WASHINGTON (MNI) – The following is the text of the Federal
Reserve’s Beige Book survey from the Atlanta district, published
Wednesday:

Summary.

Sixth District business contacts described economic activity as
littlechanged in June through mid-July. Retail sales grew slowly,
although sales of higher-end goods saw more traction and tourism
activity was strong. Existing home sales remained soft outside of
Florida, while new home sales and construction were weak throughout the
region. Downward pressure on prices of both existing and new homes
continued to be noted. Contractors reported that the pace of commercial
development was basically unchanged, although construction activity in
healthcare and multi-family had improved. Manufacturing contacts
indicated that production and new orders increased but at a slower pace
than experienced earlier in the year. Credit availability for
entrepreneurs and real estate developers remained tight, although loan
availability for some commercial projects increased. Most business
contacts indicated that their hiring plans remained modest. Firms’
expectations for unit cost increases have softened, mainly because
non-labor input costs have moderated.

Some energy contacts have noticed a considerable uptick in early
stage fabrication of oil and gas extraction capital goods. While most of
the District continued to experience drought conditions, recent rains
have provided relief to some of the District’s stressed farmlands.
Consumer Spending and Tourism. Most District merchants reported that
retail sales growth was modest in June through mid-July, although some
luxury goods retailers noted steady-to-improving sales. The outlook
among most retailers was less optimistic than earlier in the year. The
majority of contacts stated that they were keeping inventory levels lean
and had no plans to increase supply in the near term. Mid- and high-end
restaurant contacts reported improving traffic and sales, although their
margins remained under pressure from non-labor input costs. Auto sales
from Japanese manufacturers slowed, but dealers noted that the impact of
supply disruptions from Japan is ending.

Leisure activity continued to accelerate in most areas. Contacts
reported increases in room occupancy and rates in many areas. Strong
attendance at theme parks, festivals, and coastal destinations was
noted. Cruise bookings have risen as well, and airport contacts observed
increases in passenger traffic. The overall outlook for tourism remained
positive. Real Estate and Construction. According to reports from
District brokers, home sales were slightly ahead of last year’s weak
levels. Gains continued to be driven largely by reports from Florida
brokers. Outside Florida, the majority of contacts reported sales
declined.

Brokers continued to report declining home inventory levels as
fewer homes enter the market and that home prices were flat to slightly
down compared with a year earlier. The outlook among Florida brokers was
somewhat positive, but elsewhere sales are expected to remain weak.

District builders reported that new home sales and construction
weakened somewhat in June compared with year-ago levels. Builders
continued to report downward pressure on new home prices. Residential
contractors reported that home improvement construction increased from
earlier in the year; however, most reported that they were unable to
effectively pass along all cost increases. Most builders anticipate that
new home sales and construction will be slightly ahead of last year’s
weak levels over the next several months, and most expect renovation
work will continue to improve.

About two-thirds of contractors reported that the pace of
commercial development was flat to slightly up compared with weak levels
from a year earlier, but backlogs continued to shrink. Contractors
commented that healthcare and apartment construction were bright spots
and that renovations in commercial and apartment space had increased.
Most contractors anticipate activity for the remainder of this year will
be flat to below year-ago levels. With regard to existing commercial
structures, contacts reported that credit availability and absorption
improved, especially in light industrial, warehousing, healthcare and
energyrelated space.

Manufacturing and Transportation.

Manufacturing contacts indicated that production and new orders
increased, but at a slower pace than reported earlier in the year.
Producers of healthcare equipment and electrical components in
particular noted stronger orders, and a producer of freight trucks is
significantly increasing output. Many manufacturers reported increased
investment in technology equipment in efforts to increase efficiency.
While some contacts noted that the acceleration in input prices had
begun to moderate, the price of metals remained elevated. Many contacts
reported that supply chain disruptions from the disaster in Japan were
beginning to moderate.

Freight forwarding and parcel shipping contacts reported a gradual
slowing of domestic volume momentum in June through mid-July. The cost
of fuel and other inputs continued to challenge shippers’ operating
margins; however, maritime contacts cited some success in passing along
fuel surcharges. Input costs for trucking contacts such as tires,
replacement parts, and new vehicles remained high.

Banking and Finance.

Banking contacts reported that credit was available, but finding
qualified borrowers continued to be difficult. Several cited increased
competition for qualified loans. New residential real estate loans were
limited, but banks were actively competing for refinances. Business
contacts reported credit markets improved, but loan standards remained
high. Credit availability for entrepreneurs and real estate developers
remained tight, although loans were available for some commercial
projects namely hospitals and multi-family buildings.

Employment and Prices.

Most business contacts indicated that their hiring plans remained
modest. Uncertainty regarding future demand and the regulatory
environment were the most commonly cited reasons for the muted hiring
outlook. Of those that reported plans to increase employment, many
pointed to having reached maximum productivity with existing staff.
Staffing agency contacts continued to experience high demand for
temporary or contract workers. According to reports, demand for
qualified, higher skilled candidates is robust, especially in the
technology sector. Most contacts said that they did not experience
significant upward wage pressure, and characterized annual increases and
bonuses as modest. Firms’ expectations for unit cost increases are more
tempered than noted earlier in the year. Non-labor input costs have
moderated, but remained elevated. However, downward price pressures from
productivity gains were reportedly tapering off. While District contacts
have continued to report that margins remained squeezed, there have been
more frequent reports that some contacts are attempting to pass through
input costs.

Natural Resources and Agriculture.

Some energy contacts have noticed a considerable uptick in early
stage fabrication of oil and gas extraction capital goods. Shipbuilding
for shallow water supply boats has also increased. Shale exploration has
increased as firms employed directional drilling techniques for oil and
gas liquids. While most of the District continued to experience drought
conditions, recent rains have provided relief to some of the District’s
stressed pastures and crops. Based on results of a recent state survey,
a contact reports concerns that farm labor shortages has had a negative
impact on Georgia’s fruit and vegetable production.

** Market News International Washington Bureau: 202-371-2121 **

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