June 13, 2007 Federal Reserve Districts Sixth District--Atlanta

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Reports from District contacts indicated, on balance, that business activity continued to expand modestly in April and May. Most retail store contacts indicated that sales were similar or up slightly from a year ago, whereas auto sales weakened. Reports from Florida's tourism sector were mixed, while other areas noted improving conditions. Builders and Realtors noted that residential home sales and construction remained at low levels, and weakness was especially evident in Florida and Georgia. The pace of commercial construction activity, on the other hand, continued to exceed year ago levels. Manufacturing reports varied, but the long-term outlook improved with the announcement of new plants and expansions in steel and auto-making industries. Reports on hiring remained positive on net, and several industries continued to report difficulty finding skilled labor. Contacts observed that several raw material prices had stabilized, but businesses also reported that they were facing steep increases in energy, transportation, and health-care benefits costs. Severe drought conditions adversely effected crops and livestock in Alabama, Florida and Georgia. Consumer Spending and Tourism Most reports from District retail merchants noted that sales levels were similar or up modestly from a year-ago in April and May. But the majority also noted that recent sales were moderately below plan, and that inventories had risen somewhat. Most retail contacts expected sales to increase over the next several months. In contrast, auto industry contacts indicated that District vehicle sales had declined. Purchases of domestic brands remained sluggish, while sales of several foreign makes weakened. Lower demand for trucks and SUVs continued to be a major factor affecting sales. Reports from the tourism and hospitality sector varied. Although first-quarter visitor numbers declined slightly in Florida compared with a year ago, numbers for the Memorial Day weekend exceeded expectations in several parts of the state. Contacts also noted that Florida's luxury hotels continued to post high occupancy levels. Industry officials indicated that, while high gasoline prices have not had a negative impact on vacationer's plans, summer travelers may be more conservative in their spending because of the higher transportation costs. New Orleans' Louis Armstrong International Airport reported year-to-date airline passenger numbers up nearly 45 percent from a year ago, but tourism officials did not expect a full recovery in visitor numbers for several more years. Meanwhile, gaming revenues for April were at record levels for the Mississippi Gulf Coast. Real Estate Most District homebuilders and Realtors reported that new and existing home sales remained below year-ago levels. Reports suggest that home sales stabilized at low levels in parts of Florida in April and May, but declined in Georgia. Most contacts continued to report that both new and existing home inventories were up from a year ago, and that asking prices were being lowered. New home construction remained below year-ago levels across most of the region. The majority of housing contacts continue to expect home sales and construction to be weak for the next several months. Reports from District commercial contractors indicated that the pace of non-residential development during April and May exceeded year-ago levels. However, some softening was reported by Florida contacts. The outlook among most commercial contractors remained positive. Manufacturing and Transportation Reports on manufacturing activity continued to vary in April and May. Slowing was reported in the chemicals, food processing, and building materials segments. Demand for housing-related products, such as framing and panels, remained weak. However, a wood pulp processor was increasing production and noted that producers were looking for continued good activity in the coming months. A contact at a Mississippi shipyard said that the company was looking to expand its workforce because of continuing strong shipbuilding activity. The District's longer-term manufacturing outlook brightened with several new announcements. For instance, Hyundai announced a $270 million engine plant expansion in Montgomery to build four-cylinder engines for the North American car market. Honda announced a $64.5 million expansion at its Lincoln, Alabama, facility. ThyssenKrupp AG said it will build a state-of-the-art steelmaking complex near Mobile, Alabama. The $3.7 billion plant is expected to have 2,700 employees by 2010. Transportation contacts reported sluggish freight demand in April and May. Slower activity in housing and autos were cited as factors contributing to the lower performance. Some contacts also noted slower demand from commercial construction customers in Florida. Banking and Finance Banking conditions in the District were generally favorable. Loan demand was stable overall, and there were reports of solid loan growth in the commercial real estate segment. Higher mortgage delinquencies were noted in some parts of the District. Employment and Prices Hiring remained positive on balance during April and May. However, there were reports of layoffs in the construction and real estate services sectors, especially in Florida. Homebuilders were reportedly letting go the least qualified workers that they had hired during the housing boom. However, demand remained strong for skilled construction workers such as electricians, plumbers, and heating and air conditioning technicians. Contacts in the health-care industry continued to observe shortages of healthcare professionals, and strong demand for skilled workers was noted in the defense and aerospace industries. In some areas, attracting and retaining low-skilled workers in the retail and hospitality industries was said to be difficult because of the high cost of housing. Although several raw materials prices have stabilized, businesses reported that they were facing large increases in energy, transportation, and healthcare benefits costs. Residential and commercial builders noted lower prices for materials and construction equipment. However, a producer of electrical equipment reported increasing prices for the firm's metal and plastic inputs. Most reports on wages cited modest increases, although stronger wage gains were noted in some industries such as shipbuilding and oil rig fabrication. Agriculture and Natural Resources Severe drought conditions continued to negatively impact agriculture in areas of Alabama, Florida, and Georgia, while the rising cost of corn-based feed was noted by livestock producers. Contacts in the oil and gas sector continued to increase exploration and development. Return to top Richmond Chicago