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Reports from Sixth District contacts indicated that business activity was mixed from mid-July through August. Retail sales exceeded expectations while auto sales were down overall from a year ago. Home sales and new residential construction continued to weaken in many areas, with Florida markets reporting the largest declines. In contrast, the pace of nonresidential construction improved slightly. Also, reports from manufacturers, transportation firms, and tourist industry contacts were generally upbeat. Banking contacts noted lower residential loan demand and little change in the demand for commercial and industrial loans. Contacts reported that labor shortages in the construction industry persisted in many parts of the District, while localized shortages were noted in some other industries, including the Gulf Coast hospitality industry. Continuing cost pressures related to energy inputs were reported by most businesses, whereas the ability to pass along these higher costs to consumers remained limited.
Consumer Spending
District retailers reported that sales during late July and August exceeded expectations and were slightly above year-ago levels. Nonetheless, inventories were described as balanced by most contacts. The reports from mid- and high-end retailers continued to be stronger than those from lower-end and discount retailers. The recent sales tax holidays boosted retail sales in Alabama, Florida, Georgia, and Tennessee. The outlook among retailers remains positive, with most expecting increased sales over the next three months compared with a year ago.
Vehicle sales continued to be mixed. Domestic brand dealers reported sluggish traffic and undesirably high inventories. Dealers handling foreign brands noted improved volumes from a year earlier, although some had offered incentives to clear inventories of less fuel-efficient 2006 models.
Real Estate
Residential housing markets continued to pull back in late July and August in most areas of the District. Both Realtors and homebuilders indicated that single family housing inventories rose compared to the prior month and from a year ago. The most significant sales declines continued to be noted in Florida markets, although the pace of decline moderated in some markets there. Within the multi-family segment, condominium markets in Florida remained especially weak. At the same time, Atlanta has experienced a surge in condominium construction. The outlook among real estate agents and builders was for more weakening over the next several months. The limited availability and higher price for property insurance was said to be adversely impacting housing and commercial real estate demand in coastal markets. By some accounts, premiums in parts of Florida have quadrupled from a year earlier.
Reports from commercial builders indicated that nonresidential construction in the District was slightly stronger than a year earlier. Modest improvements were noted in the industrial and office sectors as vacancy rates declined in several markets. Contacts in Florida noted that condominium developers and contractors were now turning to the non-residential market for new business. Most reports anticipated continued modest increases in activity over the next several months.
Manufacturing and Transportation
Manufacturing activity was mostly positive according to reports. Several building materials producers continued to report strong demand and high production levels. A manufacturer of electrical equipment was operating at near capacity and reported increasing order backlogs, and capital expenditures. Some vehicle assembly and parts manufacturers reported planned expansions, and several defense contractors have been awarded large military contracts. Less positively, a furniture manufacturer announced the closing of a large facility, and weaker demand for recreational boats led to production cutbacks by a major boat producer. Reports from freight transportation contacts remained upbeat as the demand for trucking services was strong, and airborne shipments through Atlanta were above year-ago levels.
Tourism and Business Travel
Reports from the tourism sector were generally positive in late July and August. A central Florida theme park noted that attendance in July was above that of a year ago, while resort tax collections and passenger numbers through Orlando International Airport also rose. Gaming revenues were the strongest since Hurricane Katrina at Mississippi Gulf Coast casinos. In addition, reports suggest that cruise ship traffic through New Orleans is expected to return to pre-Katrina levels by next year. Attendance at the new aquarium in Atlanta far outstripped expectations and has generated strong room demand at nearby hotels.
Banking and Finance
Banking conditions in the District were characterized by further declines in demand for real estate loans and little change in commercial and industrial loan demand. Several contacts suggested that higher property insurance premiums in Florida had dampened real estate loan demand. Most contacts noted increased competition for deposits. Credit quality indicators remained strong.
Employment and Prices
Contacts continued to report labor shortages in some industries and locations. Staffing the re-opened casinos along Mississippi's Gulf Coast remained a problem for casino operators because of the lack of housing, and hospitality workers remained in short supply in New Orleans. Builders noted a shortage of qualified workers in many parts of the District with the most acute shortages reported along the Mississippi Gulf Coast.
Most businesses reported continuing costs pressures because of high energy prices, with only limited success in passing higher costs on to consumers. Many firms had adjusted to increased costs by cutting profit margins or reducing staff and service levels. However, one steel manufacturer reported that further cost cuts were no longer possible without affecting efficiency and productivity. Residential and commercial construction contacts noted increasing material and labor costs, especially along the Mississippi Gulf Coast.
Agriculture and Natural Resources
Most District crops and pastures continued to suffer from excessively dry weather conditions in July and August. Soil moisture were said to be alarmingly short in areas of Alabama, Florida, Georgia, and Mississippi. Conditions for the cotton and peanut crops in Alabama and Georgia were described as between poor and very poor by the USDA. Poultry producers continued to experience lower prices because of weaker export demand related to fears of the Avian Influenza.
Interest in energy exploration in the Gulf of Mexico has intensified with the total value of bids for federal oil and gas leases in the Gulf up 38 percent from August of last year.
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Richmond