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Federal Reserve Districts

Sixth District--Atlanta

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Sixth District business contacts reported that economic activity moderated somewhat in April and May. Retailers experienced a deceleration in sales and traffic, which they attributed to periods of adverse weather and high gasoline prices. Tourism-related spending, however, increased across all segments of the industry. Homebuilders noted continued low levels of sales and construction, while brokers cited modest improvements in sales and traffic. In spite of declines in residential inventories, prices also decreased for both new and existing homes. Commercial contractors reported that new construction activity remained weak. Overall, the majority of manufacturers continued to report increases in new orders and production. Auto manufacturers, however, reduced production because of supply constraints stemming from the Japanese earthquake. The late April tornadoes in several states and flooding on the lower Mississippi River had a significant impact on economic activity in the directly affected areas, but no major damage to the energy or transportation infrastructure was reported. Bankers reported that loan demand had improved slightly from weak levels. Labor markets continued to improve gradually across the District. Firms expressed concern over rising commodity costs as margins remained tight and productivity gains became more difficult to realize.

Consumer Spending and Tourism
Most District merchants signaled a deceleration in sales in April and May after moderate increases earlier in the year. Retailers said that periodic adverse weather conditions and high gasoline prices combined to dampen sales across the District. Contacts reported that they continued to manage inventories tightly. The outlook among District retailers remained optimistic. Auto dealers noted both declining inventories and firm demand.

Tourism activity improved further throughout the District. Occupancy and room rates were boosted by increases in both business and leisure travel. Convention and cruise bookings have increased as well. Overall, contacts in the travel industry remained optimistic. Several restaurant contacts reported that sales were somewhat softer and that higher food prices had led to tighter margins.

Real Estate and Construction
District homebuilders indicated that new home sales and construction remained at very low levels in April and May. Several Alabama builders reported that in many areas repairs and rebuilding from the April tornado damage was underway.

District residential brokers indicated that existing home sales growth remained slightly ahead of the year-earlier level, but softened somewhat from March to April. However, the majority of Florida brokers continued to experience gains. Florida contacts again noted that distressed sales and cash buyers were significant drivers of activity.

Both residential builders and brokers indicated that housing inventories eased on a year-over-year basis. District brokers noted more modest price declines than earlier this year, while most builders continued to cite downward pressure on home prices. Brokers reported that buyer traffic improved, while builders indicated weaker buyer interest.

Nonresidential construction activity remained at low levels during April and May. Commercial brokers indicated that most markets continued to stabilize, but the pace of activity remained slow. Growing demand for apartments spurred an increase in multifamily development in several parts of the region. Overall, commercial construction activity is expected to remain at low levels for the rest of the year.

Manufacturing and Transportation
District manufacturers noted an increase in new orders and production in April and May. The majority of contacts planned to increase production in the short-term. The exceptions were auto producers and parts suppliers that experienced input constraints stemming from the Japanese earthquake. However, these contacts reported that lost production would be made up later in the year as supply channels returned to normal. District ports reported increased volumes in cargo and shipments. Air cargo contacts noted that tonnage was returning to near pre-recession levels. Railway firms cited strong increases in exports of chemicals, coal, and other energy-related products to China and India. The flooding of the Mississippi River is not expected to cause long-term disruptions to maritime traffic.

Banking and Finance
Businesses outside of the construction and real estate segments reported a slight improvement in credit availability. Banking contacts remarked that business loan demand had improved modestly, but new firms had difficulty qualifying for credit because of their inability to meet cash flow requirements. Bankers indicated that consumer loan demand remained flat as consumers continued to pay down equity and consolidate debt. Credit availability for auto loans continued to improve. Some firms continued to rely on cash reserves for capital expenditures and expansions. District banks also noted an increase in credit requests from agriculture customers.

Employment and Prices
Labor markets continued to improve gradually across the District. Most business contacts planned to either increase staff levels or leave them unchanged. Firms that plan to increase employment were doing so in response to increased demand and because they have maximized productivity with their existing staff. Staffing agencies continued to experience high demand for temporary workers as well as an increase in temp-to-hire positions. Some contacts reported difficulty finding qualified candidates to fill specialized, higher skilled positions, especially in healthcare and communications/technology sectors. Firms that are not increasing employment cited high operating costs and uncertainty about future demand as constraints to hiring plans.

Firms' expectations for unit cost increases have moderated slightly since the beginning of the year as their outlook for labor and benefits costs were revised down. However, prices of commodity-linked materials continued to rise and downward price pressures from productivity gains were noted as tapering off. District contacts continued to report that margins remain squeezed and their ability to raise selling prices was mixed.

Natural Resources and Agriculture
The number of rigs operating in the Gulf of Mexico is at roughly half the pre-Gulf of Mexico oil spill level. Several energy infrastructure manufacturing firms noted an increase in capital investment. The Mississippi River flooding has caused minor disruption to river traffic, which, in turn, may affect production in some oil refineries and chemical plants. The interruptions are expected to be short-lived, and there are no reports of damage to transportation or energy infrastructure.

Much of the District experienced difficult weather conditions in April and May. An abnormally cold, wet spring and severe storms have delayed planting in some areas. Producers of poultry, cattle, and timber experienced losses as a result of the tornadoes as well. Many farmers in Mississippi and Louisiana are experiencing some degree of flooding from the Mississippi. Prices for many of the District's agricultural products remained strong, particularly cotton, soybeans, and beef, although the recent record-high cotton prices have declined because of some pull back in global demand.

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Last update: June 8, 2011