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Sixth District business contacts indicated that the pace of economic activity continued to slow in July and August. Retailers reported a decrease in traffic and sales, and their outlook was less positive than in previous months. Reports from the District's tourism sector were mixed as contacts outside of the oil-spill affected Gulf coast experienced positive growth, but areas from Louisiana to the Florida panhandle saw significant declines in visitors. Residential real estate contacts noted that the pace of new and existing home sales slowed, and their outlook remained pessimistic. Nonresidential real estate activity remained weak. Manufacturers reported that the pace of new orders growth slowed. Banking credit conditions remained constrained and loan demand was reportedly weak. Labor markets improved modestly, but most businesses maintained a strong preference for increasing the hours worked of existing staff and expanding their use of temporary hires rather than for hiring permanent employees. Transportation and material prices rose slightly, but most firms expressed limited ability to pass increases through to consumers.
Consumer Spending and Tourism
Most District merchants reported that traffic and sales decreased in July and August. Retailers continued to keep inventory levels low and the outlook was less positive than in previous months. District automobile dealers indicated that sales increased from a year ago.
The oil spill had a negative impact on tourism along the affected Gulf Coast. Outside of areas affected by the oil spill, tourism continued to show signs of improvement compared with last year. Hospitality contacts in Miami, Nashville, New Orleans, and Orlando experienced increasing hotel occupancy rates in July and August. In addition, northeast Florida, Georgia, and mountain resorts in Tennessee saw an increase in activity--some reportedly as a result of deflected business from the oil affected areas. The cruise-line industry cited a pickup in traffic and a modest increase in prices.
Real Estate and Construction
Residential real estate reports showed that home sales weakened further in July and August compared with a year ago. Realtors noted that existing home sales fell slightly, while homebuilders said that new home sales fell further below the year-earlier level. New home construction softened further from already low levels. Realtors indicated that home listing inventories continued to rise, but homebuilders conveyed that new home inventories declined compared with a year earlier as a result of very weak new home construction. Home prices weakened somewhat in July and August and contacts noted mounting downward pressure on prices across the District. Contacts' outlook for both new and existing home sales growth over the next several months was pessimistic.
Nonresidential construction activity remained weak. Contractors noted that the pace of commercial development was below the year-earlier level and backlogs remained low. Vacancy rates were high across the District and contacts continued to witness downward pressures on rents. Contractors' outlook for the rest of the year remained negative.
Manufacturing and Transportation
Manufacturing contacts reported that overall activity was expanding, but at a slower pace than in the previous report. Fewer District manufacturers noted increases in new orders, and more said that orders were lower. District trucking companies reported improved revenues and a moderate pickup in freight volumes through August compared with a year ago. However, railway companies described slower growth in motor vehicles, chemicals, and housing-related shipments.
Banking and Finance
Uncertainty and conservative lending continued to hamper loan activity across the District. Businesses cited difficulties receiving credit and many firms expressed little or no interest in applying for new loans because of low expectations for future sales or orders. Businesses also reported refusing offers of credit because of unfavorable terms from banks. However, multiple contacts indicated an expansion of trade credit to create and extend lines of credit outside of the traditional banking infrastructure. Personal and business bankruptcies increased across the District.
Employment and Prices
Private payroll employment improved slightly in July, although many businesses continued to note a strong preference for increasing existing staff hours and using part-time or temporary staff rather than hiring full-time employees. Contacts also reported that the pool and the qualifications of applicants have increased significantly. While the long-term impact of the oil spill on labor markets is still unknown, businesses along the Gulf coast noted that, so far, job losses have been largely offset by hiring in clean-up and mitigation efforts.
District contacts reported increases in commodity and transportation-related prices compared with a year ago. Most firms conveyed no plans to pass the increases on to consumers, opting instead to continue to internalize cost pressures through a combination of lower margins and increased efficiencies.
Natural Resources and Agriculture
Local oil production increased slightly and Gulf of Mexico crude inventories stayed near the top of their average range for this time of year. Contacts indicated that the impact on production from the oil spill were nominal. However, concern remains regarding the potential longer-term impact of the deepwater drilling moratorium on the Gulf's energy production and the business impact of increased liability insurance costs for independent oil companies.
Limited rainfall, coupled with hot temperatures, challenged crops and livestock in most District areas. Short topsoil moisture levels were widely reported across the District. In addition, dry weather conditions have pushed some growers to an early harvest season.
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Richmond