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Federal Reserve Districts

Sixth District--Atlanta

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Reports from Sixth District contacts indicated that business activity was mixed in September. District merchants reported that sales exceeded expectations, although auto sales were mixed. Home sales and housing construction continued to trend lower in Florida, and there were reports of declining housing market activity in other areas as well. In contrast, nonresidential construction continued to expand modestly. Real estate loan demand moderated further, and an increase in foreclosures was noted in parts of the District. Reports on manufacturing and tourism were generally positive. Labor shortages were a source of wage pressure in some industries, and cost increases related to energy and raw material prices continued to be reported. Several businesses noted they had successfully raised their output prices to offset a portion of the higher input costs.

Consumer Spending
District retailers reported that sales improved in September. Most merchants noted that sales exceeded expectations and were above year-ago levels. Back-to-school activity was particularly strong across the District, and the outlook among most retailers remained positive. Reports of auto sales were mixed. Most domestic brand dealers reported that sales of trucks and SUVs were disappointing in September, and that inventories were too high. Some dealers noted that reduced prices and new financing incentives helped to boost sales modestly later in the month. Regional foreign brand distributors noted that sales were better in the Southeast than the national average in September, but were off from year-ago levels.

Real Estate
Further declines were noted in District housing markets in September. The majority of builders and Realtors reported that activity was down from a year ago and inventories continued to rise. Weakness was most pronounced among Florida contacts, while there were scattered reports that conditions deteriorated in parts of Alabama, Georgia, and Tennessee. According to contacts, new home construction was below year-ago levels in most parts of the District. Reports from the Mississippi Gulf Coast were more robust, whereas reports from New Orleans indicated that the pace of construction continued at low levels. Contacts suggested that the high cost of insurance remained a major problem for property owners in the Gulf coast area.

Reports from commercial builders indicated that nonresidential construction in the District was slightly stronger in September compared with a year earlier. However, contacts also reported that rising material costs caused highway and road projects in Alabama, Florida, and Georgia to be scaled back. Most reports anticipated continued modest growth in nonresidential activity over the next several months.

Manufacturing and Transportation
Reports on manufacturing production in September were generally positive. Activity related to the energy sector was especially strong. A refiner was adding personnel and a major shipbuilder received a contract to provide support vessels for the offshore oil and gas industries. Steel industry contacts also reported good results. Reports on capital outlays and future spending plans were mixed. For instance, many contacts reported that capital investments were directed toward increasing energy efficiency rather than adding to capacity. Reports from the transportation sector varied. Some trucking companies noted slower activity, especially those dealing with homebuilders. Meanwhile, regional rail companies were encouraged by the steady growth in the volume of inter-modal container shipments.

Tourism and Business Travel
Reports from the tourism sector were generally positive in September. Passenger traffic at Orlando International Airport was up over two percent from a year ago, and central Florida theme park attendance was described as solid. Three casinos recently reopened on the Mississippi coast, boosting the near term economic outlook for that area. In New Orleans, however, the reduced number of tourists and conventions continued to hamper the industry's recovery there. Industry contacts expect tourist activity in New Orleans to pickup after the hurricane season.

Banking and Finance
Slowing loan demand, aggressive competition for deposits, and strong credit quality, characterized reports from the District's banking sector in September. Weaker real estate loan demand was noted in most parts of the District, while reports on commercial and industrial lending were softer than in the last report. Higher foreclosure rates were reported in parts of the region as increased interest rates affected borrowers with adjustable rate mortgages. However, bank credit quality indicators remained strong.

Employment and Prices
Labor shortages persisted in parts of the District. Some manufacturers reported that they had raised their entry-level wages in an effort to attract workers. Several residential construction firms continued to note difficulty in obtaining qualified construction workers, despite the slowdown in building activity. A spokesman for one staffing firm said that demand for skilled engineering and finance specialists was strong. However, another staffing firm reported that the overall demand for temporary workers had leveled off in September.

Many of the companies contacted stated that they have been able to pass on at least some of their cost increases to their customers. However, a concrete products manufacturing company had to absorb recent energy, freight, and raw material cost increases because of the slowdown in homebuilding. Property insurance premium increases continued to be a major concern for businesses in coastal areas of the District.

Agriculture and Natural Resources
Drought conditions moderated slightly across the District, but growers in Alabama and Georgia remained concerned about the impact of the summer drought on cotton and peanut yields. Meanwhile, Florida citrus producers have benefited from higher prices for oranges this year. Despite weaker export demand attributed to international concerns about Avian influenza, lower poultry prices have reportedly encouraged some large export orders from China, Russia, and Mexico.

High energy prices and a calm hurricane season resulted in a significant expansion of exploration in the Gulf of Mexico in recent months. According to initial estimates, a new, large find in the deep waters of the Gulf has the potential to double U.S. crude oil reserves.

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Last update: October 12, 2006