July 27, 2011
Federal Reserve Districts
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Sixth District business contacts described economic activity as little-changed in June through mid-July. Retail sales grew slowly, although sales of higher-end goods saw more traction and tourism activity was strong. Existing home sales remained soft outside of Florida, while new home sales and construction were weak throughout the region. Downward pressure on prices of both existing and new homes continued to be noted. Contractors reported that the pace of commercial development was basically unchanged, although construction activity in healthcare and multi-family had improved. Manufacturing contacts indicated that production and new orders increased but at a slower pace than experienced earlier in the year. Credit availability for entrepreneurs and real estate developers remained tight, although loan availability for some commercial projects increased. Most business contacts indicated that their hiring plans remained modest. Firms' expectations for unit cost increases have softened, mainly because non-labor input costs have moderated. Some energy contacts have noticed a considerable uptick in early stage fabrication of oil and gas extraction capital goods. While most of the District continued to experience drought conditions, recent rains have provided relief to some of the District's stressed farmlands.
Consumer Spending and Tourism
Leisure activity continued to accelerate in most areas. Contacts reported increases in room occupancy and rates in many areas. Strong attendance at theme parks, festivals, and coastal destinations was noted. Cruise bookings have risen as well, and airport contacts observed increases in passenger traffic. The overall outlook for tourism remained positive.
Real Estate and Construction
District builders reported that new home sales and construction weakened somewhat in June compared with year-ago levels. Builders continued to report downward pressure on new home prices. Residential contractors reported that home improvement construction increased from earlier in the year; however, most reported that they were unable to effectively pass along all cost increases. Most builders anticipate that new home sales and construction will be slightly ahead of last year's weak levels over the next several months, and most expect renovation work will continue to improve.
About two-thirds of contractors reported that the pace of commercial development was flat to slightly up compared with weak levels from a year earlier, but backlogs continued to shrink. Contractors commented that healthcare and apartment construction were bright spots and that renovations in commercial and apartment space had increased. Most contractors anticipate activity for the remainder of this year will be flat to below year-ago levels. With regard to existing commercial structures, contacts reported that credit availability and absorption improved, especially in light industrial, warehousing, healthcare and energy-related space.
Manufacturing and Transportation
Freight forwarding and parcel shipping contacts reported a gradual slowing of domestic volume momentum in June through mid-July. The cost of fuel and other inputs continued to challenge shippers' operating margins; however, maritime contacts cited some success in passing along fuel surcharges. Input costs for trucking contacts--such as tires, replacement parts, and new vehicles--remained high.
Banking and Finance
Employment and Prices
Firms' expectations for unit cost increases are more tempered than noted earlier in the year. Non-labor input costs have moderated, but remained elevated. However, downward price pressures from productivity gains were reportedly tapering off. While District contacts have continued to report that margins remained squeezed, there have been more frequent reports that some contacts are attempting to pass through input costs.
Natural Resources and Agriculture
While most of the District continued to experience drought conditions, recent rains have provided relief to some of the District's stressed pastures and crops. Based on results of a recent state survey, a contact reports concerns that farm labor shortages has had a negative impact on Georgia's fruit and vegetable production.