January 11, 2012
Federal Reserve Districts
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Sixth District business contacts described economic activity as expanding at a modest pace from late November through December. Reports from most sectors were positive, yet expectations remained guarded. Holiday sales were described by most retailers as generally positive and the pace of sales was stronger than last year by most accounts. Auto sales remained strong as well. Tourism-related spending was solid as international visitors continued to bolster activity. Weakness persisted in the residential real estate sector as both brokers and homebuilders continued to report downward pressure on prices for new and existing homes. Commercial contractors noted a slight improvement in demand compared with earlier in the year. Most manufacturers and transportation contacts noted positive activity, especially related to exports. Bankers noted that deposit growth continued to outpace loan demand. Employment growth was positive but tepid across the District as employers remained cautious with regard to hiring. Concerns over increased input costs eased further as most commodity prices leveled off and business' inflation expectations remained in check. Few contacts reported having significant pricing power.
Consumer Spending and Tourism
Hospitality contacts reported that holiday activity slightly exceeded cautiously optimistic projections. Occupancy and room rates were up throughout the District. South Florida in particular experienced greater travel activity from Canada and South America. Airport traffic remained above year-ago levels in most major District cities with international travelers helping boost overall arrivals in many Florida destinations. Cruise line reservations remained solid into the first quarter of 2012 as international passengers took advantage of deals. Business travel improved over year-ago levels, although reservations were being made closer to departure dates.
Real Estate and Construction
Reports from District homebuilders indicated that new home sales and construction activity growth, measured year-over-year, were flat to slightly up. Builders also continued to report downward pressure on home prices with most reporting that prices were flat or down on a year-over-year basis, in spite of inventories that remained below year-earlier levels. Builders indicated a strong pickup in buyer traffic compared with the same time period as last year. Homebuilders anticipate new home sales and construction to improve modestly in the coming year.
The majority of District commercial real estate contacts continued to report improving demand from earlier in the year. Brokers indicated modest improvements in demand for space with some noting that rent concessions had abated. Contractors continued to report improvements in construction activity from earlier in the year. However, financing remained challenging and most projects were build-to-suit. The outlook among contacts improved modestly from early November with most contractors and commercial real estate brokers anticipating that construction activity will improve slowly during 2012.
Manufacturing and Transportation
Reports from transportation industry contacts remained positive in late November and December. Port authorities cited volume increases over last year with notable strength in exports. Trucking firms continued to report increased demand for their services but were struggling to meet customer needs because of a significant shortage of long-haul drivers.
Banking and Finance
Availability of credit/capital was not an issue for most large firms because of positive cash flow, adequate cash reserves, or a strong, long-standing relationship with their bank. Small business contacts, however, continued to report difficulty in obtaining credit from banks and some have turned to non-bank institutions for financing.
Employment and Prices
Contacts were generally not as concerned with input costs as they had been in previous months, noting that commodity prices had leveled off or eased somewhat. Notable exceptions included reports of restaurants facing elevated food costs and ongoing price pressures from high transportation and shipping costs. Many businesses reported slightly improved margins in late November and December. However, with the exception of high-end apparel retailers and hospitality contacts, firms reported having little pricing power.
In the Atlanta Fed's monthly business inflation survey of firms in the Sixth Federal Reserve District, respondents indicated in December that their inflation expectations for the coming year are 1.9 percent, down slightly from November. Looking forward, businesses indicated that costs for materials and labor may influence them to raise prices. Respondents did not expect changes in productivity, sales, or margin adjustments to have a significant influence on prices over the coming year.
Natural Resources and Agriculture
While much of the District witnessed various degrees of drought ranging from "abnormally dry" to "exceptional" in late November and December, both Georgia and Louisiana experienced the most severe conditions. Demand for cotton was flat as a result of global economic concerns and competition from synthetic fibers. Prices for cattle and hogs continued to increase because of strong foreign demand. Several regional agritourism contacts noted plans to expand next year.