November 30, 2011
Federal Reserve Districts
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Sixth District business contacts described the economy as expanding at a modest pace in October through mid-November. Retailers noted sluggish sales growth compared with September; however, auto dealers continued to experience robust sales. Tourism activity remained a bright spot for most of the District. According to homebuilders and real estate brokers, sales of new and existing homes remained weak, and home prices continued to decline compared with September. Commercial real estate contractors and brokers noted a slight improvement in nonresidential activity. Manufacturers reported an increase in new orders but a modest decline in production. Lending conditions remained constrained as weak loan demand from businesses and consumers persisted. Reports from businesses suggest that hiring plans continue to be subdued and remain weighted toward hiring temporary or part-time labor. Most businesses reported a moderation in input cost pressures, but also noted limited ability to pass on increases in commodity and other input prices from earlier in the year.
Consumer Spending and Tourism
Tourism activity remained strong across the District. Hotel occupancy and room rates were up and convention bookings remained steady. Cruise line contacts reported full occupancy and increased onboard spending; however, advanced bookings were down as people made reservations closer to departure dates. In Florida, international tourists continued to bolster activity with increases in Latin American visitors offsetting declines in European vacationers. Overall, hospitality firms maintained an optimistic outlook regarding the upcoming holiday season.
Real Estate and Construction
District homebuilders indicated that new home sales and construction activity were flat to slightly down from the previous month and were slightly below weak levels from a year ago. Homebuilders continued to report that new home prices were largely unchanged compared with the previous month and a year ago. Builders anticipate single-family home construction activity to remain flat over the next several months. New activity in multifamily construction was reported in several District states. Contacts in South Florida signaled that condominium development was expected to get underway soon because of strong demand from foreign investors, many of whom pay with cash. Developers plan to cover costs by requiring a significant upfront payment from the purchasers before construction begins. The outlook for new home sales growth over the next several months was flat to slightly up compared with last year's weak levels.
The majority of District commercial real estate contacts noted modest improvement in nonresidential construction and leasing activity. Brokers reported that vacancy rates declined and that rents have begun to stabilize across much of the District. Contractors cited a small improvement in construction activity from earlier in the year. Most anticipate commercial real estate conditions to remain largely unchanged over the next several quarters.
Manufacturing and Transportation
Transportation companies reported that demand flattened across most industries. Few expect a significant increase in shipment volumes for the holidays compared with last year. Railway firms cited strong automotive shipments and very strong levels of coal cargoes destined for export. Air cargo carriers noted that they have lowered freight projections for the year because of lower demand and higher fuel costs. A few contacts anticipated modest capacity cuts in the near term.
Banking and Finance
An informal poll of our small business contacts revealed that a slim majority of mature firms received all or most of the full amount of money requested, while many young businesses reported applying for credit to expand their business but were either denied or offered unacceptable credit terms. Others were discouraged from applying for credit because of the expectation that they would either be denied or be offered unfavorable terms. Overall, 38 percent of all small businesses polled applied for credit, compared with 32 percent in our Q2 survey.
Employment and Prices
Firms did express having trouble filling both some low-skilled and highly specialized positions. Regarding the former, many contacts noted that entry-level positions were not being filled because applicants were unable to pass aptitude tests or background checks. As for the latter, many indicated recruiting top performers from other firms instead of drawing from the unemployed population. Overall, there was growing concern that the skills of the unemployed were deteriorating.
Apart from some reports of increases for highly skilled trades, wage growth remained subdued. Businesses reported a moderation in input cost pressures during October through mid-November. However, with the exceptions of manufacturing and some consumer goods markets, most noted limited ability to pass on increases in commodity and other input prices from earlier in the year. Margins remained tight, as contacts continued to characterize their customers as being very sensitive to upward price adjustments. As a result, most businesses continued to attempt to manage margins by focusing on minimizing their costs.
Natural Resources and Agriculture
Contacts reported strong overseas demand for proteins and related feeds. Farm land values in the District were mixed; crop land values changed slightly, while pasture land declined in some areas. To varying degrees, drought conditions persisted in much of Georgia, Alabama, Louisiana, and the panhandle of Florida. In Georgia, Louisiana, Mississippi and Tennessee cotton harvesting was ahead of the five-year average, while Alabama was slightly below the average.
* The report for the Sixth District (Atlanta) has been corrected to properly report changes in manufacturing production.