June 9, 2010
Federal Reserve Districts
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On balance, Sixth District business conditions appear to have improved modestly in April and May. Most retail contacts continued to experience increased traffic and sales, and their outlook remained generally optimistic. Reports on tourism were also generally positive; however, considerable uncertainty was expressed about the potential impact from the Gulf oil spill and the recent floods in Tennessee. Overall, homebuilder and Realtor reports suggested that the pace of new and existing home sales slowed somewhat, whereas commercial construction contacts reported ongoing weak conditions. The District's manufacturing and transportation segments extended their previous gains in new orders and production. By most accounts, bank credit conditions remained tight. Firms across several sectors reported increasing hours worked of existing staff and expanded the utilization of temporary hires. However, firms generally remained reluctant to add permanent staff. According to manufacturers and homebuilders, transportation and material costs rose slightly, but they did not plan to pass these increases along to customers.
Consumer Spending and Tourism
The tourism sector continued to improve. Hospitality contacts in Atlanta, Miami, Nashville, New Orleans, Orlando, and Tampa all noted hotel occupancy rates above the national average. Business-related travel and convention bookings were up and future bookings looked strong. Convention hotel contacts began noting some pricing power. Cruise-line bookings were gradually trending up and many were able to increase prices slightly. Similarly, contacts in the restaurant industry experienced a modest increase in activity and projections for the near-term were optimistic.
However, the recent Gulf oil spill and the floods in Tennessee have tempered the outlook in those areas. Contacts indicated that the potential impact on the tourism industry along the coastline of Louisiana, Mississippi, Alabama and western Florida could be substantial. In some cases, vacation lodging cancellations have been replaced by bookings from clean-up crews, laborers, and the National Guard. The Nashville area is expected to see a decline in tourism-related receipts because of damage to several tourist venues there. The near-term outlook among hospitality contacts varied greatly, reflecting the high level of uncertainty.
Real Estate and Construction
Realtors indicated another modest improvement in existing home sales in April compared with a year earlier. However, on a month-over-month basis, responses from contacts showed that sales softened slightly. Realtors reported that high-end home sales exceeded their year-earlier level for the first time since early 2006. Inventory levels were described as similar to a year earlier, and home prices stabilized. The outlook for sales over the next several months remained positive but was a little less upbeat than recent reports.The majority of commercial contacts reported that the pace of development was still well below year-earlier levels and construction backlogs were down sharply. Most noted that limited access to financing and weak demand continued to constrain activity. The outlook for commercial construction activity for the rest of the year remained weak.
Manufacturing and Transportation
Banking and Finance
Employment and Prices
District manufacturing and homebuilder contacts cited increases in commodity prices and transportation costs in April and early May. Several businesses reported that supply chain capacity constraints were responsible for some of the price increases. However, little of these cost increases were expected to be passed on to consumers as lower labor costs continued to relieve pressure on business balance sheets, and most firms said they faced intense competitive pressures.
Natural Resources and Agriculture
In early May, severe rainfall flooded parts of central Tennessee. According to the USDA National Agricultural Statistics Service's weekly crop survey, Tennessee farmers reported moderate to severe damages to 39 percent of the state's corn crop and 21 percent of winter wheat. Damages to fruit and vegetable crops and nursery stock have also been reported, as well as significant destruction of farm infrastructure. Elsewhere in the District, recent rains generally improved soil moisture conditions and crop production.