October 27, 2004 Federal Reserve Districts Sixth District--Atlanta

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Business contacts indicated that economic activity in the Sixth District moderated during September and early October, in part because of hurricane-related disruptions. Although merchants' sales were mixed during September because of the storms, most contacts reported that fourth-quarter retail sales are expected to exceed those of a year ago. The weather also affected residential and commercial building activity, slowing sales and creating material and labor shortages mainly in Florida. The hurricanes temporarily interrupted factory production in some areas. Contacts also indicated disruptions to the tourism and hospitality industry, and some uncertainty about the pace of recovery in these industries. Labor market reports noted strong demand for laborers and specialized construction workers. Prices remained elevated for building materials and energy. Farm output was adversely affected by the storms. Consumer Spending District retail contacts reported that sales results varied during September compared with last year. Some Florida merchants reported that hurricanes closed stores for as many as five days, while a middle-Georgia retailer noted that traffic was light during the first two weeks of September. Some stores benefited as evacuees moved north out of the paths of the storms, and demand at building supply stores was very brisk. Improvements were noted in most parts of the region during early October. However, auto sales in the District continued to disappoint. Real Estate Construction was hampered by severe weather in September, and contacts reported that rebuilding to both commercial and residential properties is expected to cause temporary labor and material supply shortages as resources flow into storm-damaged areas. Florida's housing market was particularly affected as both construction work and sales came to a standstill for several days. Outside of storm-affected areas, there were fewer disruptions, with construction and new home sales near year-ago levels and existing home sales down modestly from last year. Manufacturing Reports from the factory sector for September were mixed. Contacts suggest that some manufacturing firms temporarily ceased production during the storms because of lost power and/or facilities damage, and several smaller manufacturers were forced to close because some staff were away making repairs on their homes. In addition, supply disruptions appeared to be a problem for those relying on just-in-time inventory management. Gulf oil and gas fields, as well as several refineries, lost production as a result of the storms. Building supply firms noted increasing orders and high operating rates. Outside of the storm-affected areas manufacturing was generally steady. Transportation Trucking contacts continued to report strong demand for transportation services. Several reports noted that it was more difficult to pass on higher fuel costs to customers. Companies involved in delivering construction materials to storm-affected areas in Florida reported robust business. Tourism and Business Travel The District's tourism and hospitality industry took a substantial hit because of the hurricanes. For instance, the cruise industry, with five homeports in Florida, reported financial losses because of temporary port closings. Several Florida resorts and motels announced layoffs and closures until damage is repaired. However, major central Florida theme parks suffered little damage and were able to quickly restore operations. Damage to coastal rental properties in Florida and Alabama is expected to slow visitor traffic until repairs are completed. Offsetting this somewhat, hotels near the damaged areas reported high demand from insurance, utility, and government relief workers. Financial Responses from the financial sector were mostly upbeat. Most respondents in storm-damaged areas anticipate growth in deposits as damage claims from the hurricanes are processed. Requests for loans in some affected areas have reportedly increased substantially. In other parts of the District banking activity was described as robust. Contacts noted that the mortgage market was holding up well; refinancing had decelerated but was still at strong levels. Employment and Prices Labor markets were mixed. The hurricanes forced temporary layoffs at some Florida hotels and resorts. Contacts also noted a surge in restaurant closings because of lost revenues because of the storms. Construction labor was said to be migrating to storm affected areas to take advantage of variable wages, and that this was placing stress on construction projects in other areas. Outside of construction, manufacturing contacts noted an increase in overtime in recent weeks as plants attempted to make up for lost production during the storms. Prices for building supplies continued to rise in the region, fueled by hurricane-related demand. Industry contacts predicted that drywall and roofing shortages would lead to even higher prices during October. Elevated prices for steel, concrete, and plywood have kept building costs at a high level throughout the District. Agriculture Hurricanes affected farm production in Alabama, Florida and Georgia. Damage to Florida farms was estimated to be near $3 billion. The USDA reported that Florida orange production levels were down 27 percent from last year's harvest and the grapefruit crop was down 63 percent. According to some estimates, lost cotton production in the region could amount to over $200 million. Industry contacts expect only a moderate impact on prices of orange juice and cotton products because of strong global supply conditions. Return to top Richmond Chicago