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Federal Reserve Districts

Sixth District - Atlanta

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Economic conditions in the Southeast were mixed during December and early January. According to contacts, retail sales were mediocre, and vehicle sales declined for some makes and models. Residential real estate markets remained solid, but weakness in commercial real estate markets persisted. The manufacturing sector also remained weak, but there were indications of a modest pickup in orders for some industries and more stability in employment levels. Bank loan activity was still concentrated in the consumer sector, although a modest increase in demand for financing of mergers and acquisitions was noted. Travel activity improved further from the lows experienced after September 11, but hotel occupancy was still below normal. An early January snowstorm temporarily disrupted economic activity in parts of the District. Inflation indicators were mostly subdued.

Consumer Spending
Deep discounting was widespread during the holiday season as retailers struggled to make sales. Sales results were mixed across product types, and discount stores continued to fare better than other types of retailers. Apparel sales were difficult because of unusually mild weather in early December. Sales of home electronic and other home-related products were generally strong. According to contacts, post-holiday traffic was down compared with recent years, although some also noted that the amount of clearance merchandise available was also lower.

December vehicle sales were mixed. Car sales were reported to have declined sharply for some makes and models, but there were gains in light truck segments and for popular SUV models. Meanwhile, used car dealers reported large inventories and weak prices.

Real Estate and Construction
The District's single-family home markets continued to perform well in December. The demand for low- to mid-priced homes was strong, while the demand for high-priced homes remained soft in several markets. Contacts suggested that home sales may have equaled or surpassed year-ago levels in December, while the pace of new home construction was near the level of a year ago.

Commercial real estate markets have changed little since our last report, with conditions remaining weak in most areas. Vacancy rates increased in some markets, and the increasing abundance of sublease space across the District kept absorption low. Construction levels have slowed considerably over the year, and current commercial construction is dominated by build-to-suit and government projects.

Factory activity remained weak in December, and further job cuts were announced in several industries. Some companies reported reductions in part-time workers and the elimination of extra shifts. However, reports were also more mixed than in recent months. Several firms noted a modest pickup in new orders and were rehiring some of their recently laid-off staff. Also, while one large auto manufacturer was considering cutting capacity at a District assembly plant, some other auto producers in the District were working overtime to keep up with demand. The District's defense contractors continued to benefit from contracts for a variety of projects, and a producer of health-care products announced plans to expand capacity because of continued strong demand.

Tourism and Business Travel
Travel activity continued to improve in December from the lows experienced following September 11, but hotel occupancy was still below normal in several locations. In south Florida, occupancies remained held down by the decline in international tourists. The size of the price discounting for hotel rooms, cruises, and rental cars has lessened in markets where traffic has nudged higher. Activity at Mississippi Gulf Coast casinos remained solid. The New Orleans economy will benefit from hosting the Super Bowl in early February, and early bookings for the Carnival season are encouraging. An unexpectedly severe snowstorm in parts of the District in early January disrupted travel activity.

Loan activity remained mixed. The consumer sector was robust in most parts of the District. Refinancing and home equity loan activity was "booming," according to some contacts. Delinquency rates on consumer loans continued to increase but remained at low levels overall. Commercial loan demand remained soft, but banks reported some increase in merger and acquisition activity in the District.

Wages and Prices
Wage and price pressures were subdued in the District. According to some reports, the size of year-end bonuses or pay increases for salaried workers was lower than in recent years. Hospitals continued to hire aggressively and offer large signing bonuses. Reports again suggested that recent price increases have been limited to health-care costs, security costs, and insurance premiums. Home price increases continued to moderate, while previous sharp declines in prices for hotel accommodations and other travel-related services abated in areas where demand has recovered. Low energy prices continued to moderate gas and oil extraction activity in Louisiana.

Crop producers in the District remain pressured by low market prices. Prices were well below year-ago levels for cotton, soybeans, and peanuts. However, lower crop prices have helped reduce feed costs for the District's large poultry industry as well as cattle producers. Early indications suggest that the 2001 sugar harvest will fall short of last year because of recent drought conditions, but prices for Florida's citrus products continued to improve on reports of weaker growing conditions in Brazil.

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Last update: January 16, 2002