| Skip to content
|
Economic activity in the Seventh District remained sluggish through August and early September. Consumer spending softened somewhat further, and contacts' reports did not note any specific boost from federal income tax rebates. Construction and real estate markets were mixed, as residential activity remained comparatively strong, while commercial activity softened further. Manufacturing activity remained very weak, but did not appear to deteriorate. Demand for business loans was again soft, while low mortgage rates continued to boost household lending. Demand for labor remained relatively soft. Upward pressure on retail prices remained subdued, but contacts continued to express concern over increasing health and liability insurance costs. Farmland values increased modestly in the second quarter, but many farmers were faced with deteriorating crop conditions and low crop prices.
Consumer Spending
Consumer spending softened somewhat further through August, according to most contacts. Mirroring a national trend, discounters continued to outperform general merchandisers. Strong back-to-school and electronics sales helped most discounters exceed their expectations. With few exceptions, however, general merchandisers reported that sales results fell below plan, and showed little, if any, year-over-year increase. Inventories were generally said to be in good shape, but merchants reported slightly higher-than-normal promotional activities and discounts. One contact reported that casual dining sales were strong through most of August, but "fell off the table" in the last week of the month and over the Labor Day weekend; and the drop was evident in each of the company's dining categories, from low-end to high-end. A large District auto group indicated that showroom traffic was down in August and sales were off as well. Sales of foreign nameplates again were better than those of domestic nameplates, another trend that mirrored national results. This contact also noted that out-the-door new vehicle prices showed year-over-year decreases, and late model used vehicle prices were said to be "taking a beating" as well. Spending on leisure travel in the region remained relatively strong through July, though not strong enough to offset the decline in business travel. There were virtually no signs of intensifying upward price pressures at the retail level. In fact, when prices were mentioned in contacts' reports, more often than not prices were moving downward.
Construction and Real Estate
Overall construction and real estate activity was again mixed in August. Conditions in the residential market were similar to our last report, as builders and realtors continued to report strong demand and "healthy" sales levels. Nearly all contacts, however, indicated that softness persisted at the high end of the housing market. On the commercial side, office vacancy rates were still trending up in most markets. The amount of sublease space being marketed also continued to rise, according to contacts, albeit at a more modest pace. Demand for new space remained very weak, and the combination of soft demand and increasing availability continued to put downward pressure on office rental rates. One contact surmised that many decisionmakers were waiting for rental rates to bottom before signing a new lease or sublease. Retail development was again strong, but contacts suggested projects in the pipeline were drying up, indicating that retail construction activity may slow in 2002. Decreasing business travel led to increasing hotel vacancy rates in most metro areas which, in turn, was putting downward pressure on room rates.
Manufacturing
Manufacturing activity was weak again in August, but contacts mostly suggested that conditions had not deteriorated further. Light vehicle sales nationwide were somewhat softer in August, but "nothing overly dramatic" according to one contact. Inventories were generally in good shape but, with softer sales, industry analysts were expecting light vehicle production to be cut back slightly in the fourth quarter. Conditions in the District's steel industry were said to be improving somewhat, partly the result of plant shutdowns in other regions. (The shuttering of a large steel producing facility in Ohio enabled some of the region's producers to gain market share.) A similar scenario played out in the gypsum wallboard industry. One large national producer idled nearly 45 percent of its capacity. Reduced supplies, higher capacity utilization, and continued strong demand from the housing market allowed one District wallboard producer to push through some fairly significant price increases during the summer. Conditions in the heavy machinery and heavy truck sectors changed little, as new orders and production in both industries remained at or near recessionary levels. The absence of further deterioration in the manufacturing environment was encouraging to many contacts. After several months of slowing, a large tool manufacturer suggested that steady, albeit unspectacular, activity was an important "positive" sign. In addition, a few contacts noted that demand for paper and corrugated shipping containers picked up.
Banking and Finance
Overall lending activity was mixed in August, as business loan demand remained soft while household demand was again relatively strong. Similar to our last report, commercial lending activity generally remained soft. A few reports were mixed, however, with bankers in some areas noting increases in business loan activity while others suggested decreases. Standards and terms for business loans were relatively unchanged, although one large bank did report that credit was "getting easier" for all but large corporate borrowers. Some contacts noted that business credit quality eroded a little further in August, with much of the deterioration concentrated in manufacturing-related loans. Most contacts were confident, however, that banks had adequate capital and reserves to cover any cyclical losses they may incur. Consumer borrowing remained strong in August, again led by demand for mortgage loans. Low interest rates on fixed-rate mortgages continued to spur strong refinance activity in most markets, and new originations were also said to be "holding up" at high levels. Home equity loans and lines of credit were rising strongly in some markets as well. A contact with one large bank, however, reported that the bank was pulling back on home equity products out of concern that exceptional home price appreciation in recent years may have left the housing market overvalued.
Labor Markets
Demand for workers in the District remained relatively soft in August, although reports of further softening and significant layoffs became less frequent. Claims for unemployment insurance through August remained about 40 percent higher than at the same time last year (down from nearly 80 percent in April), and higher continuing claims suggest that idled workers were finding it more difficult to find suitable employment. In sharp contrast to earlier in the year, however, the data suggested that the upward trend was no longer being driven by the most heavily industrialized states in the District. In fact, there were scattered reports of some manufacturing firms calling back a fraction of their furloughed workers. Contacts with staffing agencies indicated that new orders for workers were mixed. Some clients were said to be letting temporary workers go early, while others were keeping them longer than expected. There were more widespread reports that employers were canceling or significantly curtailing fall recruiting activities at college campuses. While wage pressures eased further, contacts continued to express concern over the rising costs of health insurance. As competition for labor eased in recent months, more employers were said to be considering increasing workers' contributions to help offset rising health insurance premiums.
Agriculture
Farmland values in the District increased 1 percent (on average) from the first quarter to the second and were up 5 percent from a year ago, continuing the pattern of change in the previous four quarters. Credit conditions in the industry were reported to be generally acceptable, a condition that bankers noted was heavily dependent on subsidy payments. Crop conditions deteriorated in District states from early July through August, and on the whole were considerably less favorable than a year ago. Field crop prices at the farm-gate continued to reflect "weather-market" volatility and remained in the low end of the market price range observed during the past decade. At the same time, financially-stressed dairy farmers have benefited from a continued sharp runup in milk prices that began in the first quarter.
|
Atlanta