Economic activity in the Sixth District was significantly affected by the terrorist attacks of September 11. The immediate impact was quite negative, including disrupted sales, air travel and production. Spending appeared to be recovering by late September, but a sluggish pace of activity is expected to dominate the region's economy over the next few months. Merchants reported heavy discounting and anticipated weak holiday sales based on the current low level of "early bird" seasonal shopping. Incentives, such as zero percent financing, bolstered weak vehicle sales, but sales remained well below year-ago levels overall. The single-family housing market continued to moderate through early October. Sales have been supported by a modest reduction of mortgage interest rates, and bankers reported strong refinancing activity. However, commercial real estate markets remained weak. More projects have been put on hold or have been cancelled, and vacancy rates continued to rise. Activity in the tourism and hospitality sector fell across the District after September 11. Traffic has remained low through early October, particularly where airline travel was involved. The factory sector continued to be very weak and some contacts noted falling productivity because of the diversion of resources toward increased security. As before, few signs of increasing inflation were indicated; however, there were reports of much higher liability insurance premiums since the attacks.
According to District retailers, sales in September were disappointing. Activity was severely disrupted by the terrorist attacks as many stores closed and customers have been slow to return. Discount retailers have fared better than other merchants, although price discounting has been widespread across store types. There appeared to be a gradual return to more normal levels of activity by early October, but merchants anticipated weak holiday sales based on the current low level of "early bird" seasonal shopping.
Contacts reported that the zero percent financing rates and other sales incentives put in place in September have helped prevent a larger collapse in new vehicle sales. Overall, regional vehicle sales were down from last year, despite a late month rally in response to special deals. Some dealers noted that truck sales have been weaker than car sales. Used car dealers noted an excess supply of used vehicles as rental companies were rapidly de-fleeting in response of slower business and pleasure travel.
Real Estate and Construction
The single-family housing market continued to moderate through early October. Sales were supported by a modest reduction of mortgage interest rates. Mid-priced homes were in strongest demand, whereas the market for high-end homes softened further in central Florida, Atlanta and Nashville. Reports from south Florida continued to reflect strong demand. Contacts expect new home construction will slow through the end of the year, but home inventories were generally viewed as being balanced.
Commercial real estate markets continued to be characterized by large amounts of sublease space and rising vacancy rates. As a result of recent events, additional projects have been postponed or cancelled. Industry contacts indicated that a significant pick up in regional commercial construction is not expected until next year.
Factory activity continued to weaken in most sectors during September. More lumber mills are expected to close in the District, and the chemical industry in Louisiana is reportedly shedding employees because of weakening demand. A large regional maker of carpet tiles has recently trimmed its work force in light of the slowdown in commercial building. With production disrupted after September 11 because of transportation problems, some firms reported increasing their inventory of supplies. Firms also noted falling productivity because of time-consuming new security measures, such as checking employees and incoming shipments. Regional suppliers of military apparel reported strong new orders.
Tourism and Business Travel
Activity in the tourism and hospitality sector fell sharply after September 11 and traffic remained low through early October, especially where airline travel was involved. South and central Florida were particularly hard hit by a large decline in tourist traffic. European tour operators in Miami noted a large number of cancellations. Central Florida theme parks reported attendance well below normal levels. Destinations that were less dependent on air travel, such as the Mississippi Gulf Coast were less severely impacted. Contacts suggested that increasingly business meetings have been conducted using teleconferencing rather than air travel.
Through early October, District loan demand remained concentrated in the residential real estate area, especially for mortgage refinancing. Some lenders were reportedly showing increased caution toward new consumer loans amid indications of increased loan delinquencies in parts of the region. There has been some tightening of credit standards in commercial lending, particularly in the manufacturing sector.
Wages and Prices
Wage pressures continued to subside in the face of mounting job losses in the District during September. In addition to the ongoing contraction in the factory sector, the tourist and hospitality sector posted declining job rolls throughout the region. Hotel and motels, restaurants, and tourist attractions in Florida, Georgia and Tennessee reported job cuts because of low visitor numbers, and the announced job cuts at Delta Airlines will likely hit the Atlanta area especially hard. In response to recent events, the demand for security personnel has increased markedly.
Consumer price inflation pressures remained subdued. Indeed, many retailers have heavily discounted the prices of consumer items in an effort to stimulate activity. Prices of hotel rooms and airline tickets have also been cut. Gulf Coast oil and natural gas prices have fallen in response to reduced demand. Significant increases were noted in liability insurance rates since the September 11 attacks.
According to industry contacts, lower citrus prices caused by a glut in the worldwide supply of orange juice, combined with lower yields related to this year's drought has reduced the value of Florida citrus crop this year to the lowest levels in over a decade. Recent weather conditions were favorable for most other District crops. However, about a third of the cotton crop in Louisiana and Mississippi was rated as being in poor to very poor condition through early October.