Beige Book Report: Atlanta
July 16, 2014
On balance, reports from Sixth District business contacts suggest that economic activity expanded modestly in June and early July. The outlook among businesses remained positive as most anticipate higher growth in the near term.
Retailers noted that sales rose at a slightly faster pace relative to the previous report and vehicle sales grew solidly. According to travel and tourism contacts, the hospitality sector continued to experience robust activity. Reports on residential home sales were mixed with fewer brokers noting an increase in home sales relative to the previous report, while builders' reports remained fairly positive. Both builders and brokers indicated that home prices appreciated from a year ago. Commercial real estate contacts witnessed continued improvement in demand and increased construction activity. Manufacturers cited growth in new orders and production. Bankers noted improved loan growth since the previous report. Payroll employment grew at a modest pace across most of the District. Wages and input cost pressures remained stable overall.
Consumer Spending and Tourism
Since the last report, the consensus among District retailers was that sales growth picked up slightly with several merchants indicating that customers spent more money per visit to their establishments than earlier in the year. Strength in residential real estate sales was noted as positively impacting furniture stores and other retailers in high growth areas across the region. Auto sales continued to grow at a solid pace in June and early July.
District reports on tourism and business travel remained positive. Activity in Georgia and Florida was strong with high occupancy numbers at local hotels and resorts. Firms reported several tourism-related capital expenditure projects under construction, intended to stimulate travel to the area. Mississippi's casino gaming revenues in the first half of the year decreased compared with a year ago. Hospitality industry contacts expressed concerns that a rise in gas prices may adversely affect summer tourist activity.
Real Estate and Construction
Fewer District brokers cited growth this period than in the previous report. Just over half of brokers indicated that home sales had increased from the year earlier level, down from nearly two-thirds in June's report. Most indicated that inventories either remained the same or declined on a year-over-year basis. The majority of contacts continued to report that home prices remained above last year's level. The outlook among brokers about future sales activity was less optimistic relative to our last report.
On the other hand, reports from District builders remained fairly positive. Most contacts felt that recent activity either met or exceeded their plan for the period. The majority of builders indicated that construction and new home sales were ahead of the year earlier level. Builders noted that the inventory of unsold homes remained unchanged from a year ago. The majority of contacts continued to report modest home price appreciation. The outlook among builders for construction and home sales was positive.
Demand for commercial real estate continued to improve across most of the region. Absorption rates remained positive. Construction continued to increase at a modest pace from last year and most contractors noted that their current backlog was ahead of year earlier levels. Contacts indicated that apartment construction remained fairly strong and reported that the level of construction activity across other property types remained steady. The outlook among District commercial real estate contacts remained positive with most expecting activity to grow at a steady pace through the summer months.
Manufacturing and Transportation
Manufacturers indicated that activity sustained the solid pace of growth noted in the previous report. New orders and production continued to increase, supplier delivery times slowed as demand for inputs rose, and commodity prices were elevated. The outlook among purchasing managers for higher production over the next three to six months remained consistent with the previous report.
Transportation activity in the District continued to expand since the last report. Rail contacts reported notable year-over-year growth in shipments of petroleum products, grain, machinery, and military and transportation equipment. Intermodal traffic remained robust. District ports noted strengthening in container traffic and break-bulk cargo, along with growth in shipments of autos and machinery. Contacts in trucking cited broad-based increases in freight volumes and tonnage.
Banking and Finance
Bankers continued to report increased competition and aggressive rates and loan structures. Contacts noted loan growth was strong over the last couple of months, with some of that growth coming from increased credit line usage. Much of the borrowing was used to lower the cost of existing debt and to finance acquisitions. Banks continued to compete aggressively for quality borrowers, especially in small business lending. Mortgage demand, in general, was lower than last year. Applications for new home purchases made up a larger percentage of total mortgage applications as refinancing activity slowed. Some contacts cited an increase in demand for second mortgages and commercial development loans. Auto lending was characterized as strong and competitive in June and early July. Delinquencies were down and have returned to prerecession levels at many institutions.
Employment and Prices
Payrolls across the District continued to expand in June and early July, but at a slow pace. The District's aggregate payroll growth was dragged down by notable payroll losses in Florida. That said, in the aggregate, manufacturing employment increased across the District. Contacts reported continued difficulty filling positions in trucking, construction, and for specific information technology positions. Staffing agencies noted that job placements were up modestly, while the flow from temporary to permanent employment rose slightly.
Wage growth remained in the 2-3 percent range, with the exception of some high-skill, low-supply fields. Growth in input costs was muted for most businesses, with reports of greater cost inflation for some higher demand services and commodity-related inputs, including trucking services, construction materials, and food. A growing number of contacts cited successful attempts to raise prices, though such increases reportedly required more negotiation than was typical pre-recession. According to the Atlanta Fed's survey on business inflation expectations, firms' unit costs were up 1.9 percent on a year-over-year basis in June. Looking forward, survey respondents indicated that they expected unit costs to rise 2.0 percent over the coming 12 months, on average.
Natural Resources and Agriculture
Gulf Coast refineries continued to run at near record levels, as they have for much of 2014. Refineries continued to invest in storage capacity to accommodate increased crude oil inventories flowing to the Gulf Coast from the Cushing, Oklahoma hub. Regional exports of crude oil rose on a year-over-year basis. Energy firms expect continued strength in the sector and strong demand during the summer months.
While much of Tennessee, southwest Louisiana, and the southernmost tip of Florida continued to experience abnormally dry conditions, most of the District was drought free. Some areas received excessive rain causing delays in production although recent, dryer weather conditions allowed planting to continue. Regional producers benefitted from higher prices for many of their agricultural products, lower costs for feed and fertilizer, and fuel costs leveling off. Recent record-high prices in cattle and hogs were attributed both to growing international demand and to domestic supply constraints.