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Sixth District business contacts indicated that overall economic activity weakened from June through mid-July. Retailers and auto dealers reported that sales were lower than expected. Tourism-related activity was mixed. After noting some stabilization in recent months, contacts reported that residential real estate activity declined somewhat in June. Building contractors indicated that commercial development remained weak and most industrial contacts reported that production and volume of shipments were down from a year earlier. Banking contacts reported that credit availability remained tight. Labor markets remained weak. Further price increases were noted in energy, metals, and agricultural commodities.
Consumer Spending and Tourism
District retailers reported that weakness persisted during June and early July with sales performing below expectations. Despite this, inventory levels had not increased appreciably according to the majority of contacts. Merchants' expectations for the next several months were subdued. District vehicle sales continued to be weak, with contacts noting lower traffic and sales. Tourism-related activity was mixed. Hotel owners noted increased cancellations and shorter trip durations. Convention attendance remained strong in June. However, some weakness in future bookings was noted.
Real Estate
Reports from homebuilders and Realtors indicated that new and existing home sales remained below year-earlier levels for June and early July. Contacts reported that sales activity had weakened again in June after having noted some stabilization in April and May. Overall, housing inventories increased and home prices declined across the District. The outlook for residential sales and construction activity over the next several months was weaker relative to previous reports.
Most District commercial contractors continued to note declines in construction activity on a year-over-year basis. Weakness remained most pronounced in Florida. Retail development slowed significantly, while vacancy rates among all commercial property types rose in most parts of the District. Overall, commercial contractors anticipate further softening through the remainder of the year and a weak 2009.
Manufacturing and Transportation
Contacts reported that both production levels and the volume of shipments were down in June from a year earlier. A majority of manufacturers continued to report reductions in employment and hours. Most contacts also noted higher prices for raw materials and energy. Automobile production at District plants remained weak overall.
Rapidly rising fuel prices continued to affect regional transportation companies. Most trucking contacts reported lower net revenues in the first quarter. Regional rail activity was down in June compared with a year earlier as shipments of automotive and construction materials continued to drop, offsetting gains in coal, minerals, and farm products. Inter-modal shipments were lower than year-earlier levels.
Banking and Finance
Most District banking contacts reported that credit conditions remained tight. The utilization of C&I lines of credit increased, while some businesses were also reported as using credit cards, personal borrowing, or delaying payments as a means of managing cash flows. Some creditors noted that while there has generally been less willingness on the part of banks to finance construction projects, there has also been an increase in competition for commercial customers that have a solid credit history.
Employment and Prices
More firms noted a reduction in hours and/or employment levels in June and early July than was noted in previous reports. However, the persistent shortage of certain types of skilled labor continued. Several employers noted that highly skilled workers are being kept on payrolls as long as possible because of concerns about being able to hire them back later. Wage increases were pronounced in energy-related industries and the healthcare sector.
District firms continued to struggle with higher input costs, especially for energy-related goods and services. Reports of businesses trying to pass on higher costs to consumers increased, but with only limited success, or with limited expectation of being able to repeat price increases should costs increase further. According to several business contacts, higher food and gasoline prices were cutting into consumer discretionary spending on other goods and services.
Agriculture
Scattered rains improved soil moisture levels to segments of the District, in particular Alabama and parts of Georgia. However, extreme drought conditions still persisted in North Georgia and South Central Florida. Many District growers continued to report that costs for fertilizer, feed, and diesel were up substantially from a year earlier.
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Richmond