February 29, 2012
Federal Reserve Districts
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Sixth District business contacts described economic activity as expanding at a somewhat stronger pace in January and early February compared with late last year. Expectations were generally more positive, although firms continued to express caution with regard to the outlook.
Retailers noted that sales and traffic increased compared with a year ago and auto sales remained robust. Hospitality contacts, with the exception of cruise lines, reported strong bookings for this year. Homebuilders and brokers reported that unseasonably warm weather has helped bolster residential real estate activity by pulling some activity forward. Nonetheless, overall home sales and construction levels remained weak apart from the generally robust multifamily sector. Manufacturers and transportation contacts continued to note positive activity on balance. Bankers reported a modest improvement in loan activity at larger institutions. More firms reported increased hiring, although contacts continued to signal they approached hiring decisions very cautiously. Concerns over increased input costs generally eased as most firms reported that input prices leveled off. Only a few contacts reported having significant pricing power.
Consumer Spending and Tourism
Hospitality contacts reported that tourism activity remained strong and most were optimistic regarding the outlook for leisure and hospitality spending in 2012. Attendance for major conventions increased and bookings and lead volume rose, according to business travel contacts. However, there were concerns about higher fuel costs and the adverse impact it may have on drive-to traffic at regional tourist destinations. Cruise line bookings have suffered in the wake of the maritime disaster in Italy.
Real Estate and Construction
Most District homebuilders indicated that new home sales and construction activity growth, measured year-over-year, increased slightly during January and early February; however, several contacts noted that unseasonably warm weather in the region likely pulled some activity forward. Builders continued to report downward pressure on home prices while new home inventories remained below year-earlier levels. Contacts noted that multifamily construction remained robust. Over the next several months, homebuilders anticipate new home sales and construction to be flat to slightly up compared with a year earlier.
Most commercial real estate contacts indicated that conditions continued to improve slowly in the region. Contractors noted a slight improvement in demand but the market remained very competitive and activity remained at low levels. Brokers continued to report modest improvements in demand for space in several parts of the District with some noting that rent concessions had abated. The outlook among contacts was similar to our last report with most contractors and commercial real estate brokers anticipating that construction activity will improve slowly during 2012.
Manufacturing and Transportation
Transportation contacts reported that inventory-building trends appeared to be similar to the end of last year. A freight forwarding company noted that orders were stable and a large railroad firm continued to report strong increases in auto shipments. Coal inventory levels declined at the end of last year, but in recent months have exceeded targeted levels as mild weather and low natural gas prices dampened demand for coal-fired electricity generation. Contacts noted that both imports and exports have leveled off since the beginning of the fourth quarter of 2011, although trade with Latin America continued to experience modest growth.
Banking and Finance
Employment and Prices
Concerns over increased input costs eased further, although several manufacturing firms did note an increase in commodity prices since the last report. Few contacts reported having significant pricing power. According to the firms surveyed in the Atlanta Fed's January Business Inflation Expectations (BIE) survey, unit costs were expected to rise 1.8 percent for the year ahead, down slightly from December expectations. Firms continue to operate in an environment of below normal sales and depressed margins, according to the survey, though both have been slowly improving since October of last year.
Natural Resources and Agriculture
Significant rains have eased drought conditions in parts of Alabama, Mississippi, and Louisiana, while parts of Georgia and Florida have seen drought conditions worsen. Mild temperatures throughout the region are of concern to peach and other fruit crop growers hoping for adequate conditions for the current growing season. On a year-over-year basis, prices received by farmers were higher for many of the region's agricultural products. Contacts reported that some farmers in Alabama and Georgia were reviewing their planting plans in light of their concerns of labor shortages.