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Sixth District contacts reported that economic activity weakened further in September. Banking and business contacts indicated that credit conditions tightened, and businesses reported that their ability to obtain financing had become increasingly difficult. Labor market conditions weakened further in most sectors, and consumer spending slowed. Residential real estate contacts noted that sales remained at low levels and construction declined. The increase in the number of foreclosed properties was putting downward pressure on home prices in some District markets. Commercial contractors noted lower activity and an increase in project cancellations. Most manufacturing contacts reported reduced production levels. Tropical storms improved agricultural conditions in much of the District, but the energy infrastructure suffered damage that curtailed the supply of petroleum and related products to some markets. By most accounts, cost pressures on businesses eased over the month.
Consumer Spending and Tourism
Retail sales weakened across the District during September. Purchases of big-ticket items, including furniture, were especially sluggish. Auto sales declined, and several contacts reported that sales were lower than a year earlier. In general, the retail outlook for the upcoming holiday season was subdued.
Tourism activity remained mixed in the District. The region continued to attract international visitors, which helped offset weakness in domestic business and leisure travel. There were several reports of discounting by hotels and cruise lines.
Real Estate and Construction
Reports from homebuilders and Realtors indicated that new and existing home sales remained weak. However, several contacts noted that activity, although well-below year-earlier levels, was relatively stable in September relative to August. Reports on inventories varied across the District, while home prices continued to decline by most accounts. Contacts noted that bank-owned homes were putting significant downward pressure on home prices in some District markets. According to our contacts, the outlook for residential sales and construction activity over the next several months remained subdued, but further significant weakening is not expected.
Most District commercial contractors continued to note declines in activity. Projects were being postponed or cancelled because of funding constraints and weak economic conditions. Several contacts noted that the amount of sublease space available rose modestly. Overall, commercial contractors anticipated that development activity would slow further.
Manufacturing and Transportation
Most manufacturing contacts reported that production levels remained low and new orders were below year-earlier levels. Reports also indicated that the number of export orders declined in September, reversing the trend of recent months. Many contacts continued to report reductions in employment and hours. Trucking contacts reported lower shipments of retail, automotive, and construction-related goods, but noted gains in shipments of coal, minerals, farm products, and chemicals. Manufacturing contacts expect activity to remain close to or fall below current levels over the next six months.
Banking and Finance
Most banking contacts in the District reported that credit conditions were tightened and the volume of business and consumer lending has declined. Restricted access to consumer credit is said to be affecting sales of homes, autos, and other big-ticket items. Banks noted that loan-to-deposit interest spreads were widening and underwriting standards have become very conservative. Bank liquidity challenges were reported to remain a serious concern.
Employment and Prices
Business contacts reported that labor markets continued to weaken in September. Employment in most sectors declined across the region. Retail contacts indicated that holiday-related hiring is expected to be weaker than last year. Temporary employment agencies noted an increase in the number of applicants who had recently been laid off from other jobs. Short-term hurricane-related job losses were significant in southern Louisiana.
Business contacts noted that price pressures had eased for both raw materials and finished goods. However, elevated costs of fuel, food and utilities continued to strain household budgets.
Agriculture and Natural Resources
Tropical storms improved agricultural conditions in much of the District. However, extreme drought conditions remained in Georgia and Tennessee. Citrus growers reported concerns over weakening prices because of higher orange juice inventories and weaker consumer demand. Poultry producers noted continued strong foreign demand. However, production growth was reported to have moderated as domestic consumption has slowed.
The Sixth District's energy infrastructure, a major source of the country's crude oil imports, production, and refining, was negatively affected by Hurricanes Gustav and Ike. Although long-term damage to energy infrastructure is expected to be modest, electricity outages and lengthy delays in returning to operations contributed to significant short-term declines in oil production and refining. This led to shortages of gasoline and petrochemicals in some areas of the District.
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Richmond