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Federal Reserve Districts

Sixth District--Atlanta

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Reports from Sixth District business contacts suggested that the pace of economic activity was mixed in September and early October. Hurricanes Katrina and Rita had a significant impact on activity throughout the District. Loss of life and property damage was tragic, and individual and firm dislocations were widespread. Business contacts reported that economic activity remained severely disrupted in coastal Louisiana and Mississippi. Reports from other areas noted spillover effects, including shipping delays, higher fuel and building material costs, and increased demand for commercial and residential real estate in some locations.

Consumer Spending
Retail sales varied widely across the District, according to merchants. Building supply and grocery stores experienced a surge in demand prior to the storms. Most retailers directly in the storms' paths remained closed because of damage, whereas many others were unable to open for some time because of the lack of power, shortages of workers, and transportation delays. Merchants in several areas, such as Baton Rouge, experienced strong year-over-year sales gains in September and early October because of the influx of evacuees. Outside of the storm-affected areas, a few contacts reported that their sales had been hurt by higher energy prices, and some clothing retailers noted that unseasonably warm temperatures had slowed sales.

September vehicle sales fell across the District. Most regional contacts blamed high gasoline prices for their disappointing performance. Several domestic dealers that had enjoyed good sales volumes in previous months reported a decline in activity and a large increase in the inventory of trucks and SUVs. In contrast, an import distributor noted that economy cars and Hybrid models sold extremely well across the region.

Real Estate
Reports from building contacts across the region noted delays and higher prices for shipments of building materials in September and early October, including concrete, lumber, and sheetrock. Many contacts expected that shortages and higher prices will persist as reconstruction in hurricane-damaged areas gets fully underway. Housing demand in neighboring areas surged as evacuees sought new living arrangements, and commercial real estate markets tightened as businesses set up temporary operations. Damage to schools, hospitals, roads, bridges and other public infrastructure was extensive in southern Mississippi and Louisiana, and reconstruction activity is expected to provide a significant boost to the regions' commercial construction industry over coming months. Housing markets in some other parts of the District showed signs of moderating in September, although reports from many homebuilders and Realtors suggested that activity in Florida remained strong.

Manufacturing and Transportation
By early October, manufacturing activity had partially recovered in the storm-affected areas, although some contacts reported labor and material shortages and ongoing transportation difficulties. Several petrochemical plants along the Gulf Coast have come back on line as damage repairs were completed. Several shipyards in the area were also returning to an operational status, and in some cases were supplying temporary onsite housing for workers. Contacts noted that some lumber producers planned to restart idled plants to meet an expected rise in demand. Producers of manufactured housing reported that they have received contracts from FEMA to build houses for hurricane victims.

Most transportation contacts reported mixed business conditions in early October. Demand for freight was said to be quite strong, although uncertainties about fuel costs remained a concern for smaller trucking firms. A major District rail company suffered substantial infrastructure damage because of Hurricane Katrina and the normalization of services to the Gulf area could take several months. Repairs at the port of New Orleans could also take several months, and the port has been operating far below capacity. By early October, Mississippi river ports that handle grain shipments had largely returned to normal operations.

Tourism and Business Travel
The hurricanes severely affected several tourist and business destinations. For instance, most casinos along the Mississippi Gulf Coast suffered extensive damage and will need to be rebuilt. In New Orleans, events at the damaged Morial Convention Center have been cancelled through March of 2006, and many conventions have chosen to relocate to places such as Atlanta and Orlando. Officials in other areas, such as Florida, expressed concern that high gasoline prices could put a damper on travel plans.

Banking and Finance
Financial operations in most of the District were stable following the hurricanes. Loan losses were reported to be low and deposits remained strong overall. Potential short-term liquidity problems in the wake of the hurricanes appeared to have been avoided, and most institutions were operating. Some smaller banks with business concentrations in evacuated areas reported concerns about the loss of their customer base.

Employment and Prices
Contacts reported that employee dislocation presented significant problems for businesses that were reestablishing operations in the affected areas. Temporary employment agencies reported strong business activity placing workers in cleanup or disaster relief positions. In neighboring areas, career centers and job fairs had helped displaced workers find employment.

Higher energy prices continued to be noted as a concern by most contacts. For instance, operators in the petrochemical and paper industries noted that high natural gas prices would reduce international competitiveness, while higher fuel costs were said to be adversely affecting farmers. Builders across the region reported higher prices for building materials, especially for repair-related items. Fuel cost increases were being passed on in a number of industries. Plastics and fertilizer companies were increasing prices on a variety of products because of higher feedstock prices, for example.

Natural Resources and Agriculture
Energy production in the Gulf of Mexico remained severely disrupted because of damage to offshore facilities and the need to complete safety inspections. Through the first week of October nearly 90 percent of normal pre-storm oil production and more than 70 percent of natural gas production remained off-line. Refining capacity also remained lower because of storm damage, and contacts anticipated that it may be several months before all the processing plants are operational.

Reports on District crop and livestock conditions were positive overall, although it was noted that the hurricanes damaged at least half of the Louisiana sugarcane crop

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Last update: October 19, 2005