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Federal Reserve Districts

Sixth District--Atlanta

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District economic activity remained sluggish in most sectors during February and March, according to contacts. Labor market conditions were largely unchanged in March compared with February, with firms reluctant to hire new full-time workers. Retail sales continued to be around last year's level, whereas auto sales slipped below their year-earlier pace. The District's travel industry had a mixed report, with domestic travel increasing but fewer international visitors. Although home sales continued to be strong, market imbalances persisted in the commercial sector. Weakness in most manufacturing industries continued, with the strongest reports coming from defense contractors. Higher oil and natural gas prices negatively affected most sectors of the District's economy.

Consumer Spending
Reports from retail contacts suggested that retail sales in March were near year-ago levels, although several contacts reported lower sales caused by the late Easter holiday. Some retailers also noted that while sales declined at the outset of the war in Iraq, they rebounded relatively quickly. A number of merchants engaged in aggressive discounting and promotional activity, whereas discount retailers indicated that their performance remained relatively strong. Most retail contacts reported that inventories were balanced and anticipate that sales in the second quarter will be near last year's level. According to domestic automobile industry contacts, new vehicle sales were below year-ago levels in March, reversing gains posted earlier in the year. Some dealers attributed weak SUV and high-performance car sales to lower consumer expectations and higher fuel prices. Import dealers continued to gain market share in the District.

District housing markets were still being driven by low mortgage rates in February and March. Most contacts reported that home sales during February mirrored year-ago levels, but the responses were more varied during March, with some areas reporting a softening in market conditions. High-end homes remained difficult to sell in most parts of the District. Wet weather hampered construction in some parts of the region. Most metropolitan commercial real estate markets continued to suffer from an excess of office and industrial space. Government-related work continued; however, some new projects have been scaled back or postponed because of tight state government finances.

The manufacturing sector remained sluggish in February and March, with the main exception being defense-related production. Reports indicated that overall hiring and investment spending by manufacturers was down from a year earlier, and some apparel and electrical equipment manufacturers were cutting production in response to lower orders. Nonetheless, some reports suggested there had been a modest pickup in the use of temporary workers in the light industrial sector. Shipbuilders along the Gulf Coast reported a large backlog of military orders. Also, the new auto plant projects and expansions in the District were proceeding on schedule.

Tourism and Business Travel
Reports from the District's hospitality and tourism sector were mixed in February and March. Reports from south Florida indicated a successful spring break season helped offset continued weakness in international travel. Hotel occupancy rates were up from 2002 levels but still lagged those of 2001. Significant discounting and late bookings remained the norm in the cruise industry, and some central Florida tourist attractions continued to struggle with lower attendance. Gaming industry contacts along the Gulf Coast reported that they were maintaining a "reasonable customer flow," whereas smaller-than-expected crowds attended Mardi Gras in New Orleans this year.

Responses from the banking sector were mostly positive in February and March. Bankers reported moderate deposit growth, and refinancing activity remained strong. However, commercial lending remained slow, and venture capital deals were infrequent. A major concern among banking contacts was the lack of loan demand in the business sector. By most accounts, bank asset quality remained under control.

Wages and Prices
Hiring remained slow in February and March as most firms remained reluctant to commit to adding full-time employees. Instead, businesses continued to stretch existing labor pools, using part-time workers and overtime when necessary. Reports indicated little change in most output prices but increases in prices for several inputs. High natural gas prices in March caused several chemical and fertilizer producers to suspend operations, while higher diesel costs adversely affected transportation firms. According to reports, prices for the petroleum-based products such as roofing, fertilizer, and PVC increased.

District farmers enjoyed mostly favorable early spring weather. With a few exceptions, crop and livestock pasture areas were reported in good condition. Favorable yields and stable prices were welcome news for Florida's sugar cane and vegetable growers. However, grapefruit growers in Florida reported lower prices, and industry contacts suggested that producers in the Indian River region are likely to register a loss this year. Meanwhile, higher fuel and fertilizer prices significantly increased operating costs for farmers throughout the District.

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Last update: April 23, 2003