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Federal Reserve Districts

Sixth District--Atlanta

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Reports from contacts for late November through December continued to paint a mixed picture of economic activity in the Sixth District. Holiday sales were described as similar to year-ago levels, while vehicle sales remained weak. In contrast, contacts reported that tourism-related spending continued to be healthy through the end of the year. Residential real estate activity remained weak in December, although additional discounting by homebuilders appeared to help move new homes in a few areas. Manufacturing varied by industry, with defense, steel, and energy-related production reporting positive activity, while construction-related goods production remained weak. Freight traffic was below year-ago levels. Reduced credit availability and stricter lending standards for real estate loans continued to be reported among banking contacts. Demand for skilled workers was strong through the end of the year, according to most reports. Food, petrochemical and energy-related input prices continued to increase. The drought persisted in the Southeast despite much needed rainfall in late December.

Consumer Spending and Tourism
Most retail contacts reported that holiday sales were lackluster and came in similar to year-ago levels. Electronics and luxury items sold well across much of the District. Discounting was widespread, particularly among apparel retailers, and their end-of-year inventories were higher than expected. However, some Florida merchants noted that they benefited from increased sales to foreign tourists.

In general, auto dealers reported that late November and December vehicle sales were below year-ago levels, while inventories remained above average. Some reports noted that sales to both retail and commercial customers were off sharply for domestic brand dealers, and foreign brands were turning to fleet sales to offset weaker retail demand.

Reports concerning tourism continued to be quite positive. Florida businesses that serve winter visitors reported strong activity, and upscale hotels noted increased occupancy. Foreign arrivals boosted the state’s overall performance. European and Canadian visitor numbers were up, and Orlando International Airport was on pace for a record year for passenger traffic. Major college football games and a large convention stimulated New Orleans’ hospitality industry.

Real Estate
Homebuilders and Realtors reported that new and existing home sales remained well below year-ago levels during December in most areas, and inventories remained high. Builders in several markets cut asking prices for new homes and this appeared to improve the pace of sales. Residential construction was significantly below year-ago levels across the District, and builders and Realtors reported that weak conditions are expected to persist during the first quarter.

Contacts indicated that conditions in commercial markets in the District were largely unchanged from the last report, with activity described as generally flat in most areas. Developers continued to note a decline in the backlogs of construction projects.

Manufacturing and Transportation
Manufacturing activity varied by industry. Pulp and paper producers reported strong demand, particularly from China. Contacts observed that the steel industry was performing well, and defense and energy-related manufacturers also reported strong activity. However, producers of residential housing-related goods continued to note very weak demand. Reports indicated that many District manufacturing firms in several industries were expanding export activity.

Freight volumes in late November and December continued to weaken compared with year-ago levels. Trucking contacts noted disappointing volumes of retail and housing-related shipments. Rail companies reported lower deliveries of forest products, motor vehicles, and inter-modal cargoes. Domestic airborne shipments were off from a year earlier as well.

Banking and Finance
Financial industry contacts reported reduced credit availability and stricter lending standards for real estate loans to homebuilders and builders. Earnings at some banks were reportedly under pressure in the fourth quarter, partly because of the greatly reduced volume of real estate lending. In addition, loan loss provisions were rising because of anticipated increases in mortgage delinquencies and defaults. More stringent standards and closer scrutiny of applications were also noted in the commercial real estate loan market. Credit card lending was a notable exception to the general tightening in credit standards.

Employment and Prices
The demand for workers in some sectors continued to be quite strong through the end of the year. Steady demand was reported for workers in the healthcare, insurance, and energy sectors, while engineers, particularly in petrochemical fields, were in high demand. Hospitality workers were said to be hard to find in areas experiencing strong tourism activity. Housing-related industries continued to trim payrolls.

Food, petrochemical and energy-related input prices continued to increase, according to most reports. Firms producing fertilizer, chemicals, and plastics noted increasing input prices. Delivery costs for most products were reportedly up because of higher fuel costs. Some firms mentioned rising metal costs, especially nickel and steel. Input costs continue to increase for goods originating in Europe or Japan because of the lower value of the dollar. Local framing lumber and panel producers reported weak prices.

Agriculture and Natural Resources
Rains during December brought short-term relief to drought-stricken areas in the District, but growers’ outlook remained uncertain at year-end. Planters and ranchers may reduce activity to limit losses because of the anticipation of higher irrigation costs. Florida officials estimated that if the current drought persists, the state’s agriculture sector could sustain losses of up to $1 billion. Tennessee livestock producers recently reported that a late spring freeze and the subsequent drought during 2007 also led to a substantial loss of revenue.

Gulf Coast crude oil inventories declined further in December and reached their lowest level in three years. Production began at a large new platform, located off the coast of Louisiana. This facility is expected to produce up to 200,000 barrels of oil and 180 million cubic feet of natural gas per day during 2008.

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Last update: January 16, 2008