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Federal Reserve Districts

Sixth District--Atlanta

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Contacts reported that economic activity remained subdued in the Sixth District during late November and December. Merchants' sales were mixed and discounting was widespread over the holiday period. Auto sales, however, improved in December. Although single-family residential building and sales cooled a little in some areas, District housing markets posted strong figures overall, and listings were reported as balanced. Weak demand continued to plague commercial real estate markets and vacancy rates remained high. Factory activity was sluggish, with new layoffs in some sectors and slowing production in others. Reports on tourism and hospitality improved, but the business travel sector remained weak in most areas. Labor markets were lackluster, and there were few signs of significant improvement. Price increases remained limited. Heavy rains adversely affected some District crops.

Consumer Spending
Sales reports from around the District largely mirrored national reports in late November and December. Most contacts indicated that holiday sales were near last year's levels and either met or fell slightly below expectations. According to the retailers contacted, electronics and children's apparel performed well across the District, while men's apparel, jewelry, and home-related product sales were mixed. Heavy discounting was widespread and most contacts reported that fourth-quarter profit margins declined from last year. Most retailers described inventories as balanced. The majority of merchants contacted anticipated that first-quarter sales would rise modestly compared with last year's level, but also noted a high level of uncertainty about the outlook.

District car sales weakened further in November but improved in December, according to contacted dealers. A major producer reported that car and truck sales in November were off from a year earlier. Used auto sales in December were mixed, with wholesale auctions in Atlanta troubled by below-average dealer participation and high inventories. However, Florida's used car sales auctions surged in December because of strong demand from out-of-state dealers attracted by bargain offerings from fleet and lease companies.

Real Estate and Construction
District housing markets continued to benefit from low mortgage rates in late November and December. According to reports from real estate agents, the region's home sales were up slightly in November from a year ago, but the pace slowed somewhat during December. Most District homebuilders reported that new home construction during November and December was near last year's levels, while home sales were down a bit from last year. Homes priced in the midrange were in strongest demand, while high-end homes continued to be difficult to sell. Most realtors indicated that listing inventories were balanced. Many contacts noted their concern that sluggish job growth may dampen demand going forward. Weakness persisted in local commercial real estate markets in December.

Overall manufacturing activity remained sluggish in late November and December. A manufacturer of capital goods reported that orders weakened in the fourth quarter. Some manufacturers, however, indicated that customers were placing orders for software systems and networks to update equipment. Production was suspended at three regional plywood-manufacturing facilities and will reportedly not resume until lumber markets improve. Some Tennessee and Georgia vehicle manufacturers reported that inventories were undesirably high and that production would have to be temporarily cut back. On a positive note, orders for companies that make military equipment were strong, and a producer of health-care equipment reported increased new orders and was adding to payrolls.

Tourism and Business Travel
Reports from the District's hospitality and tourism sector revealed some improvement in late November and December. Business travel to south Florida improved modestly, but visitors were not booking much in advance, according to area contacts. Some reports indicated that hotel and motel bookings for the holiday period returned to near 2000 levels. Weakness in business travel persisted in Atlanta and the city's convention business continued to suffer. Central Florida theme parks were reportedly packed over the holidays. Seasonal rentals were lagging behind last year's figures because of a decline in demand from "snowbirds" from the northern United States as well as from Canada.

Reports from the banking sector were mostly positive. Contacts noted that residential mortgage lending and refinancing activity remained mostly strong in late November and December, with a few reports of slowing in some parts of the District. Solid deposit growth at District banks was attributed to the lackluster performance of the securities markets. Contacts observed an increase in the demand for commercial loan refinancing because of low rates.

Labor and Prices
Most reports indicated that holiday hiring was conservative, and that good staff was easier to find in most sectors. Turnover of seasonal help was lower than usual. However, many employers were favoring paying overtime rather than hiring new staff. Temporary employment agencies reported that business was flat to down from a year ago.

Health-care costs continued to escalate. Staff shortages were resulting in double-digit wage increases for hospital workers. Contacts reported that group health-care premiums were expected to increase at double-digit rates in 2003. There were also widespread reports of rising energy prices in December.

Above-average rainfall adversely affected District citrus groves and cotton fields. Florida citrus growers reported standing water in their fields and Georgia cotton producers noted that only 70 percent of the cotton crop was harvested, well behind normal levels. Also affected by stormy weather was Louisiana's sugar crop, with losses estimated to be near 10 percent and 20 percent.

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Last update: January 15, 2003