Beige Book Report: Atlanta
June 4, 2014
Sixth District business contacts described economic conditions as improving modestly in April and May. The overall outlook is positive with most contacts expecting either the same or a slightly higher level of growth for the remainder of the year.
On balance, reports on retail activity were mixed; however, auto dealers reported positive sales growth for the period. The tourism sector remained a bright spot with an increase in the number of domestic and international visitors to the District. According to residential real estate contacts, new and existing home sales were up and home prices continued to appreciate compared to a year ago. Homebuilders reported mixed levels of new home inventories and brokers cited a decline in existing home inventories compared to a year earlier. Commercial real estate contacts noted continued improvement in conditions as absorption rates and construction increased from last year. Purchasing managers in the manufacturing sector cited continued growth in new orders and production. According to bankers, loan demand for most types of loans was up across most parts of the region. District firms added to payrolls, albeit at a modest pace. Labor and material cost pressures remained stable and businesses continued to operate under tight margins.
Consumer Spending and Tourism
District retail reports were mixed in April and May. Merchants with multiple sites stated that sales were better in locations with more affluent customers. Retailers reporting lackluster growth attributed it to factors including people diverting spending to obtain mandatory health insurance and a reduction in food stamp benefits. Companies remained cautious in how they managed inventory levels. Auto sales grew at a brisk pace and contacts expect growth in the industry to remain consistent with current levels in the near term.
Contacts from the District's tourism and hospitality sector expressed an overall exuberance regarding activity. The number of visitors, especially international travelers from Latin America and Europe, to New Orleans, Atlanta, and most parts of Florida, increased. The near term outlook among contacts remains positive with most expecting an increase in travel compared with a year earlier.
Real Estate and Construction
More District brokers reported growth this period than the previous report. Roughly two-thirds of broker reports indicated that home sales had increased from the year earlier level. Most brokers indicated that inventory levels continued to decline on a year-over-year basis. The majority of contacts continued to report that home prices remained ahead of the year earlier level. The sales outlook among brokers was notably stronger relative to our last report.
Reports on current conditions from District builders were also more positive than the previous report. Most contacts reported that recent activity either met or exceeded their plan for the period. The majority of builders reported that construction activity and new home sales were ahead of the year earlier level. Reports on the level of unsold inventory were somewhat mixed. The majority of contacts continued to report modest home price appreciation. The outlook among builders for new home sales and construction activity was somewhat less optimistic than the previous report.
Commercial builders and brokers indicated that demand for commercial real estate continued to improve. Absorption picked up, though contacts continued to remind us that the rate of improvement varies by metropolitan area, submarket, and property type. Construction activity continued to increase at a modest pace from last year; most contacts reported that their current backlog is ahead of year earlier levels. Contacts indicated that apartment construction remains fairly strong and the level of construction activity across other property types has remained steady. The outlook among District commercial real estate contacts remained positive with continued improvement expected over the course of the year.
Manufacturing and Transportation
District contacts reported that manufacturing activity continued to expand. Growth in new orders, production, and employment suggested substantial strengthening in the District's manufacturing sector. Contacts reported increases in commodity prices and a drawdown in finished inventory levels. The outlook among purchasing managers for higher production over the next three to six months remains similar to the previous report.
Transportation contacts continued to cite expanding activity in April and May. District ports reported significant increases in exports of energy-related products; record unit volumes of cars, trucks, and tractors; and double-digit growth in containerized cargo. Railroads saw considerable increases in the movement of petroleum products and heavy equipment, as well as continued expansion in intermodal traffic. Trucking companies reported a slowing in the growth of tonnage since the last report but overall freight volumes remained robust. The majority of transportation contacts expect growth to be sustained for the rest of the year.
Banking and Finance
On balance, loan demand across the District increased as evidenced by a combination of new loan growth and increased lines of credit. Community banks also noted loan growth; however, new loans were being poached from larger banks. The use of home-equity lines increased as home values improved. Demand for auto and small business loans grew. Commercial real estate lending increased as business owners/owner-occupiers showed signs of expanding after many years of being on the sidelines. Some bankers admitted that they were getting "a little more aggressive" due to competition; however, they did note that they were not changing their loan structure or underwriting.
Employment and Prices
District payroll growth improved modestly since the last report. Staffing agencies noted a small increase in transitioning workers from temporary to permanent positions. Firms continued to show a preference towards using capital investment to enhance efficiency over hiring.
Most contacts reported relatively stable labor and material cost pressures. Notable exceptions included reports of greater wage pressure for some high-skilled positions and greater cost increases for food, transportation, and some construction materials. Unit costs are expected to increase 1.9 percent over the next 12 months, according to the Atlanta Fed's survey on business inflation expectations. Overall, profit margins were tight across most industries. However, a growing number of contacts communicated an expectation that the need to widen margins could have an upward influence on prices over the coming year.
Natural Resources and Agriculture
Energy activity in the District continued to expand as new discoveries, production, and oil field development increased across the Gulf Coast. Crude oil production was especially solid, which led to record high inventories in the region. Natural gas production, particularly wet natural gas, also increased. Energy firms expect continued strength in the sector during the summer months.
Parts of the District saw excessive rain, with flooding reported in lower Alabama and the Florida panhandle. There were some reports of crop damage and delayed planting attributed to excessive moisture.