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Federal Reserve Districts

Sixth District--Atlanta

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Contacts reported that economic activity in the Sixth District remained lackluster in January and February. Retail sales were sluggish, while manufacturers noted continued weakness outside of defense and auto-related production. The District's tourist sector continued its gradual improvement. Labor markets displayed a modest improvement in January and February; employers reportedly remained reluctant to add permanent staff but increased their use of overtime and part-time workers. The District's single-family housing market remained strong, but commercial real estate markets continued to suffer from low demand for space. Most contacts indicated that geopolitical concerns and higher fuel prices were weighing on near-term expectations for the District's economy.

Consumer Spending
The majority of District retail contacts reported that January and February sales were about the same as they were a year earlier. Aggressive discounting remained prevalent, especially among apparel merchants that were clearing out winter clothing. Most retailers contacted indicated that inventories were balanced, and some noted that stocks were lower than this time last year. Several national retail chains announced planned store consolidations in the District. Automobile industry contacts reported mixed light-vehicle sales in January and February, while the demand for used-car sales remained soft.

Real Estate and Construction
Low mortgage rates continued to propel District housing markets in January and February. The strongest reports in the District were from Florida, while contacts reported that home sales and construction elsewhere were mostly stable. High-end homes remained difficult to sell in most parts of the region. Reports noted that commercial real estate markets remained weak in January and February. Vacancy rates increased in some metropolitan markets, and new construction was largely limited to public works projects. Several contacts noted that generous lease incentives were prevalent, but absorption remained at low levels.

Overall, factory activity remained lackluster in January and February. Most manufacturing firms reported no significant increases in demand. Inventories remained lean, and capital spending plans were subdued. Petrochemical and ammonia plants in Louisiana have announced job reductions because of high natural gas prices. Production has been scaled back at a steel plate plant in Alabama because of slack industrial demand. The District's timber and forest products industry continued to experience low prices and stiff competition from imports from Canada, Europe, and South America. Contractors for NASA in Florida and Louisiana expressed concern that activity may slow following the Columbia tragedy. The most positive reports came from firms supplying the new vehicle assembly plants in the District and from defense contractors.

Tourism and Business Travel
Tourism contacts reported a gradual improvement in business conditions in January and February. In Florida, reports suggested that the level of activity still lagged behind that of early 2001 but exceeded year-ago levels. The number of visitors to Miami over the past few months was boosted by the success of several special events in the city and particularly inclement weather in the North. Cruise activity remained strong through Florida ports. Gaming revenue was characterized as exceptional for Louisiana casinos over the holidays, but the pace dropped off in January.

Banking and Finance
Responses from the banking sector were mostly positive in January and February. Residential loan demand and refinancing activity continued to be strong overall, although there were reports of increasing mortgage default rates in some areas. The vast majority of commercial loan activity was among businesses refinancing existing loans. Banking contacts reported ongoing moderate deposit growth. Venture capital investment activity remained low in most of the District.

Labor and Prices
Most business contacts continued to report that they were reluctant to increase permanent staffing levels. However, a number of firms noted that they had increased the use of overtime and part-time workers during January and February. Local and state governments were cutting back on hiring plans because of budget constraints. The main areas of employment growth were in the health-care sector and at newly expanded vehicle production facilities in the District. Insurance costs continued to escalate throughout the District, and while most reports indicated little change in output prices, input costs related to oil and gas increased significantly.

Some crops in southern Florida and south Louisiana received moderate frost damage in February, but most areas emerged largely unscathed from recent cold snaps. Winter rains have helped reduce drought conditions in several District locations.

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Last update: March 5, 2003