October 19, 2011 Federal Reserve Districts Sixth District--Atlanta

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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 District retailers reported that sales decelerated slightly in September compared with the August results. Reports were mixed among contacts with half noting that sales were below plan and the remainder was evenly split between those reporting sales at or above expectations. On a year-over-over basis, sales were generally higher although traffic was lower. Most contacts anticipated that holiday sales would be similar to 2010 results. Auto dealers reported that sales continued to increase. 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 Residential brokers indicated that sales softened somewhat in September compared with the previous month and were flat to slightly up compared with very weak levels from last year. Florida brokers reported that home sales growth slowed. Outside of Florida, Southeast brokers noted a modest pickup in sales growth. Cash purchases by investors, second home buyers, international buyers, and retirees accounted for much of the sales activity across most of the Southeast, according to contacts. Existing home prices remained below year earlier levels. District brokers anticipate only modest sales growth over the next several months. 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 Overall, manufacturers indicated a modest decline in new orders and production levels in September. In addition, fewer contacts noted plans to raise production in the near term. Energy exploration and extraction firms cited investing more in capital goods, which is expected to help equipment producers and suppliers. Auto manufacturers reported that the impact from the disaster in Japan had waned and that production is back to normal. Firms stated that they were increasing investment in technology-based equipment as a means to increase efficiency. 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 Banking contacts indicated continued weak loan demand. Loan growth remains a concern for banks in the Sixth District. Lending levels continued to fall as new opportunities remained highly elusive and very competitive. Deposits increased as people and businesses added to their savings. The majority of large firms continued to have ready access to cash and lines of credit, while some small firms and many new firms that sought credit continued to experience difficulty. There were reports of non-bank entities, like private equity firms and groups of wealthy individuals, becoming increasingly interested in small business lending. Employment and Prices Employers continued to manage their labor supply very tightly. Most contacts indicated that the outlook for hiring remained restrained by modest expectations regarding future sales. Several reports suggested that permanent employees were primarily being used to maintain a firm's core business, while specific projects were being assigned to contractors and temporary hires. Firms continued to seek efficiency gains through investment in technology and other cost-saving applications. Hiring contacts highlighted having difficulties finding qualified candidates for specialized positions, in some cases, because of a lack of geographic mobility for potential hires. For lower wage positions, agencies reported numerous employment opportunities; however, the positions were contingent on passing skills tests and/or background checks, which many applicants failed. 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 District oil and gas production declined in early September as energy producers reduced offshore operations and vacated staff in the path of Tropical Storm Lee in the Gulf of Mexico. Industry contacts indicated that plans to invest in increased production capacity were proceeding. In particular, contacts reported that new drilling technology had reduced costs and increased extraction capabilities for both oil and gas. 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. Return to top Richmond Chicago