September 11, 2002
Sixth District contacts noted a modest improvement in economic activity in July and August, whereas assessments of future prospects were mixed. Retail sales increased, led by autos and positive back-to-school sales. Housing markets remained strong overall, while commercial real estate markets continued to stabilize. Manufacturing output improved slightly. Contacts reported that leisure travel had returned to healthier levels, but business travel in the region remained weak. Labor market conditions were largely unchanged, while price pressures remained limited to a few areas.
Consumer Spending
Back-to-school activity, strong home sales, and automobile sales
supported retail activity in the District. Retailers reported
that overall sales growth improved in August after lackluster
results during July. Most agreed that back-to-school sales rose
modestly compared with last year. Home-related product sales
were described as strong while apparel sales were mixed across
the region. Most contacts reported that retail inventories were
balanced. Aggressive manufacturer incentives boosted District
car sales in July and August. However, dealers operating national
franchises noted that sales in the region still lagged other
markets. Despite the generally positive retail results, August
surveys of consumer attitudes in Florida and the Atlanta metro
area indicated lower levels of consumer confidence.
Real Estate and Construction
Low mortgage rates continued to fuel robust District housing
markets. Most builders and real estate agents reported that
home sales and new home construction equaled or exceeded year-ago
levels in July. For August, the reports were more mixed but
remained positive overall. The strongest reports continued to
come from Florida. Home inventories varied across the region,
with a shortage of supply reported in some Floridian markets.
According to reports, several apartment markets in the District
continued to suffer as tenants were finding that low interest
rates made home ownership an attractive alternative to renting.
Lack luster commercial real estate markets have changed little
since our last report. Vacancy rates remain at high levels,
but reports continued to surface of small improvements in leasing
activity.
Manufacturing
Factory activity improved modestly in July and August, and contacts
noted a slightly more optimistic outlook. New military contracts
boosted the District's shipbuilding and aircraft industries.
Auto parts producers continued to announce expansion plans to
service the region's vehicle plants. Production volumes were
expected to increase for a pharmaceutical manufacturer, and
several glass producers noted that they were operating at full
capacity to meet rising demand. One report also noted increasing
orders and shipments for packaging materials. Less positively,
producers of high-tech equipment continued to pare employment
rolls. Higher imported steel prices were reported to be severely
affecting some metal fabricators. Carpet production, especially
for the commercial building segment, remained in the doldrums
and contacts noted that demand was not expected to pickup in
the near term.
Tourism and Business Travel
Most reports from the tourism and hospitality sector noted some
recent improvement in leisure travel in August. However, more
of Florida's visitors were reportedly traveling by car than
by air, and the duration of visits has declined. Contacts reported
that sluggish European and South American economies cut into
international travel to the state, although some reports indicated
increasing numbers of visitors from Brazil. Mississippi's gaming
industry continued to attract customers reluctant to fly to
other destinations. Record revenues for Mississippi Gulf Coast
casinos were reported for July. Business travel remained weak.
In Atlanta and New Orleans, attendance at some recent large
business conventions was substantially below that of a year
ago.
Financial
Consumer lending continued to increase moderately while commercial
loan demand remained weak. Additionally, bankers remained cautious
in approving new commercial lines of credit, and some noted
tightening standards for approving consumer loans as well. Lower
mortgage interest rates drove up mortgage origination and refinancing
activity throughout the District. One contact noted a surge
in the number of borrowers looking to shorten the term of their
loans. The venture capital sector remained largely inactive.
Labor and Prices
With the exception of vehicle manufacturers, part suppliers,
and producers of military equipment, reports continued to indicate
that firms were not adding significantly to payrolls in August.
However, the pace of layoffs appears to have eased back. Most
business contacts continued to report that their focus is on
cost cutting, and expansion plans remain on hold as a consequence.
But some were optimistic that the hiring environment would improve
over the next six months. Prices were mostly unchanged with
the notable exception of continued increases in healthcare and
insurance costs. Many employers were reportedly passing some
of these higher costs on to employees and some were also reducing
benefits. Prices for building materials were increasing according
to several reports, and import tariffs continued to place upward
pressure on prices paid for steel products.
Agriculture
Summer rains improved the agricultural outlook in Florida, Louisiana
and Mississippi, but drought conditions remained a problem for
farmers in parts of Alabama, Georgia and Tennessee. Stronger
cotton and corn prices were benefiting those producers not severely
impacted by the drought.