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Reports from contacts for July and August continued to describe weak levels of economic activity throughout the Sixth District. Retailers reported that sales were below expectations while inventories were higher than a year earlier. Both commercial and residential construction activity was weak. Most manufacturers reported lower production levels along with higher input prices. District banks continued to note tighter lending standards. Food, energy, and raw materials prices were elevated, but wage costs were not rising in most parts of the District.
Consumer Spending and Tourism
District merchants reported that sales were below expectations for July and August. Inventories were described as higher than a year earlier. Most contacts expect sales to remain flat or decline in the near term as the stimulus from the tax rebate wanes. District vehicle sales continued to worsen with contacts reporting lower sales across most sub-compact vehicle types. Tourism related activity was mixed with reports noting lower hotel occupancy in some parts of the District. Tourism contacts also reported concerns regarding reduced Labor Day weekend travel, and most anticipate some weakening in business travel during the fall.
Real Estate and Construction
Reports from homebuilders and Realtors indicated that new and existing home sales remained below year-earlier levels for July and August. Contacts reported that sales activity was mixed; some District contacts noted further weakening while others reported modest strengthening. Weakness was most pronounced among Georgia builders. Modest improvements in new and existing home sales activity were noted by some Florida contacts. The majority of builders reported that construction was significantly lower than a year earlier. Overall, new home inventories continued to fall while existing home inventories rose slightly. Home prices continued to decline across much of the District. The outlook for residential sales and construction over the next several months remained subdued; however, most contacts did not anticipate further significant weakening.
The majority of reports from commercial contractors noted declines in construction activity on a year-over-year basis. Weakness remained most pronounced in Florida. Vacancy rates among all commercial property types continued to rise in most parts of the District. Overall, commercial contractors anticipate development activity will remain restrained at least through the first quarter of 2009.
Manufacturing and Transportation
Most manufacturing contacts reported slight declines in production for July and August compared with a year earlier. Many reported cutbacks in employment and hours. Construction-related firms reported very weak conditions. A larger proportion of contacts said that higher prices for raw materials and energy were being passed through to customers than in previous reports. Activity six months from now was expected to be similar to current levels with manufacturers anticipating the price increases for both raw materials and finished goods to moderate. Vehicle production at District plants weakened in July and August in response to lower consumer demand.
Freight demand was weaker than a year earlier, according to contacts. Regional rail activity was down from year-earlier levels as shipments of automotive and construction materials continued to drop, offsetting some gains in coal, minerals, and farm product shipments. Inter-modal shipments were also lower than year-earlier levels.
Banking and Finance
Most banking contacts in the District reported that credit standards remained tight during July and August. Many District banks adjusted rates upward according to risk, required larger down payments and higher credit scores, lowered loan-to-value requirements, and stipulated that new loan customers open deposit accounts. Consumer loan demand ranged from being steady to down across the District. Banks reported that funding remains an issue and retail deposit competition remains strong. Pricing for CDs is characterized as remaining high.
Employment and Prices
The majority of business contacts continued to report reductions in hours and workforce in July and August. Overall, firms were holding wage bills in check. There were only scattered reports of wage increases, mainly in high-demand professional positions, in markets along the Gulf Coast tied to rebuilding efforts, and in energy-extraction industries.
District businesses continued to note higher input prices mostly tied to higher energy costs, although increases in the prices of metals, food and fertilizers were also noted. Higher fuel prices continued to have a negative effect on the profitability of regional freight and passenger transportation firms. There were increased instances of businesses passing on higher costs to consumers. However, there was skepticism about the ability to sustain the rate of pass through in the future because of weakening demand conditions.
Agriculture
Most District growers affected by poor soil moisture levels benefited from increased precipitation in July and August. Drought conditions still persisted in many northwestern Georgia counties. Many District growers continued to report higher costs of fuel and fertilizers.
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Richmond