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Federal Reserve Districts

Sixth District--Atlanta

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Most Sixth District business contacts reported that the pace of economic activity was solid in April and May. Residential housing sales and construction remained strong, while conditions in commercial real estate markets continued to improve. Reports from the tourism and hospitality industry remained upbeat, with hotel/resort occupancies at high levels. However, retail and auto sales were more mixed than a year earlier. Several manufacturing sector contacts reported strong demand, but many also noted that high energy prices were affecting profit margins. Banking contacts reported that loan demand remained strong throughout the District and credit quality was good. Labor markets tightened in some areas for construction workers, while temporary hiring remained robust. Contacts continued to note price increases in building materials and energy, and several reports noted service-related price increases in transportation and healthcare.

Consumer Spending
According to reports from District contacts, retail sales during April and May were mixed compared with strong reports from a year ago. Florida merchants remained the most positive, while retailers in other parts of the District reported that sales ranged from slightly down to up modestly compared with a year ago. Several noted that sales results in May fell below expectations, and many blamed cool or wet weather conditions for the lackluster results.

District auto sales were also mixed in April and May. Most contacts noted that demand for foreign brands remained strong, while domestic models lagged. A domestic industry contact blamed the disappointing performance of U.S. brands on sluggish sales of large trucks and some SUV models, which may be linked to reports that fuel efficiency was becoming a more important factor for most buyers.

Real Estate
District real estate markets were little changed in April and May. Residential construction and home sales continued to be strong, especially in Florida where shortages of homes for sale continued to be noted. The pace of condominium development remained very strong along the coasts, most notably in South Florida. Solid improvements continued to be reported in District commercial real estate markets as firms moved ahead with expansion plans and absorption of existing space remained positive.

Manufacturing and Transportation
Reports from the factory sector were mostly positive, although high energy prices were adversely affecting some firms. Several firms reported that they were running at capacity and were adding to payrolls. Some also noted that they were going ahead with capital investment plans, including expansion. New military contract awards continued to boost District factory activity. Some contacts noted that many manufacturers are unable to pass along rising costs of raw materials because of long-term contracts that are in place, but those that could pass through price increases were doing so.

District transportation contacts generally continued to report good freight demand, although one contact noted a deceleration in activity after a strong first quarter. Airborne shipments in March and April were weaker than last year in Miami and Atlanta airports.

Tourism and Business Travel
Reports from the tourism and hospitality sector were upbeat in April and May. Tourism-related businesses in South Florida reported very strong sales with hotel occupancies holding strong. Contacts expected that the surge of foreign visitors will continue to boost the South Florida economy well into the summer. Central Florida resort attendance was said to be very strong and tax collections from those areas continued to rise. In Southwest Florida, hotel occupancy levels remained high with European travel to the area up by double digits from a year ago. Many major gaming industry properties along the Mississippi Gulf Coast continued significant upgrades and additions.

Banking and Finance
Overall loan demand in the District remained strong. In parts of the District, anticipation of higher interest rates appears to have accelerated some loan activity. There were no reports of a slowdown in consumer finance. Real estate loan volume remained on track in most parts of the District. Credit quality remained good with delinquency rates in check, and banks are reportedly expecting higher profits in the second quarter of the year.

Employment and Prices
Contacts in parts of the District reported that construction employment remained tight, with continued labor shortages in electricians, plumbers and flooring laborers. Hiring remained strong for temporary workers. Many manufacturing firms reportedly now have temporary workers that do a variety of jobs that were once done by permanent employees.

Contacts reported that prices of construction materials continued to rise with a new round of increases for some building products expected in July. Reports from across all business lines reported that profits were being squeezed by high energy costs, especially in the manufacturing and transportation sectors. Healthcare and hotel prices were also reported to have risen recently.

Dry weather improved fieldwork activity through the end of May with conditions of most regional crops averaging between fair and good. The District cotton crop progressed well, but the outlook weakened as world-market prices recently dropped. Poultry exports were strong in volume and price as global demand for chicken continued to increase.

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Last update: June 15, 2005