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Federal Reserve Districts

Sixth District--Atlanta

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Economic activity was mixed in October through mid-November, according to reports from Sixth District business contacts. A majority of retailers described activity as exceeding their modest expectations, while tourism-related spending and automobile sales remained weak. However, the outlook for tourism improved as year-end bookings surpassed expectations. Home sales for most District residential real estate markets were above low year-ago levels. New residential construction activity remained minimal and concentrated in lower price points. The District's office and industrial markets worsened as construction levels and rents declined and vacancy rates rose. However, several contacts indicated that commercial construction activity showed signs of bottoming out at low levels. Although overall manufacturing activity continued to decline, the decline moderated and more manufacturing contacts reported improved orders. Bank lending activity continued to be sluggish because of weak demand and tight credit standards. The pace of layoffs in the District slowed, and some businesses reported hiring temporary workers in response to an uptick in activity. Price pressures remained stable and most businesses had no plans of increasing prices in the near term.

Consumer Spending and Tourism
District merchants indicated that retail sales were better-than-expected in October and early November. Businesses continued to keep inventory levels lean, however. The outlook among retailers improved, with over half of respondents anticipating increased sales over the next three months. Auto dealers across much of the District reported dismal sales and traffic compared to their experience during the cash-for-clunkers program over the summer.

Tourism-related spending remained sluggish throughout the District. Industry contacts reported that hotel reservations, particularly related to conventions, were down and room rates continued to decline. Cruise ships remained fully booked because of deep discounts. The outlook for tourism was more optimistic with several reports indicating that year-end and early 2010 bookings were coming in above expectations.

Real Estate and Construction
The majority of District homebuilders and Realtors reported that home sales remained above weak levels from a year earlier in October to mid-November. However, homebuilders reports indicated a modest increase in new home sales, while Realtors said existing home sales were more robust. Construction activity remained weak overall, but a few Florida homebuilders reported a pickup in activity on a year-over-year basis. The majority of construction activity remained concentrated at lower price points.

Contractors commented on the difficulty in competing with bank-owned homes and lots that continued to enter the market. Realtors noted that the housing stimulus continued to drive sales at the low-end of the market, while sales at the high-end of the market remained weak. Several real estate contacts remarked that qualifying for loans remained challenging. The outlook over the next several months softened somewhat for homebuilders but improved notably among Realtors.

Commercial construction activity continued to decline, but several contractors noted that the amount of projects in development has improved modestly in recent months. Vacancy rates increased and contacts continued to report downward pressure on rents. Declines in net absorption began to abate across much of the District, however.

Manufacturing and Transportation
On balance, District manufacturers indicated that activity declined, although at a slower pace than in previous months. Roughly one-third of manufacturers reported an increase in new orders in October, a modest improvement from the previous month. However, one-third of manufacturers surveyed also reported further reductions in finished inventory levels, while half noted that inventories were unchanged. The outlook for production continued to be modestly positive. Transportation contacts continued to report weak freight demand. Rail industry shipments through mid-November were below year-ago levels for most industry categories.

Banking and Finance
Banks continued to hold credit standards high and the pool of qualified loan applicants remained low. Some financial contacts commented that increased lending was not anticipated given the current economic environment; they were, however, willing to increase lending if loan demand was healthy and credit quality supported the application. Banking contacts remained focused on repairing their balance sheets, making adjustments based more on risk avoidance and asset quality. Some indicated that they were charging higher fees and/or paying lower rates to discourage deposit growth, while others reported limiting CD growth and were working to increase earnings.

Employment and Prices
Layoffs continued throughout the District in October through mid-November, although at a slower pace than in previous months. Firms continued to hire temporary workers in response to increases in business activity, but they remained reluctant to expand their permanent workforce. A few firms noted taking advantage of the increase in talented individuals looking for work to increase the quality of their workforce. Many businesses reported that they are requiring more skills of new hires.

District contacts from a wide variety of industries continued to report stable prices relative to last year. Most businesses reported having little pricing power and felt that they would need to see a sustained increase in sales before raising prices.

Natural Resources and Agriculture
District crude oil production continued to increase moderately in October through mid-November, with the number of rigs operating in the Gulf of Mexico increasing slightly from lows seen in August. Industry contacts reported that demand for petrochemicals continued to stabilize, prompting producers to scale back inventory reductions.

District growers enjoyed improved weather conditions through mid-November, which allowed them to resume normal fieldwork activities. Some Georgia growers were negatively affected by excessive rains.

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Last update: December 2, 2009