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
economic activity rose modestly in October through mid-November.
Retailers noted some increase in traffic and sales, and expectations for
holiday sales were generally positive. Tourism related spending improved
largely as a result of an uptick in international visitors and business
travel. Realtors and homebuilders cited ongoing weakness in sales and
construction. The District’s office and industrial real estate markets
softened as construction levels declined and vacancy rates rose.
However, several contacts indicated that modest improvements were noted
in leasing activity. Manufacturers reported continued increases in new
orders and production. Credit conditions remained constrained and
weakness in loan demand persisted. District labor markets continued to
recover slowly, but businesses expressed cautiousness regarding adding
full-time employees. Labor and material prices rose slightly, but most
firms noted that they had little ability to pass costs through to
customers.

Overall, most business owners suggested that the lack of robust
sales growth was the major factor holding back their hiring plans and
their demand for credit, although several also cited ongoing tax and
regulatory policy uncertainty as additional constraining factors.
Limited capital spending was focused primarily on required maintenance
and efforts to increase efficiencies.

Consumer Spending and Tourism

Most retail stores and auto dealers reported that traffic and sales
increased in October through mid-November. The outlook among retailers
was positive and expectations for the holiday season were cautiously
optimistic. Retailers noted that customers remain quite value conscious
and responsive to price changes.

Tourism activity improved relative to a year earlier and the
outlook was generally positive for the holiday season. Hotel occupancy
rates rose in several of the District’s major markets compared to last
year and cruise bookings were strong. However, discretionary spending at
both hotels and cruise ships was

relatively soft. International visitors remained a major source of
tourism growth in the District. Contacts also reported solid increases
in business travel and group travel bookings.

Real Estate and Construction

Reports from residential brokers indicated existing home sales
weakened in October through mid-November on a year-over-year basis. Many
brokers, most notably in Florida, reported that the moratorium on
distressed sales led to a stall in activity. District homebuilders
indicated that new home sales growth and construction activity weakened
further. Home prices remained below the year-earlier level, but declines
moderated somewhat. Contacts noted downward pressure on prices across
much of the region from distressed property sales. Despite weak buyer
traffic, the outlook for sales growth over the next several months
improved somewhat.

Nonresidential construction activity softened across the District.
Contractors noted that the pace of commercial development was below the
year-earlier level and backlogs remained low. Vacancy rates remained
elevated across much of the region, although modest improvements were
noted in leasing activity. Most contacts expect the commercial real
estate market to remain weak over the next year.

Manufacturing and Transportation

District manufacturers indicated that the pace of new order growth
moderated slightly, while production growth remained flat compared to
the previous report. Several respondents noted plans to increase
production in the short-term, however. District transportation companies
continued to report improved freight volumes from year-earlier levels,
although the pace of growth has moderated from earlier this year.
Regional rail companies noted strong growth for metal and chemical
goods, while shipments of motor vehicles and parts softened. The outlook
among transportation firms was optimistic as rail companies noted
benefits from rising international shipments of coal and farm products.

Banking and Finance

Banks continued to report little loan demand. Troubled real estate
loans continued to increase, negatively affecting bank profitability.
Overall, access to credit among small businesses slightly improved,
although several noted ongoing difficulty obtaining credit on favorable
terms. Reports indicated that credit standards for smaller firms eased
more at community and regional banks than at large national banks.
However, many small businesses indicated that although banks were
willing to lend, the terms were unacceptable to the borrower. Firms
related to construction and real estate experienced the most difficulty
obtaining credit.

Employment and Prices

District labor markets continued to slowly recover in October
through mid-November. Business contacts reported that they were waiting
for clearer signals of improved business prospects before adding
significantly to payrolls. Businesses that were hiring were doing so
cautiously, and many noted that they were being selective in choosing
the most productive and versatile applicants. The majority of businesses
cited a strong preference for using part-time or temporary staff in
response to an increase in sales, allowing for more efficiency and
flexibility.

Business contacts expressed considerable uncertainty about cost
pressures over the coming year. Most felt that any pressure from higher
labor and materials costs would be largely absorbed by reductions in
profit margins. Overall, businesses remained reluctant to pass higher
input costs through to customers given the relative softness in sales
and orders. However, some transportation and food service firms
indicated they plan to raise some of their prices because of cost
increases.

Natural Resources and Agriculture

Regional oil production remained above earlier levels as production
from existing offshore platforms came online. Although drilling activity
remains well below pre-oil spill levels, the number of rigs operating in
the Gulf of Mexico has crept up since hurricane season ended. Contacts
have noted some concern that the pace of drilling permit issuance
continues to lag, which could weigh on future energy output in the Gulf.

Most District areas benefitted from improved weather conditions in
late October and early November. The outlook for the regions key
agricultural products was brightened by favorable market conditions.
Strong global demand and tight supplies have particularly boosted
soybean and cotton prices, recently reaching historic highs.

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

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