March 3, 2004 Federal Reserve Districts Sixth District--Atlanta

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Reports from Sixth District contacts suggested that business activity continued to expand through mid-February. Merchants' sales, with the exception of auto dealers, met or exceeded expectations and the near term outlook was upbeat. Residential housing markets remained generally strong, and commercial real estate markets began to pickup slightly from low levels. Factory activity was increasing in the District, and transportation contacts reported improving business. The District's tourism sector continued to outperform last year, aided in part by the weaker dollar. Banking industry contacts noted a steady flow of deposits, but subdued business investment activity. Reports indicated that hiring had picked up in some fields, including manufacturing, but many firms continued to rely extensively on flexible staffing options. Price increases were generally restrained except for certain commodities such as lumber, fuel, and steel. Consumer Spending Strong January retail sales moderated slightly in early February but remained positive relative to last year. Women's apparel, jewelry and home-related products were noted as strong sellers. Most retailers anticipate that sales over the next few months will continue to increase modestly compared with last year. Retail inventories were mostly described as balanced. Regional car sales were mediocre in January and early February. Sales of domestic models fell behind year-ago levels, and sales of foreign models slowed considerably from the strong pace set in late 2003. Real Estate According to Realtor contacts, home sales in the sixth District during January and early February were similar to last year's levels, whereas builders reported that new home construction was up modestly compared with last year. Both sales and construction were expected to increase during the first quarter. Inventories were viewed as being balanced in most markets, and low in parts of Florida. There was some evidence that commercial real estate markets in the region have stabilized. Vacancy rates have declined from recent peaks in many markets; net absorption has been positive; and there are continued reports of small improvements in leasing activity. While still at low levels, development activity has reportedly picked up slightly as well, particularly the construction of institutional facilities. Manufacturing Manufacturing activity continued to improve in many industries during January and early February. Suppliers to the District's auto industry were increasing staffing levels. Lumber mills in Alabama, Georgia, and Florida reported strong markets and a paper mill was shipping samples to new overseas markets. Major new defense contracts added jobs in Alabama and Florida. A manufacturer of capital goods for factories worldwide increased payrolls. A high-tech manufacturer noted a longer factory workweek and an upbeat near term outlook. Less positively, additional closings of textile plants were announced. Tourism and Business Travel Reports from District's tourism and hospitality sector were positive. In south Florida, the tourist industry experienced a strong season, driven primarily by unusually cold weather up north and a weaker dollar. Hotel occupancies there remained strong, and some restaurants reported record business. Advance bookings from Canada and Europe were up along Florida's Gulf Coast, and the gaming industry continued to expand along Mississippi's Gulf Coast. Reversing the trend over the last two years, bookings at some Atlanta hotels increased. Financial Responses from the financial sector were mixed. Deposit flows remained steady in January and consumer delinquencies were down from last year. However, business loan and venture capital investment activity continued to be restrained. Demand for commercial loans was described as flat, and businesses continued to approach major capital expenditures very cautiously. Some mortgage bankers noted a decline in new loan applications. Merger activity picked up within the District's banking industry. Transportation Regional truckers across the District reported generally improved business conditions in January and early February, following on the robust performance in late 2003. However, a few contacts noted that higher diesel prices had reduced profit margins for trucking companies. Airborne traffic recovered somewhat in Atlanta and Miami for both domestic and international shipments. Employment and Prices Most reports indicated that hiring was picking up in early February. Some hiring involved recalls of previously laid off workers, but many firms were relying more on temps or contract employees. In Louisiana and Florida, layoffs in the banking industry, following recent bank mergers, were reported. Although most contacts indicated that competitive pressures continued to restrain prices, a few reports noted price increases for lumber, steel, fuel, and raw materials used in steel and petrochemical production. New regulations limiting truck drivers' hours were said to have caused freight costs to increase. Agriculture Contacts from citrus and sugar industries expressed concern about global over-production this year, and resulting weak market conditions. The District's large poultry industry will be impacted by export bans related to avian influenza. However, District shipments to Russia, the region's largest export market, were currently unaffected. Return to top Richmond Chicago