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Beige Book Report: Atlanta

April 21, 2004

Business activity in the Sixth District expanded at a moderate pace during February and March. Reports of hiring remained mixed, but declines in some of the weaker sectors abated. Retail reports indicated that sales exceeded year-ago levels, whereas auto sales were described as uneven. Tourism reports were distinctly upbeat. Single-family housing markets remained robust and small improvements were noted in some commercial real estate segments. Manufacturing output increased from low levels and transportation contacts continued to report increasing demand. Banking activity was described as mixed. Rising prices for some key transportation, manufacturing, and construction inputs were widespread, although instances where these increases were being passed on to final users remained limited.

Consumer Spending
District retail contacts reported that February sales were up strongly compared with a year-ago, followed by moderate increases in March. Most merchants indicated that inventories were balanced. Women's and children's apparel, and shoes sold well in March. Home-related sales were mixed. Retailers remained upbeat and anticipate that second-quarter sales will also exceed year-ago levels. Demand for light trucks and SUVs continued strong, and contrasted with the weaknesses noted in most car segments even with strong marketing incentives.

Real Estate
District single-family housing markets remained robust overall in February and March. The majority of Realtor contacts noted that sales exceeded year-ago levels, and most builders reported that new home construction during March met or exceeded the prior year's level. The strong demand for mid-priced homes continued, with some improvement in demand for high-end homes. Demand continued to outstrip supply in several Florida markets. Housing inventories were mostly described as balanced elsewhere. Contacts anticipate continued strength in the second quarter.

Reports indicated there were modest improvements in commercial real estate markets in February and March. Several retail expansions were underway, and although most large-scale construction plans have remained on hold in other sectors, some small to mid-size projects have moved forward. Concern that escalating steel prices could hold up some projects was noted. Office markets remained generally weak.

Manufacturing
Activity improved in several manufacturing industries. Strong sales in February and March were reported from lumber, plywood, metal piping, heavy trucks and trailers, and supply boats for the offshore drilling industry. Carpet production was described as steady, but other areas of the textile industry remained weak. The pulp and paper industry also continued to struggle with overcapacity problems. Some manufacturers reported increased steel product inventories as a hedge against additional price increases.

Transportation
District transportation contacts reported continued strong demand for air, truck and rail transportation services. Inter-modal centers in Atlanta and Huntsville reported record volumes of rail cargo processed. Several District trucking companies reported very strong demand for both industrial and consumer shipments.

Tourism and Business Travel
Contacts in the District's tourism and hospitality industry reported high levels of activity in several markets. South Florida recorded near record numbers of visitors, and hotel occupancy rates in central Florida were up from last year. Passenger traffic and fares were said to be increasing in the cruise industry. Gaming revenues along Mississippi's Gulf Coast increased strongly from a year earlier.

Financial
Responses indicated that banking sector activity was mixed in February and March. Residential mortgage activity slowed somewhat, but there were some reports of new rounds of refinancing. Reports also noted increased use of adjustable rate mortgages. Demand for new commercial and industrial bank loans remained flat. Past dues and loan losses continued at low levels and competition for deposits was vigorous. One report noted a modest increase in venture capital activity in the District.

Employment and Prices
Most reports indicated that hiring remained limited in March. Despite increased output, there were only scattered reports of new hiring in the manufacturing sector. There was a pickup in hiring because of new contracts in the defense industry. Contacts noted that the use of temporary workers was increasing in some sectors.

More instances of higher input prices were noted in March. One building contractor reported that the price of building materials was "going through the roof." In some cases, rising building costs were being reflected in new home prices. Sharply higher raw steel prices had increased costs for metal fabricators in the District. Some transportation firms indicated that they were able to pass on recent fuel costs increases. A large paper producer announced price increases for several consumer products.

Agriculture
Dry weather conditions were the main factor affecting District farmers during late March and early April. Recent market conditions for regional crops such as cotton and soybeans were bright. Vegetable prices were also firm. Overproduction of sugar was noted as a concern of District sugar cane growers.