Economic conditions in the Sixth District were weak through December. Holiday sales results were near or below year-ago levels and auto sales were dismal. Further declines in new orders were reported by most manufacturing contacts. Residential real estate contacts described new and existing home sales and construction activity as weak and that average home prices continued to decline in most areas. Commercial contractors also noted ongoing softness in nonresidential construction. Lending standards at District banks remained tight. Labor markets weakened further through the end of the year with contacts across most industries noting additional layoffs and reduced hours. A majority of business contacts reported reduced input prices.
Consumer Spending and Tourism
District retail contacts indicated that holiday sales were generally weak. Contacts said that sales of luxury and big-ticket items were particularly weak, while apparel sales also struggled. Several contacts noted that discounting was deeper and more prevalent this holiday season because of fierce competition in an effort to clear inventories. Discount stores generally fared better as budget conscious consumers shopped for bargains. Looking ahead, weakness is expected to persist in the near term and may result in some retailers closing underperforming stores. Additionally, some businesses indicated that their inability to finance inventory purchases would mean they may close some stores.
District vehicle sales were off sharply in November and December. Contacts cited both tight consumer credit and overall lower demand as contributing to the weakness. Dealers across the region are reportedly cutting advertising and payrolls to cope with the current business climate.
Tourism activity was mixed from mid-November through the holiday season. Florida appeared to benefit from the usual influx of winter residents, but contacts report that overall visits to the state were below year-ago levels. Nonetheless, aggressive promotions and cheaper gasoline prices appeared to boost travel in to several Florida destinations.
Real Estate and Construction
Reports from homebuilders and Realtors indicated that new and existing home sales were weak from mid-November through December, with most noting that overall sales were down significantly compared with the already low levels of a year earlier. District homebuilders continued to pull back on home construction. New home inventories declined in Florida and Georgia, according to contacts, while elsewhere in the District the number of new homes on the market increased somewhat. Existing home inventories remained at high levels. Home prices continued to soften in the District; contacts indicated that the large volume of foreclosed properties for sale was exerting downward pressure on both new and existing home prices. According to District contacts, the near-term outlook for residential sales and construction activity remains weak.
Most District commercial contractors continued to report declines in activity, and more projects were cancelled or postponed. Going forward, commercial real estate contacts anticipate more space will become available and rents will soften, particularly in the retail sector.
Manufacturing and Transportation
A majority of manufacturing contacts noted that production and new orders remained below year-ago levels. Export orders also declined--a sharp change from earlier in 2008 when exports were expanding. Production is expected to remain sluggish according to manufacturing contacts.
Most transportation service firms reported weak freight demand and excess shipping capacity in November and December. Shipments of retail, automotive, and construction-related goods, as well as inter-modal cargoes were reported down sharply from a year earlier, with only coal and minerals posting small gains.
Banking and Finance
According to most banking contacts, District lending conditions continued to tighten during mid-November and December. Lending standards have been raised and loan covenants strengthened, making it harder for some banks to find customers with financial positions strong enough to qualify for loans. Worsening economic conditions caused banks to restrict lending to specific industries. Especially hard hit were those segments related to the housing and the automobile industries. Banks also appeared less willing to take on new commercial projects and instead focused on serving their existing customers.
Employment and Prices
Employment conditions in the District weakened through the end of the year, with numerous accounts describing hiring freezes, layoffs and reduced hours in December. Weakness was fairly widespread.
Most District contacts reported reduced input price pressures. Manufacturers reported that prices for both raw materials and finished goods were below year-ago levels and are expected to decline further in the short term. Even as input price pressures have eased, some businesses noted falling profit margins because of the need to discount output prices.
Natural Resources and Agriculture
Weather conditions were favorable for fieldwork, and most areas received moderate rainfall during November and December. Apart from northeast Georgia, severe drought conditions abated in the Sixth District states. The moderation in fuel and fertilizer costs is expected to improve the near-term financial outlook of some agricultural producers. Poultry exports slowed in response to lower foreign demand.
According to contacts, oil and gas exploration companies scaled back operations and re-evaluated expansion plans in response to lower oil prices and difficulty obtaining financing.