January 12, 2011 Federal Reserve Districts Sixth District--Atlanta

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Reports from Sixth District business contacts indicated that economic activity rose moderately in late November and December. Holiday sales were described as generally positive and above expectations. Tourism contacts noted increases for both business and leisure travel. Weakness continued to be reported in the real estate sector as both builders and brokers noted very low levels of activity. Most manufacturers noted a slight increase in new orders and production levels, although those producing construction-related goods continued to experience lower activity. Transportation companies reported moderating freight volumes after significant increases earlier this year. Business contacts continued to report that obtaining loans at acceptable terms has remained difficult, especially for small businesses and start-ups. Bankers repeated that they experienced a lack of loan demand from qualified borrowers. Employment indicators continued to recover, albeit slowly. Most business contacts said that they remain hesitant to add to their permanent workforce until they experienced a sustained increase in sales. A majority of business contacts indicated that current cost pressures remained high, citing increasing material prices and rising labor and benefits outlays. However, most firms remained reluctant to pass input cost increases through to consumers given intense competitive pressures. Consumer Spending and Tourism Many District retail stores noted that holiday sales were above their expectations. Most indicated that traffic and sales increased compared with a year ago; however, smaller retailers reported less of an increase in business than larger stores. The majority of businesses contacted noted that sales were driven by a mixture of discounting and stronger demand. The outlook among merchants remained optimistic. District automobile dealers indicated that vehicle sales improved recently and were ahead of year-ago levels. Sales of commercial trucks were also up modestly. Tourism activity increased slightly relative to a year ago for both business and leisure travel and the outlook remained modestly positive going into 2011. Hotel occupancy rates rose in several of the District's major markets compared with last year. Cruise lines reported an increase in both bookings and pricing power. Real Estate and Construction Reports from most District homebuilders indicated that the pace of new home sales growth through December remained weak compared with a year ago. Many contacts continued to report that buyers were having a difficult time securing loans. Builders also noted construction activity held steady at very low levels. The outlook was mixed with Florida and Georgia builders expecting weaker activity over the next several months, while elsewhere in the District modest improvements were expected. Residential broker reports indicated that the pace of existing home sales growth remained weak compared with a year ago, but declines were more modest than in recent reports. Contacts also indicated that home sales at the low-end of the market weakened notably. Throughout the region, short-sales, REOs, and pending foreclosures continued to put downward pressure on home prices which remained below year-earlier levels in most areas. Realtor outlooks for sales growth over the next several months improved somewhat from previous reports. Nonresidential construction activity remained at low levels through the end of the year. Commercial contractors said that the pace of development and backlogs remained below the year-earlier level. Contacts indicated that access to funding remained challenging and competition for projects had become more intense. Many indicated that they expected the commercial market to remain constrained in 2011. Manufacturing and Transportation Sixth District manufacturers reported a modest increase in new orders and production levels, while finished inventories contracted only slightly. Several respondents expressed plans to increase production in the short-term. Goods producers tied to the construction sector continued to report very low levels of activity. Manufacturing-related transportation companies reported moderating freight volumes after significant increases earlier this year. Regional rail shipments of farm products increased since the last report, nearly reaching double their year-ago level, while shipments of motor vehicles and equipment declined. The outlook among transportation firms remains optimistic for 2011 as moderate growth in shipments is expected for the first half of the year. Banking and Finance Some surveys indicated that credit standards have eased somewhat in recent months, but remained tight compared with pre-recession levels. Business contacts continued to report that obtaining loans on acceptable terms has remained difficult, especially for new and small businesses. Small businesses whose balance sheets were damaged by the recession reported difficulty qualifying for loans even though their financial situation had improved. Meanwhile, bankers continued to report a lack of loan demand from qualified borrowers. Employment and Prices District labor markets continued to recover, albeit slowly. Business contacts reported that their hiring plans for 2011 have not changed with most remaining hesitant to add to their permanent labor force until they experienced a sustained increase in sales. District firms continued to note a preference for increasing existing staff hours and using part-time or temporary staff. Nevertheless, some contacts noted that they plan to expand their workforce in 2011 at a conservative pace in response to increased output, store openings, or replacing employees lost to attrition or retirement. A majority of business contacts indicated that current cost pressures were higher, citing increasing material prices and rising labor and benefit costs. Many firms also noted that they were setting aside funds for expected future increases in employment taxes and healthcare costs. However, firms remained reluctant to pass input cost increases through to consumers given intense competitive pressures. Nearly all contacts noted that markups were either near or below what they considered to be normal, reporting that increased productivity has placed some downward pressure on product prices. Natural Resources and Agriculture Regional oil production reached its highest level in over six years in the fourth quarter of 2010 as increased output from offshore platforms boosted production. Although drilling activity remained well below pre-oil spill levels, the number of rigs operating in the Gulf of Mexico has crept up since hurricane season ended. Contacts continued to note that the lower pace of drilling permit issuance and additional rig inspections could weigh on future energy output in the Gulf. Most of the Southeast continued to experience varying degrees of prolonged drought. Reports also indicated that both the lack of rain and colder-than-average temperatures have presented challenges to Florida citrus growers. The drought has reduced the physical size of the fruit slightly, and the recent cold snaps have affected young new plantings. Supplies of both cotton and soybeans continue to be tight with strong global demand keeping prices high. Return to top Richmond Chicago