October 19, 2011
Federal Reserve Districts
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Business contacts in the Sixth District indicated that economic activity continued to expand at a modest pace in September and early October. Merchants noted that retail sales decelerated slightly compared with the previous month, although auto sales continued to advance at a solid pace. Tourism activity remained robust throughout most of the District. Homebuilders and Real Estate brokers reported that new and existing home sales remained weak and home prices continued to decline. Commercial developers indicated that construction activity increased moderately compared with weak year-ago levels, and brokers noted an increase in relocation activity. Manufacturers reported a modest decline in production and new orders. Weakness in loan demand persisted, according to banking contacts as both consumers and businesses refrained from borrowing. Hiring for permanent positions remained very subdued across most sectors. Pricing pressures moderated somewhat as input costs declined or leveled off.
Consumer Spending and Tourism
Many retail contacts planned to raise prices, expecting to retract the increases if customers pushed back. Merchants continued to aggressively discount products to draw in traffic and have found it difficult to end such practices because of concern over losing customers.
Leisure and business travel remained strong in the District. Occupancy rates continued to improve, and both airport and cruise traffic were up. International visitors bolstered activity, mainly in Florida. Group bookings and theme park attendance were up in most areas. Overall, hospitality contacts expect a vibrant holiday season.
Real Estate and Construction
Reports from District builders indicated that new home sales and construction activity were largely unchanged in September and were slightly ahead of weak levels from a year ago. Home builders continued to report that new home prices were largely flat compared with the previous month and a year ago. Overall, construction and new home sales growth are expected to be similar to weak year-ago levels over the next several months.
Half of District commercial contractors polled reported that construction activity in September exceeded the first half of the year, while just under one-third signaled that activity was weaker. Backlogs reportedly increased modestly as well. The outlook among contractors remained weak as most anticipated commercial development to be flat or down on a year-over-year basis for the remainder of 2011 and into 2012. Commercial brokers remarked that market dynamics continued to largely favor tenants in the District, particularly in the retail sector. However, some reports indicated that available office space had declined, and with little new office development underway, this could result in an increase in rental rates. An opposing view shared by some contacts was that smaller blocks of office space remained abundant on a sub-lease basis from tenants that have downsized, but are still paying for unused space. Corporate expansion and relocation interest has picked up in some markets, which could have a positive impact on inventory and construction.
Manufacturing and Transportation
Contacts reported that volumes of shipments were above last year's levels, and that chemical and agricultural goods shipments, in particular, were strong. Rail contacts noted that shipments of energy and food-related products were driving increases in activity.
Banking and Finance
Employment and Prices
On balance, contacts reported that input prices had receded or leveled off from earlier this year. Retailers continued to heavily discount products. Businesses mentioned pursuing various cost-cutting measures in order to support positive margins. Manufacturers noted general success passing on earlier increases in commodity prices. Any plans to increase wages were generally limited to employees with a high degree of technical skills.
Natural Resources and Agriculture
Drought conditions persisted in much of Georgia and parts of Alabama. High livestock feed costs were pressuring poultry producers but were being successfully passed on by cattle producers. Corn prices remained elevated and cotton prices paid to farmers increased modestly since the last report, although cotton futures prices have declined somewhat further in recent weeks. Agriculture contacts continued to report concerns over labor shortages and production issues that they tied to recently passed immigration laws in some states.