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Federal Reserve Districts

Sixth District--Atlanta

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Sixth District business contacts in several industries reported signs of stabilization in economic activity through August. Retail merchandise and tourism-related spending was described as being little-changed. However, auto industry contacts cited a sharp increase in sales as a result of the cash-for-clunkers program. Reports from real estate contacts indicated that the pace of decline in home sales continued to moderate in most areas compared with the same time a year earlier, while Florida Realtors noted continued sales gains from very low levels. The inventory of unsold homes remains elevated, in part because of the continuing supply of foreclosed properties, and this is said to be keeping downward pressure on home prices. Commercial real estate activity softened further as vacancy rates rose, rents declined, and more projects were delayed. Manufacturing activity continued to improve as reports of new orders and production levels increased. Banking contacts reported that credit availability remained tight. The pace of layoffs broadly slowed, but few contacts outside of temporary staffing noted any plans to expand payrolls in the near term. Prices remained generally stable. Most business contacts reported that they had no plans to hike prices or raise wages in the current environment.

Consumer Spending and Tourism
A majority of District retailers cited that sales and traffic continued to remain moderately below year-ago levels, and this was largely in line with their expectations. Most retailers mentioned that they had adjusted inventories to lower levels that were in line with expected sales. The outlook among merchants remained largely unenthusiastic with regard to a near-term upturn in retail sales.

Auto dealers from across the District indicated that the cash-for-clunkers program significantly helped stimulate traffic and sales from late July to mid-August. Many dealerships reported that the demand for fuel-efficient vehicles outpaced availability. Many also noted concern over the sustainability of the recent pace of sales now that the cash-for-clunkers program has ended.

According to most hospitality industry contacts, travel-related spending remained sluggish in most parts of the region. Hotel reservations were down for both leisure and business-related travel, with bookings supported by aggressive discounting. Most industry contacts reported lower revenues, and reduced profit margins. They generally expect subdued activity to persist over the next few months.

Real Estate and Construction
Reports from most District homebuilder and Realtor contacts indicated that the pace of decline in home sales continued to moderate in July and early August from a year earlier. In Florida contacts actually experienced year-over-year gains in sales, particularly for existing homes. However, downward pressure on home prices persisted. Both Realtors and homebuilders noted that increases in supply because of foreclosures and short-sales were partially responsible for the price declines even as sales increased. Georgia homebuilders also cited difficulty competing with foreclosed home prices. Demand for starter homes remained relatively strong across the region and a pickup in sales of mid-market homes was also noted in some areas. The majority of homebuilders and contractors reported that new home construction remained at very low levels. The outlook among both builders and Realtors continued to rebound, with the majority anticipating positive year-over-year sales growth over the next several months.

Commercial real estate activity continued to trend lower since last reported. Most contacts characterized activity as weakening. Vacancy rates increased further, with greater downward pressure on rents noted among contacts. Developers also continued to report fewer projects in the pipeline overall, and delays in existing work. However, contacts in Alabama and the Mississippi coast did note some projects that had been on hold have recently moved ahead. Most contractors continued to anticipate that the level of commercial construction will continue to decline into 2010. Similarly, commercial Realtors anticipate continuing weak demand for existing space--particularly in the office sector.

Manufacturing and Transportation
Several manufacturing contacts noted increases in new orders and production levels. In particular, auto plants throughout the region reported a sharp rise in production. Most manufacturers indicated that their outlook for future production and sales improved. However, most contacts also anticipated that employment would likely remain at low levels, with any extra demand absorbed using existing staff.

Trucking contacts reported that most regional companies are continuing to experience weak freight demand, lower revenues, and excess trucking capacity. However, year-over-year declines in rail shipments of metal ores, scrap metals, and chemicals were said to have moderated in July and early August.

Banking and Finance
Banking contacts continued to remark that credit availability remained tight. Several reports mentioned that the commercial real estate market continued to be affected by tighter lending standards. Banks were cited as remaining cautious on loan approvals, subjecting borrowers to increased equity requirements, continued scrutiny of appraisals, and generally applying stricter credit standards.

Employment and Prices
District business contacts noted that the pace of layoffs decelerated in July and August. But few contacts noted any plans to increase payrolls. Some employment services contacts reported a modest increase in placements, however. Few reports cited any pressure to raise wages.

Construction and manufacturing firms reported that raw material prices had generally moderated by mid-August after having increased in late spring. Most business contacts also noted that they were unsuccessful in attempts to pass on any increased input costs to their customers. District retailers reported that retail prices remained stable relative to year-earlier levels.

Natural Resources and Agriculture
Drilling activity in the Gulf of Mexico continued to decline in July and August, with the number of rigs in operation almost 50 percent lower than a year earlier. Crude oil and gasoline inventories in the Sixth District remained well above their seasonal averages, with declines in drilling and refining only partially offsetting weakness in domestic energy consumption.

Most District farms benefited from precipitation that improved soil moisture conditions. However, weak domestic and international demand continued to trouble the near-term outlook for the region's cotton and poultry industries.

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Last update: September 9, 2009