December 1, 2010
Federal Reserve Districts
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Reports from Sixth District business contacts indicated that economic activity rose modestly in October through mid-November. Retailers noted some increase in traffic and sales, and expectations for holiday sales were generally positive. Tourism related spending improved largely as a result of an uptick in international visitors and business travel. Realtors and homebuilders cited ongoing weakness in sales and construction. The District's office and industrial real estate markets softened as construction levels declined and vacancy rates rose. However, several contacts indicated that modest improvements were noted in leasing activity. Manufacturers reported continued increases in new orders and production. Credit conditions remained constrained and weakness in loan demand persisted. District labor markets continued to recover slowly, but businesses expressed cautiousness regarding adding full-time employees. Labor and material prices rose slightly, but most firms noted that they had little ability to pass costs through to customers.
Overall, most business owners suggested that the lack of robust sales growth was the major factor holding back their hiring plans and their demand for credit, although several also cited ongoing tax and regulatory policy uncertainty as additional constraining factors. Limited capital spending was focused primarily on required maintenance and efforts to increase efficiencies.
Consumer Spending and Tourism
Tourism activity improved relative to a year earlier and the outlook was generally positive for the holiday season. Hotel occupancy rates rose in several of the District's major markets compared to last year and cruise bookings were strong. However, discretionary spending at both hotels and cruise ships was relatively soft. International visitors remained a major source of tourism growth in the District. Contacts also reported solid increases in business travel and group travel bookings.
Real Estate and Construction
Nonresidential construction activity softened across the District. Contractors noted that the pace of commercial development was below the year-earlier level and backlogs remained low. Vacancy rates remained elevated across much of the region, although modest improvements were noted in leasing activity. Most contacts expect the commercial real estate market to remain weak over the next year.
Manufacturing and Transportation
Banking and Finance
Employment and Prices
Business contacts expressed considerable uncertainty about cost pressures over the coming year. Most felt that any pressure from higher labor and materials costs would be largely absorbed by reductions in profit margins. Overall, businesses remained reluctant to pass higher input costs through to customers given the relative softness in sales and orders. However, some transportation and food service firms indicated they plan to raise some of their prices because of cost increases.
Natural Resources and Agriculture
Most District areas benefitted from improved weather conditions in late October and early November. The outlook for the region's key agricultural products was brightened by favorable market conditions. Strong global demand and tight supplies have particularly boosted soybean and cotton prices, recently reaching historic highs.