June 10, 2009 Federal Reserve Districts Sixth District--Atlanta

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Sixth District business contacts reported that economic activity continued to contract in late April and May, although the pace of decline had moderated in some industries and most noted that their outlook had improved. Information from retailers was consistent with sluggish consumer spending, but sales were largely in line with modest expectations. Most auto dealers noted further declines in sales, while tourism-related spending slowed further in late spring. Real estate contacts suggested that ongoing weakness in home sales had moderated in several areas and inventories of unsold single-family homes were trending down. However, most commercial construction reports remained negative as vacancy rates continued to rise. Fewer manufacturers cited reduced production and orders than in the previous report, although overall activity remained quite weak. Banking contacts remarked that general business and consumer loan demand was soft. Labor market conditions continued to be weak, although fewer firms reported layoffs than earlier in the year. Price pressures remained relatively stable throughout the District. Consumer Spending and Tourism Sales and traffic remained at low levels in late April and May, but largely in line with modest expectations according to District retailers. Merchants' outlook remained subdued with regard to future sales. Most regional auto dealers noted further declines in sales, with several pointing to reduced credit availability and industry uncertainty as reasons for the poor results. Tourism-related spending weakened according to several contacts. Although theme park attendance and cruise bookings were relatively stable, promotions and discounting were acknowledged as playing a significant role. Overall, vacationers were said to be spending less. In addition, inbound international travel continued to trend down from a year earlier, while business-related travel and convention attendance also declined. Real Estate and Construction Reports from Realtors indicated that existing home sales were stabilizing overall. Florida contacts noted that the steady improvement in sales over the past several months moderated somewhat in April, whereas other parts of the District experienced minor gains over the month. Homebuilders noted that new home inventories were trending down on a year-over-year basis as construction remained at low levels and new home sales improved modestly. Home sales prices continued to decline according to most reports. The outlook for sales strengthened in April according to most Realtor and homebuilder contacts. Commercial real estate activity remained weak. Vacancy rates continued to rise in many parts of the District, putting downward pressure on rents, most notably in the retail sector. Contractors reported more projects being postponed or cancelled. Commercial real estate contacts anticipate more space will become vacant in the coming months and that construction will continue to slow. Manufacturing and Transportation Most regional manufacturers indicated that the rate of decline in production and orders had moderated in April. For the coming months, most manufacturing contacts noted more optimism regarding future production and employment than in previous reports. District transportation contacts reported ongoing weakness in freight activity through mid-May compared with a year earlier. Auto, chemical, and construction-related rail shipments declined further. Trucking contacts servicing the retail industry noted much lower tonnage than a year earlier. Banking and Finance Several business contacts reported difficulty meeting financing needs because of restricted availability of credit. Roughly one-quarter of non-auto retailers, and one-third of non-financial/non-retail contacts cited some difficulty obtaining loans for inventory purposes. Auto dealers, in particular, said that obtaining vehicle inventory financing was very challenging. Banking contacts continued to indicate generally low levels of demand for new loans and increased use of existing lines of credit. Employment and Prices Labor market conditions continued to be weak. Many firms reported additional cuts in hours or had instituted mandatory unpaid days off for some staff. State and local governments were also reducing payrolls because of budgetary pressure. However, the pace of layoffs appears to have slowed, as fewer firms reported layoffs than earlier in the year. There were also scattered reports of increased temp hiring, although several contacts noted that these positions were largely seasonal in nature. Homebuilders and manufacturing firms continued to report that prices paid for both raw materials and imported finished goods were below year-earlier levels. Retailers noted a reduction in price discounting compared to previous months, and a majority of merchants reported that selling prices were generally on par with a year earlier. Natural Resources and Agriculture District energy contacts indicated that a growing portion of energy production in the region has been idled in response to lower prices earlier in the year. However, one major production facility in the Gulf of Mexico began operations in May. The platform is expected to make a major contribution to national oil and natural gas output once it reaches full production. Above normal rainfall soaked most District farm areas. District growers experienced a pickup in prices and are hoping for a continued rebound in the coming months. Return to top Richmond Chicago