Reports from Sixth District business contacts indicated that the pace of economic activity remained slow in September. Retailers noted a decrease in traffic and sales. The hospitality sector improved, although some areas continued to be affected by the lingering impact of the Gulf oil spill. Realtors and homebuilders cited further weakening in home sales and increasing inventories, while the pace of nonresidential construction was soft. Manufacturers reported that new orders grew at a slower pace and production was flat. Provision of bank credit continued to be constrained and loan demand remained weak. District labor markets continued to recover slowly, although many businesses relied on increased hours for existing staff and expanded their use of temporary hires rather than adding permanent employees. Some transportation and material prices rose slightly, but firms continued to report limited pass through to consumers.
Consumer Spending and Tourism
Most District merchants reported that traffic and sales decreased in September and that they are intentionally keeping inventory levels low. Contacts noted that low-end products and apparel were strong sellers, however, and the outlook among retailers improved only modestly from previous reports. District automobile dealers indicated that vehicle sales were ahead of year-ago levels.
Tourism activity across much of the District improved and the outlook for the remainder of the year was positive. Cruise bookings and pricing increased and contacts reported that discretionary spending on board rose. The impact of summer cancelations continued to be felt in many Gulf Coast destinations. However, the losses experienced in these areas have been largely offset by an increase in activity in Northeast Florida, Georgia, and Tennessee.
Real Estate and Construction
Most District residential real estate contacts reported that home sales weakened further in September, although several Florida brokers indicated that declines moderated. Many builders and Realtors noted that potential buyers remained on the sidelines and that acquiring mortgage financing had become more difficult recently. Cash buyers, particularly in Florida markets where price declines have been pronounced, continued to purchase homes at a strong pace. New home construction softened further from low levels. Brokers indicated that existing home listing inventories continued to rise on a year-over-year basis. Builders reported that new inventories remained below the year-earlier level, but were rising. Both brokers and homebuilders reported persistent downward pressure on home prices. Homebuilders, in particular, were concerned about the number of foreclosed and bank-owned properties coming to market. The outlook among contacts regarding sales over the next several months was weak.
Nonresidential construction activity remained soft across the District. Contractors noted that the pace of commercial development was below the year-earlier level and backlogs remained low. Contacts continued to report high vacancy rates and downward pressures on rents. The outlook for the rest of the year remained negative.
Manufacturing and Transportation
District manufacturers indicated that the growth of new orders slowed notably and that production was flat in September compared to the previous month. However, many respondents planned modest production increases in the short-term. District transportation contacts noted an overall decrease in domestic freight demand; however, this was countered by an increase in international shipments. Rail companies reported positive but slower growth of shipments of automobiles and industrial goods.
Banking and Finance
District banking conditions remained weak as bank profitability continued to be challenged by elevated loan losses and high levels of noncurrent loans. Loan demand also remained soft. Business contacts continued to indicate an expansion of trade credit to create and extend lines of credit outside of the traditional banking infrastructure.
Employment and Prices
District labor markets continued to recover in September, albeit slowly. Contacts reported that they remain reluctant to hire additional full-time, permanent employees because of the uncertain outlook regarding future sales and orders. Many firms continued to note a strong preference for increasing existing staff hours and using part-time or temporary staff rather than hiring full-time staff. Firms that were hiring noted they were being very deliberate in order to get the best possible candidate from a large applicant pool.
District contacts reported that firms were resisting passing higher input costs through to consumers given the ongoing softness in sales. As a result, margins remained very thin. A number of manufacturers indicated that rising costs of materials and employee benefits were likely to be passed on to customers over the next 12 months.
Natural Resources and Agriculture
Regional oil production continued to rise and the Gulf of Mexico crude inventories remained near the top of their average range for this time of year. Local gasoline stocks have been declining since mid-August, as large surpluses were drawn down somewhat. Following the capping of the Deepwater Horizon well in the Gulf of Mexico, clean up and oil recovery efforts continued with ongoing environmental testing for contaminants in the water and in local fish populations.
District crops were troubled by high temperatures and dry weather in September that resulted in early harvesting. Soil moisture levels were reported as extremely low in areas of Alabama, Mississippi, and Tennessee. Regional cotton plantings were much higher than a year earlier.