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Reports from Sixth District contacts pointed toward a modest improvement in economic activity from late July through mid-August. Retail contacts were positive about sales activity and the manufacturing sector displayed some welcome signs of improvement. The pace of factory orders was reported to have increased in some industries, and transportation contacts noted an increase in shipping activity. Despite the recent run up in mortgage rates, single-family construction and sales remained flat to slightly up. Commercial construction was still limited by low demand for new space. Nonetheless, office leasing activity and net absorption conditions continued to improve in most markets. The District's tourism and business travel sectors continued to lag, and higher gasoline prices in August were expected to further dampen travel. The healthcare and education sectors continued to report increased demand for workers, whereas the pace of the layoffs in the manufacturing sector slowed from earlier in the year. The strongest employment reports came from Georgia and Florida.
Consumer Spending
Retail contacts indicated that sales growth during late July and through mid-August improved compared with early July and exceeded year-ago levels on a same-store basis. According to reports, sales have matched or surpassed expectations, and back-to-school sales were generally very positive. Retailers continued to be upbeat about prospects for the remainder of the year. Despite better than expected sales, there were no widespread plans to increase inventory at this stage. District auto dealers continued to report mixed sales results. Disappointing domestic car sales were offset by strong results for light trucks and for non-U.S. brands.
Real Estate
According to reports from single-family homebuilders, new home construction and sales from late July through mid-August was flat to slightly up compared with last year. However, wet weather continued to dampen activity in some areas. For instance, one report noted that Atlanta has had one of the wettest summers on record. Reports from District real estate agents noted a slight weakening in overall sales growth, especially at the higher end. Although contacts anticipated some continued slowing through the end of the year as a consequence of higher mortgage rates, a dramatic drop-off in activity is not expected. The region's commercial real estate markets continued to show small improvements, especially regarding leasing activity and net absorption. However, weak demand for new space persisted in most markets.
Manufacturing
Factory activity improved slightly since early July, but most firms remained reluctant to add to payrolls or purchase new equipment. Reports from lumber mills, high-tech producers, and building material suppliers indicated increased shipping volume and orders. Chemical industry contacts reported steady demand. Production levels are increasing in the region's auto industry because of newly opened auto assembly plants. However, new orders for apparel and textile producers continued to suffer because of sluggish demand and foreign competition. Consistent with the reports of increased production overall, business conditions continued to improve for most shipping contacts. However, some have noted that the recent blackout disrupted services to some manufacturing customers.
Tourism and Business Travel
Drive-to tourist destinations continued to report better performance than those relying on air traffic but overall tourism activity remained subdued. Resort tax collections were down from year-ago levels for some Florida counties, and international tourism remained weak. Along the Mississippi Gulf Coast, casino gross gaming revenues were down from a year earlier. Throughout the District, hotels catering to business travelers continued to report low-occupancy levels.
Financial
Mortgage refinancing declined and applications for new mortgages slowed in most parts of the District in August. Contacts continued to indicate that problem loans and delinquencies continued to be manageable. Overall business loan activity remained lackluster. Borrowing by small businesses remained down, except for activity related to the housing industry, such as building material suppliers or furniture dealers.
Employment and Prices
There were mixed reports on labor markets in late July and August. The healthcare and education sectors continued to add to permanent and temporary staffing levels. Layoffs in some struggling manufacturing industries persisted, as did reports of weak demand for temporary office staff. Most reports continued to indicate that businesses did not expect to substantially change their hiring plans over coming months. Employment reports from Florida and Georgia were generally stronger than other parts of the District. Increased costs for insurance and pharmaceuticals continued to be reported, and higher gasoline prices in August were expected to dampen travel-related activity in the District. Discounts by hotels and cruise lines remained in effect in an effort to stimulate activity.
Agriculture
A series of new tropical storms brought significant rainfall to much of the District in July and August. The rains slowed pesticide spraying in parts of Florida and Georgia, but no major damage was reported. Generally, cattle and pastures were in good condition in most areas. In Georgia, crop conditions were favorable, particularly for the soybean and corn, which are expected to have record yields this year. These District crops could benefit from increased export demand as a consequence of severe drought conditions in parts of Europe.
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Richmond