Beige Book Report: Atlanta
October 15, 2014
Sixth District business contacts described economic conditions as improving at a modest pace in September. The outlook among firms remains largely optimistic with the majority of contacts expecting near-term growth to be sustained at or slightly above current levels.
Retailers cited a slight improvement in sales activity since the previous report. Auto dealers continued to note increasing sales. Hospitality contacts continued to report strong activity, with increasing demand from both leisure and business travel. Residential real estate contacts indicated that existing and new home sales and prices remained ahead of last year's levels, and inventory levels were down from a year ago. Commercial real estate brokers continued to note improved demand and modest levels of construction for most property types. Multifamily construction, in particular, continued to increase across much of the District. Manufacturers indicated that overall activity expanded with new orders and production increasing since the previous report. Banking conditions improved for both businesses and consumers as loan volume increased slightly, on balance. Payrolls across the region expanded slowly and businesses continued to report difficulties finding qualified workers. Contacts indicated wages grew at a steady pace. Some contacts expressed concerns about the rising costs of specific inputs.
Consumer Spending and Tourism
District retailers reported a slight improvement in sales since the previous report. Young shoppers were described as being confident and willing to spend, while older consumers were reportedly being more cautious. The battle between online sales versus brick-and-mortar store sales continued as merchants indicated that competition from rival stores' online sales was having an adverse effect on in-store traffic. However, the outlook among retailers for the remainder of the year remains optimistic. District auto dealers not only continued to see increased consumer sales, but saw strong demand from commercial businesses as well.
Reports on tourism and business travel remained upbeat. Tourism activity across the region was strong with high occupancy numbers at hotels and resorts. The development of various new entertainment venues has increased demand for leisure travel and business travel has been solid year to date. Overall, hospitality contacts maintain a positive outlook for the remainder of 2014 and the beginning of 2015.
Real Estate and Construction
Many District brokers reported growth in activity since the previous report. Most brokers indicated that home sales met or exceeded their plan for the reporting period, but a growing share of contacts reported that sales fell short of their plan. The majority of brokers indicated that inventory levels remained flat or continued to decline on a year-over-year basis and home prices were ahead of their year-earlier level. Regarding the outlook, optimism about future sales activity waned from earlier reports with most brokers expecting home sales to remain flat or decline slightly over the next three months with some of the expected decline being attributed to seasonal factors.
Reports from District builders remained fairly positive. The majority reported that recent construction activity either met or exceeded their plan for the period. Many builders noted that construction activity and new home sales were ahead of their year-ago levels. Half of contacted builders indicated that their inventory of unsold homes was down from a year ago. Builders also continued to report modest home price appreciation. The outlook among builders for new home sales and construction activity remains positive.
Commercial real estate brokers across the District continued to report improving demand since the previous report, though they cautioned that the rate of improvement varied by metropolitan area, submarket, and property type. Commercial contractors reported that apartment construction remained robust. Contacts also noted that the level of construction activity across other property types continued to increase modestly. The outlook among District commercial real estate contacts remains fairly optimistic.
Manufacturing and Transportation
District manufacturers reported that activity expanded compared with the previous reporting period. Contacts noted growth in new orders and production; in addition, they indicated that finished inventory levels rose and commodity prices continued to increase. Respondents noted that supplier delivery times for inputs were slightly shorter. Relative to the previous report, a larger share of purchasing agents polled during the reporting period expect production to increase over the next three to six months.
Overall, transportation contacts reported an improvement in demand since the previous report. District railroads cited increases in total carloads, led by significant strengthening in shipments of petroleum products; grain; and military, machinery, and transportation equipment. Intermodal traffic continued to increase on a year-over-year basis. Ports in the District reported a notable increase in container traffic and substantial growth in overall cargo tonnage in September. Trucking companies continued to experience strong freight demand through the end of September.
Banking and Finance
Contacts described the financing environment as improving for both businesses and consumers, with a growing number of projects being financed. Competition for high-quality borrowers remained very keen and credit demand was mixed. Line-of-credit utilization at banks remained relatively flat with few requests for increased limits on short-term credit. Demand for some other loan types was up from year-ago levels.
Employment and Prices
With a few exceptions, contacts reported that their staffing levels were increasing slowly. The District added 51,100 jobs on net in August and the unemployment rate rose 0.2 percentage point to 6.9 percent. Nearly all states in the District added to payrolls in August, with the exception of Mississippi, which lost 4,600 jobs on net. Businesses across the region continued to report difficulty finding qualified workers. Similar to the previous report, hiring challenges appeared to be both intensifying and broadening across the skill and occupation spectrums.
In general, firms indicated that their pricing power remained relatively weak, although a growing number of contacts expect improved margins over the coming year. Contacts in some sectors, including transportation and construction, continued to report concerns about rising input costs, though a slower pace of commodity price increases is anticipated to offer some respite going forward. Respondents to the latest business inflation expectations survey indicated that, on average, businesses anticipate unit costs to rise 2.1 percent over the coming 12 months. There were some reports of upward pressure on starting salaries; however, average compensation increases for most contacts remained anchored between two and three percent per year.
Natural Resources and Agriculture
Contacts in the oil industry reported that there was an excess supply of crude oil, with recent prices well below year-ago levels. Gulf Coast refinery utilization increased over the last year. Imports of crude oil fell; exports were slightly above year-ago levels, though some contacts expressed concern that the strength of the dollar has made U.S. oil exports more expensive for the rest of the world.
Parts of Alabama, Florida, and Georgia experienced abnormally dry to severe drought conditions. Lower corn prices continued to benefit poultry and livestock producers that rely on corn for feed. The USDA announced a new financial assistance program for eligible Florida citrus growers to help with the removal and replacement of stock affected by citrus greening.