Reports from Sixth District contacts indicated that business activity remained
mixed for October through mid-November. Retail sales were described as modest
while auto sales were varied. Construction activity continued to decline, as
cuts to residential building were only partially offset by modest growth in
nonresidential development. Manufacturing reports were mixed. For instance,
defense-related industries noted stronger activity, while building material
suppliers reported weaker demand. Transportation firms also observed slower-than-expected
demand. Banking conditions were little changed. Shortages of workers in several
professional and technical occupations were noted throughout the District, and
lower-skilled workers were in short supply on the Gulf Coast and in South Florida.
These shortages were being reflected in higher wages. Most industrial contacts
noted that input prices had moderated.
Most District retailers said that sales in October through mid-November were
modestly higher than a year ago. Merchants in Louisiana and Mississippi noted
that sales were down relative to last year's post-Katrina surge in spending
on replacement goods. Strong reports came from electronics and high-end retailers,
and their outlook was very upbeat heading into the holiday season. Other District
retailers were cautiously-optimistic about the holiday season and anticipated
modest sales growth compared with last year. The majority of retailers surveyed
in October indicated that inventory levels were up slightly from the same time
District auto sales remained uneven across vehicle brands and market areas.
Domestic auto dealers reported soft sales, while imports continued to gain market
share. High inventory levels caused a large South Florida-based auto dealer
to cut fourth-quarter orders from domestic automakers by 30 percent. Contacts
from regional import distributors reported stronger October performances, with
regional sales better than comparable sales nationally.
Weakness continued to be reported in District housing markets, with Florida
continuing to experience the most significant declines. Contacts reported that
new home construction and home sales remained well below year-ago levels in
Florida. Condominium markets in some coastal areas have experienced particularly
high vacancy rates. Inventories of unsold single-family homes reportedly continued
to rise across much of the District, and weak market conditions are expected
to persist over the next several months. Reports suggested that some small builders
are facing financial difficulties, but there were no indications that this was
a large scale problem in the District.
Growth in nonresidential construction remained modest, with infrastructure
repairs and improvements continuing to dominate activity in the District. The
most significant increase in activity was noted in Louisiana. Most commercial
builders continued to expect modest growth in the coming months, although the
pace of activity is expected to accelerate along the Gulf Coast.
Manufacturing and Transportation
Manufacturing activity varied by sector in October and early November. Layoffs
associated with a major plant closure idled thousands of District auto workers.
The slump in the residential construction industry led to production cutbacks
by some suppliers of housing-related materials such as flooring, framing lumber,
wallboard and plywood. A producer of heavy-truck trailers reported a decline
in new orders. More positively, a large military contractor reported increased
orders from the U.S. Navy, and a pipe producer reported that demand from the
energy sector was strong.
Trucking contacts reported disappointing freight demand, with much of the
weakness concentrated in the retail and building materials sectors. Trucking
industry contacts in Atlanta noted that retailers were not increasing inventories
to the levels usually seen at the beginning of the holiday-shopping season.
Trucking firms servicing the construction industry reported a decline in orders.
Tourism and Business Travel
Most reports from the tourism industry were positive. Attendance at major trade
shows and conventions increased in central Florida. Nashville and Atlanta's
hospitality industry also reported improved business, with hotels enjoying increasing
occupancy rates. Mississippi Gulf Coast gaming revenues were near pre-Katrina
levels in September and October as many of the damaged casinos have re-opened.
According to gaming officials, employment at the casinos on the Mississippi
Gulf Coast had also returned to near pre-hurricane levels.
Banking and Finance
Overall banking conditions were little changed in October. Weak loan demand
continued to be noted in most parts of the District, lead by lower levels of
mortgage lending. Deposit growth was mixed, with some parts of the District
noting strong deposit growth, while others observed flat to slow growth in October
and early November. Credit quality remained strong in the region. Commercial
and industrial lending slowed overall, though there were reports of stronger
demand in southern Louisiana.
Employment and Prices
Skilled workers remained in short supply in parts of the District. Contacts
in South Florida and Nashville noted shortages of nurses, while North Alabama
reported difficulty filling engineering positions. In Louisiana, shortages of
skilled workers in the energy extraction industry were noted. Some shortages
were posted for other types of labor as well, especially along the Gulf Coast
and South Florida. An Alabama temporary staffing firm has seen increased demand
from manufacturing and defense-related companies. In addition, some retail contacts
expressed concern about their ability to find additional workers for the holiday
period, and some holiday-related temporary positions have experienced higher
wages as a result. Wage increases were also reported in the hotel, financial
services, and healthcare industries. Some layoffs in the construction industry
were reported in Florida, and wages were said to be stabilizing.
Most reports indicated that commodity prices had moderated. According to construction
industry contacts, lumber prices dropped in November. Also, energy and related
feedstock costs have declined for industrial users. Pulp and paper, chemical,
and plastics manufacturers noted that costs for their oil and gas inputs had
eased, and this has helped profitability. Some reports also noted that the decline
in gasoline prices was feeding through to lower fuel surcharges on shipping.
Agriculture and Natural Resources
Poultry and livestock producers reported an escalation of feed costs, partly resulting from the growing use of corn for
ethanol production. Most of the post-hurricane infrastructure repair work has
been completed in the District's energy sector.