WASHINGTON (MNI) – The following is the Beige Book section on the
Federal Reserve’s Sixth District, published Wednesday:

SIXTH DISTRICT – ATLANTA

Summary. Reports from Sixth District business contacts indicated
that the pace of economic activity remained slow in September. Retailers
noted a decrease in traffic and sales. The hospitality sector improved,
although some areas continued to be affected by the lingering impact of
the Gulf oil spill. Realtors and homebuilders cited further weakening in
home sales and increasing inventories, while the pace of nonresidential
construction was soft. Manufacturers reported that new orders grew at a
slower pace and production was flat. Provision of bank credit continued
to be constrained and loan demand remained weak. District labor markets
continued to recover slowly, although many businesses relied on
increased hours for existing staff and expanded their use of temporary
hires rather than adding permanent employees. Some transportation and
material prices rose slightly, but firms continued to report limited
pass through to consumers.

Consumer Spending and Tourism. Most District merchants reported
that traffic and sales decreased in September and that they are
intentionally keeping inventory levels low. Contacts noted that low-end
products and apparel were strong sellers, however, and the outlook among
retailers improved only modestly from previous reports. District
automobile dealers indicated that vehicle sales were ahead of year-ago
levels.

Tourism activity across much of the District improved and the
outlook for the remainder of the year was positive. Cruise bookings and
pricing increased and contacts reported that discretionary spending on
board rose. The impact of summer cancelations continued to be felt in
many Gulf Coast destinations. However, the losses experienced in these
areas have been largely offset by an increase in activity in Northeast
Florida, Georgia, and Tennessee.

Real Estate and Construction. Most District residential real estate
contacts reported that home sales weakened further in September,
although several Florida brokers indicated that declines moderated. Many
builders and Realtors noted that potential buyers remained on the
sidelines and that acquiring mortgage financing had become more
difficult recently. Cash buyers, particularly in Florida markets where
price declines have been pronounced, continued to purchase homes at a
strong pace. New home construction softened further from low levels.
Brokers indicated that existing home listing inventories continued to
rise on a year-over-year basis. Builders reported that new inventories
remained below the year-earlier level, but were rising. Both brokers and
homebuilders reported persistent downward pressure on home prices.
Homebuilders, in particular, were concerned about the number of
foreclosed and bank-owned properties coming to market. The outlook among
contacts regarding sales over the next several months was weak.

Nonresidential construction activity remained soft across the
District. Contractors noted that the pace of commercial development was
below the year-earlier level and backlogs remained low. Contacts
continued to report high vacancy rates and downward pressures on rents.
The outlook for the rest of the year remained negative.

Manufacturing and Transportation. District manufacturers indicated
that the growth of new orders slowed notably and that production was
flat in September compared to the previous month. However, many
respondents planned modest production increases in the short-term.
District transportation contacts noted an overall decrease in domestic
freight demand; however, this was countered by an increase in
international shipments. Rail companies reported positive but slower
growth of shipments of automobiles and industrial goods.

Banking and Finance. District banking conditions remained weak as
bank profitability continued to be challenged by elevated loan losses
and high levels of noncurrent loans. Loan demand also remained soft.
Business contacts continued to indicate an expansion of trade credit to
create and extend lines of credit outside of the traditional banking
infrastructure.

Employment and Prices. District labor markets continued to recover
in September, albeit slowly. Contacts reported that they remain
reluctant to hire additional full-time, permanent employees because of
the uncertain outlook regarding future sales and orders. Many firms
continued to note a strong preference for increasing existing staff
hours and using part-time or temporary staff rather than hiring
full-time staff. Firms that were hiring noted they were being very
deliberate in order to get the best possible candidate from a large
applicant pool.

District contacts reported that firms were resisting passing higher
input costs through to consumers given the ongoing softness in sales. As
a result, margins remained very thin. A number of manufacturers
indicated that rising costs of materials and employee benefits were
likely to be passed on to customers over the next 12 months.

Natural Resources and Agriculture. Regional oil production
continued to rise and the Gulf of Mexico crude inventories remained near
the top of their average range for this time of year. Local gasoline
stocks have been declining since mid-August, as large surpluses were
drawn down somewhat. Following the capping of the Deepwater Horizon well
in the Gulf of Mexico, clean up and oil recovery efforts continued with
ongoing environmental testing for contaminants in the water and in local
fish populations.

District crops were troubled by high temperatures and dry weather
in September that resulted in early harvesting. Soil moisture levels
were reported as extremely low in areas of Alabama, Mississippi, and
Tennessee. Regional cotton plantings were much higher than a year
earlier.

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

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