July 29, 2009
Federal Reserve Districts
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Sixth District business contacts reported that economic activity remained generally weak through mid-July. Retail sales and traffic continued to be soft, but were largely in line with retailer's modest expectations. Tourism-related spending was also sluggish, and auto industry contacts reported further declines in new-vehicle sales. Reports from real estate contacts indicated that home sales, especially in the starter home market, had shown some signs of stabilizing. Encouragingly, most Florida contacts reported that home sales were above their year-ago readings. Also, indicators point to a moderating in the pace of decline in manufacturing activity. However, commercial real estate activity continued to slow, with more projects put on hold or cancelled. Banking contacts remarked that tight credit conditions remained in place and that demand for new loans continued to be soft in the current environment. Labor market conditions deteriorated further in June and early July, with unemployment rising in most areas. Price pressures continued to be relatively subdued throughout the District.
Consumer Spending and TourismRetail contacts noted that sales and traffic remained below year-ago levels and were largely in line with their expectations. Most merchants had adjusted their inventories as a result of the weak sales performance and indicated that they were not anticipating adding to stocks in the short-term. Several auto dealers reported lower new-vehicle sales, and most industry contacts noted a pickup in the used-car business that was helping to offset poor sales of new vehicles.
According to most hospitality industry contacts, travel and tourism spending decreased across most of the region. Several reports mentioned lower profit margins as a consequence of heavy price discounting and modest spending by vacationers. As a result, most contacts reported continuing to trim staffing levels. A significant decline in business-related travel and convention attendance was also noted in some areas.
Real Estate and ConstructionReports from most District homebuilders and Realtors indicated that the pace of decline in home sales continued to moderate. Most Florida contacts experienced improvements in sales, particularly for existing homes, although partly because of increased foreclosure sales. Most contacts continued to note downward pressure on home prices from foreclosures and short-sales. Both builders and Realtors noted some increased demand at the low-end of the housing market. The majority of homebuilders and contractors reported that new home construction remained at very low levels. The outlook among builders and Realtors had improved in recent months, but in June expectations for sales over the next several months moderated following the end of the peak spring selling season.
Commercial real estate activity continued to trend lower in June and through mid-July. Vacancy rates rose in many parts of the District, which has put additional downward pressure on rents. Contacts reported that some tenants were requesting lower lease rates on existing contracts. Commercial construction continued to slow as well. Contractors continued to report an increasing number of projects being delayed or cancelled, especially in the retail sector. Several contacts noted that some delayed projects were being re-bid to take advantage of the willingness of contractors to lower their bids, thus raising the possibility that some postponed projects could get underway in coming months.
Manufacturing and TransportationRegional manufacturing contacts indicated that the rate of decline in production and new orders moderated further in June and early July. Most reports also noted an improved outlook for the coming months. However, providers of transportation services continued to indicate a reduction in container volume from both retailers and manufacturers. Trucking contacts noted that an oversupply of trucks relative to demand was putting downward pressure on freight rates and squeezing profit margins. Rail shipments for lumber, gravel, autos, and chemicals were down from a year earlier.
Banking and FinanceCredit conditions remained relatively unchanged since the last report. Banking contacts continued to indicate that access to credit remained tight, with loans only being given to consumers with very good credit scores and to business customers with stable cash flows. Lenders reported that they continued to focus on building reserves in June and early July as loan defaults continued to rise.
Employment and PricesDistrict business contacts continued to report weak labor market conditions and rising unemployment in June and early July. Although most reported that the worst of the layoffs are behind them, some auto and oil and gas companies noted that they were planning additional job cuts in the coming months. Reports of hiring were limited to healthcare and the defense and aerospace industry, with most other business contacts noting that they do not plan to increase hours or workforce in the near term. There were a few reports of employers taking advantage of the increased supply of skilled labor to increase the quality of their workforce.
Construction and manufacturing firms reported that raw material prices generally had moderated by mid-July after having increased in late spring. However, most prices received for finished manufactured products remained down from a year earlier. Some contacts noted that they were unsuccessful in attempts to pass on higher input costs to their customers. Most retailers reported that prices remained relatively stable.
Natural Resources and AgricultureAs of mid-July, only half as many rigs were operating in the Gulf of Mexico compared with the same period a year earlier. Despite the gain in energy prices since the beginning of the year, energy industry contacts indicated that District producers have been gradually scaling back operations in response to increasing inventory levels and weaker domestic demand.
District farm crops, particularly citrus, benefitted from favorable weather in June through mid-July. Moisture conditions were adequate in all areas, with the exception of southern Louisiana. Lower domestic and global textile mill demand continued to trouble the near-term outlook for the District's cotton producers.