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Federal Reserve Districts

Sixth District--Atlanta

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Reports from District contacts indicated that economic activity remained mixed from mid-July through August. In the consumer sector, retail sales improved modestly, the tourist industry indicated strong activity, while vehicle sales continued to weaken. Home sales stayed well below year-ago levels in most parts of the District, and construction levels declined further because of the large unsold inventory. Contacts indicated that they expect weakness in housing markets to persist for several months. Manufacturing activity was mixed, with weakness noted in the building materials and automotive segments. Regional freight activity declined. Banking contacts reported increased loan delinquencies and tighter lending standards. Labor market conditions were described as being tight, especially for skilled positions, whereas layoffs continued to increase in housing-related industries. Overall, reports on prices and wages indicated no unusual developments. The persistent drought and severe heat in most areas has adversely affected crop production.

Consumer Spending and Tourism
Most reports from District retail merchants noted that sales improved somewhat in July and August on a year-over-year basis. Early August sales-tax holidays appeared to have boosted back-to-school sales in many areas. The majority of contacts reported that sales were below plan, but most also expected improved sales over the next several months. Overall, the softest retail spending reports continued to come from Florida contacts, and this is consistent with a weakening pattern of sales-tax revenues in recent months.

According to industry contacts, vehicle sales in July and August remained subdued. Although gasoline prices retreated, auto dealerships continued to report that fuel economy remains an important consideration for buyers. Contacts reported that promotions did little to improve sales, particularly for full-size trucks and SUVs. Distributors of some regionally produced foreign brands observed moderately higher sales in July and August, but sales still lagged behind the national pace for these foreign makes. Industry reports noted an increase in auto loan delinquencies, higher financing costs for sub-prime buyers, and a decline in the number of customers financing vehicles from home-equity lines of credit.

Most reports indicated positive tourism activity. Strong hotel bookings were reported by contacts in Orlando, boosted by robust theme-park attendance. Also, activity during August was described as being higher in South Florida than a year earlier. The recovery of Mississippi's Gulf Coast casinos continued, with revenues in July exceeding pre-Katrina levels. Casinos were adding to payrolls, although housing shortages remained a problem in attracting workers. New Orleans' Louis Armstrong International Airport reported that passenger numbers continued to improve only gradually.

Real Estate
Homebuilders and Realtor contacts reported that new and existing homes sales were well below year-ago levels in July and August, and new construction declined across the region because of high inventory levels. Most Florida contacts noted a sharp drop in new home sales compared with a year ago in July, reversing an improving pattern of sales in May and June. The vast majority of contacts expected the weakness in District housing markets to persist over the next several months. The pace of commercial construction was described as flat to slightly up in most areas. However, contacts reported a decrease in the number of projects in the pipeline in Florida.

Manufacturing and Transportation
Reports on manufacturing activity remained mixed in July and August. Several auto parts manufacturers noted weaker demand from auto assemblers, and manufacturers of building materials reported lower orders because of declines in home construction. In both cases, contacts indicated that they were cutting hours and/or payrolls in response. However, some increases in production were reported by contacts in other industries, such as carpet production, machine tools and electrical equipment. In addition, further expansions were announced for the District's aerospace and defense industry. A number of manufacturers indicated that they had made significant investment in new energy conservation projects because of higher energy costs.

Reports from transportation industry contacts indicated weak freight demand. Declines in shipments to and from firms associated with construction and autos continued to be noted. However, Georgia trucking contacts also reported that shipments to retailers were slowing.

Banking and Finance
Contacts observed that consumer and mortgage loan delinquencies increased in some parts of the District in July and August. Some reports also cited increased problems with commercial customers in the residential building industry. Several banks noted that they had tightened lending standards for sub-prime customers. Some mortgage brokers have closed operations in the District, and a large District bank announced it would be cutting 2,400 jobs by the end of 2008, although that decision was not attributed to declines in their mortgage business.

Employment and Prices
Labor markets remained tight in some sectors during July and August. For instance, positions in healthcare, education, accounting, and IT were reportedly hard to fill. Increased layoffs were observed in residential construction and related industries. Price information was mixed. Some building material costs stabilized. For instance, framing lumber prices were said to be similar to a year earlier, and were down about 25 percent from two years ago. Several contacts noted rising business costs related to electricity, real estate taxes, and insurance. Wage pressures remained consistent with the variation in supply and demand across industries.

Agriculture and Natural Resources
Persistently high temperatures and lack of rain worsened existing drought conditions in much of the region during August. Farm contacts reported significant damage to crops and pastures. According to some estimates, the drought could cost Georgia and Florida farmers over $2 billion in lost production. Florida officials were also concerned about Lake Okeechobee's low water readings, which have dropped 3-4 feet below normal levels.

Hurricane Dean did not have a significant impact on energy production along the Louisiana coast. Crude oil deliveries to refineries in the Gulf of Mexico region reached its highest post-Hurricane Katrina level in late July.

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Last update: September 5, 2007