June 8, 2011
Federal Reserve Districts
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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
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 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
Banking and Finance
Employment and Prices
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
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.