts reported similar or declining levels of finished inventories relative to the previous month, and most reported that they were operating well below capacity. The outlook for production remained modestly positive, with forty percent of contacts expecting to increase output and another forty percent anticipating that current levels of activity would remain the same over the next three to six months. Overall, transportation activity remained weak, with rail shipments of automobiles being one of the few areas showing improvement. Weak demand and lower prices were noted as adversely impacting revenues for several regional trucking companies. Banking and Finance District banking reports cited that lending conditions remained tight. Real estate contacts mentioned that homebuyers had difficulty securing financing for non-conforming mortgages. Some retailers indicated that obtaining inventory financing was harder. Commercial contractors noted that tight lending conditions had restrained commercial development. Employment and Prices District businesses noted that the pace of layoffs slowed in September, but there continued to be concerns over hiring as few contacts reported any plans to increase payrolls. Many employers indicated that they were holding on to the most skilled workers, but have reduced overall hours. They feel that a sustained increase in orders and sales is a prerequisite to adding to payrolls. There were several reports of firms that were substituting some of their payroll employees with contractors. Construction and manufacturing firms reported that several raw material prices continued to moderate. Real estate contacts noted some further downward pressure on rents. Once again, most retailers remarked that retail prices remained stable relative to year-earlier levels. Natural Resources and Agriculture District contacts indicated that with petroleum and refined product inventories well above average levels, refining margins continued to deteriorate in September. As a result, refiners have cut back on processing, delayed new projects, and have shut down for lengthy maintenance. Unusually high rainfall amounts were reported in most parts of the District. Floods damaged some of North Georgia's nurseries, vegetable farms, and commercial vineyards. However, Florida citrus growers benefited from recent rainfall. Crop conditions were described as generally favorable for cotton, soybeans, and peanuts in Alabama, Georgia, and Mississippi. Return to top Richmond Chicago