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Federal Reserve Districts

Sixth District--Atlanta

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Reports from District contacts indicated, on balance, that business activity expanded modestly in late November and December. Retailers reported that holiday spending rose moderately compared with a year ago, and tourism contacts noted solid late-year activity. Continued weakness in housing markets, especially in Florida, was reported by Realtors and homebuilders, and low levels of mortgage loan demand continued to be noted by regional bankers. Several contacts in housing-related manufacturing and transportation operations noted declining orders for building materials. However, post-hurricane rebuilding along the Gulf Coast continued to boost the construction industry in that area. Labor markets remained tight in several industries, while price pressures, particularly in the construction industry, have eased in most parts of the District. Agricultural growing conditions were described as being favorable.

Consumer Spending
Most District retailers reported that sales in December rose modestly compared with a year ago and were generally in line with expectations. The majority said that they were pleased with inventory levels. Merchants noted that gift card sales were strong. Sales reports from New Orleans, Baton Rouge, and South Mississippi were positive, even when compared with elevated post-hurricane levels in December of 2005. Contacts indicated that retail sales growth in most parts of the District is expected to be modest in coming months.

Vehicle sales were reportedly below year-ago levels in most areas. South Florida dealers' noted disappointing traffic and sales during late November and December. Sales of Florida's two best-selling domestic trucks were said to be down sharply from year-ago levels, while sales of foreign brands continued to advance. One regional industry contact reported that sales of trucks and SUVs were boosted by incentives and lower gasoline prices. Meanwhile, two regional import distributors reported slight gains across vehicle segments.

Tourism and Business Travel
Reports concerning the tourism and hospitality sector were generally positive. Some Florida travel industry contacts noted the holiday season was stronger than last year, and travel agencies reported that cruise bookings were up significantly between Christmas and New Year's Day. In Atlanta, visitor numbers to the Georgia Aquarium have eased in recent months, but the estimated 3.6 million people that visited the Georgia Aquarium during its first year of operations far exceeded expectations. Since the aquarium opened, hotels in Atlanta have reportedly had a much more steady flow of traffic than the usual swings associated with conventions. In New Orleans, officials reported that about 70 percent of the events booked before Hurricane Katrina remained committed to the city for 2007.

Real Estate
Weakness continued to be noted in District housing markets, with Florida reporting the largest declines in sales and new construction. Home sales and construction levels were more mixed elsewhere in the District, although inventories of homes for sale remained high across much of the region. Most Florida real estate agents reported price reductions on existing homes for sale, while there were scattered reports of price declines in other parts of the District as well. In southern Louisiana and Mississippi, the outlook for residential construction appears to be strong. Weak market conditions are expected to persist over the next several months in most other areas.

Nonresidential development in the District remained at healthy levels, with infrastructure repairs and improvements continuing to dominate activity in late November and December. Reports from contacts indicated that District commercial real estate markets improved late in the year as office occupancy and rental rates increased.

Manufacturing and Transportation
Factory activity remained mixed, and the slowdown in residential construction affected producers of building materials. For example, a District roofing company cut back a shift in its plant because of decreased demand, and a door and window manufacturer reported that business was down 27 percent from last year. In contrast, a specialty machining operation that provides fittings for the oil and gas pipeline industry noted that business was better than last year, and an aerospace producer reported increased orders and additional hiring.

Trucking contacts reported that business conditions remained weak in late November and December, mainly because of fewer shipping orders from building materials producers. However, rail shipments continued to grow with shipments of inter-modal containers and coal offset lower shipments of autos and building materials.

Banking and Finance
Banking conditions in the District were stable. Residential loan demand remained weak in most parts of the District, especially in Florida. Reports on commercial and industrial lending were mixed. Overall credit quality continued to be described as good, although there were some reports of increases in consumer loan delinquency in parts of the District. Lending requirements were expected to become more stringent in the coming months.

Employment and Prices
According to most reports, hiring trends remained positive during late November and December. A few retailers experienced labor shortages during peak shopping times over the holidays. Hiring in the construction industry slowed in the residential component, but this has been partly offset by rising payrolls in the commercial construction segment. Some contacts indicated that the demand for business IT professionals is expected to be strong over the coming year. In the New Orleans area, hiring is described as brisk, with many workers relocating from other areas to take advantage of the employment opportunities. Strong demand for skilled workers continued in the energy sector, pushed by strong exploration and production in the Gulf of Mexico.

Prices for some construction supplies continued to decline in December. For instance, contacts noted that the cost of concrete, steel, copper, and framing lumber are all down from recent highs. However, it was also noted that prices were well above the levels experienced two years ago. Gulf Coast contacts reported that construction costs had not declined as much as other areas because of strong local demand. Also, contacts in coastal areas continued to express concern about rising residential and commercial property insurance costs. Retailers reported that strong competition continued to limit price increases on most goods. On the other hand, several contacts in service-providing industries noted that they had successfully passed on cost increases to their customers.

Agriculture and Natural Resources
Weather conditions were mostly favorable for District crops in late November and December. Cotton growers were particularly pleased with high yields and timely weather patterns that benefited late plantings and harvesting. For citrus growers, the prospect of winter freezes and diseases like canker and greening remained a significant industry challenge. Investment in biofuels and other alternative fuel industries remained strong in the District.

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Last update: January 17, 2007