Beige Book Report: Atlanta
January 14, 2015
Business contacts indicated that economic activity continued to improve for the Sixth District since the previous report. The outlook among the majority of contacts was positive with most expecting higher growth for early 2015.
District merchants noted holiday sales levels were solid for November and early reports for December indicate much the same. Automobile sales continued at a solid pace. The hospitality sector reported a strong holiday season, continuing the level of activity that it had been experiencing all year long. Residential housing brokers and builders noted that home sales growth was flat to slightly down from the previous month while home prices continued to appreciate. Existing home inventories were flat from last month and new home inventories were flat to slightly up. Commercial contractors described construction activity as improving, with the multifamily segment of the market noted as particularly strong. Manufacturers indicated that overall activity strengthened since the previous report. On balance, banking contacts noted that loan demand improved. The District continued to experience job gains across most sectors. Similar to the previous report, contacts noted only mild cost pressures.
Consumer Spending and Tourism
District retail contacts appeared upbeat heading into the holiday season. While sales on Black Friday were adequate, merchants indicated that pre-Thanksgiving discounting, online shopping, and stores opening on Thanksgiving Day, helped November end with solid results. Early reports for December appeared strong and merchants expect the additional day of shopping between Thanksgiving and Christmas to bode well for year-end results. Motor vehicles sales were robust as demand continued to grow. District auto dealers noted that customers were reacting immediately to lower gasoline prices by purchasing new, larger vehicles.
Reports on tourism and business travel remained positive from late November through December. Tourism industry contacts reported a strong holiday season with high occupancy numbers at hotels and resorts. Hospitality contacts continued to report additional capital expenditures on tourism infrastructure as well as strong advanced bookings for the first two quarters of 2015 in the hotel and conference segments.
Real Estate and Construction
Most District brokers indicated that home sales fell short of their plan for the period. Many contacts noted that home sales were flat or down slightly compared with a month earlier. Brokers continued to report modest home price appreciation. The majority of brokers indicated that inventory levels remained flat from the prior month's level and that buyer traffic was flat to down over the same period. Brokers indicated that they expect home sales to remain flat or increase slightly over the next three months.
Incoming signals from District homebuilders were relatively unchanged since the last report. Contacts characterized construction activity as flat from the previous month and new home sales were flat to down slightly over the same period. Most builders indicated that the inventory of unsold homes was flat to slightly up compared with a month earlier. Modest home price appreciation continued to be reported. Builders' outlook for new home sales and construction activity over the next three months was fairly positive, with most indicating that they expect activity to be flat to slightly up.
Commercial real estate brokers across the District continued to report improving demand, though they cautioned that the rate of improvement varied by metropolitan area, submarket, and property type. Commercial contractors noted continued strength in apartment construction and that the pace of nonresidential construction activity continued to increase modestly. The outlook among District commercial real estate contacts remains fairly optimistic.
Manufacturing and Transportation
District manufacturers indicated that activity was solid, as the strong growth noted in the previous period continued. New orders and production remained at healthy levels, and contacts reported notable increases in employment. Supplier delivery times slowed and commodity prices increased modestly. Optimism among manufacturers rose notably since the last reporting period, with over half of contacts expecting productions levels to increase over the next three to six months.
District transportation contacts reported slightly higher activity from late November through December compared with year earlier levels. Trucking and logistics contacts noted significant increases in demand; however, capacity constraints due to a lack of drivers continued to hinder growth. Railroad contacts reported double-digit increases in shipments of grain, petroleum products, metallic ores, and military, machinery and transportation equipment. However, total rail traffic was flat compared with the previous reporting period. Maritime shippers cited significant capital expenditures in vessel capacity, including barges and petroleum tankers, as well as increased investments in LNG-powered ships. District ports experienced significant growth in container traffic compared with the same period last year. The majority of transportation contacts expect higher growth in 2015.
Banking and Finance
Credit conditions were largely unchanged from the previous reporting period. Contacts reported large businesses had easy access to credit; small businesses were experiencing small improvements in their ability to access credit. Loan demand increased among most lines of business. Loan pricing and structure remained competitive.
Employment and Prices
Businesses reported that the reluctance to hire was waning somewhat in the face of continued increases in demand. In November, Sixth District states added 49,500 net jobs. Job gains were fairly widespread across sectors, though retail contributed the most jobs. The unemployment rate in the Sixth District declined 0.2 percentage point to 6.4 percent in November. Reports of high turnover rates were more prevalent since the previous report, with many firms offering improved benefits, notably health care, as an employee retention device. In addition, the conversion of part-time workers to full-time accelerated as businesses tried to meet increased product demand and boost employee loyalty.
Businesses continued to cite little input cost pressure and limited pricing power, with some notable exceptions in commercial construction, transportation, real estate, and food. The Atlanta Fed's December survey of business inflation expectations indicated that firms' year ahead unit cost expectations were essentially unchanged at 1.9 percent. Contacts also expressed a slight shift in their assessment of labor cost pressures over the coming year with a growing number of firms reporting acceleration in compensation budgets for 2015. Some firms conveyed they were increasing starting pay or planning to move above minimum wage in an effort to attract and retain their workforce. Conversely, several employers also reported that where possible, they were holding down base pay and instead adding benefits or performance bonuses.
Natural Resources and Agriculture
Supply of crude oil and natural gas continued to outpace demand, leading to high inventory levels across the Gulf Coast. Industry contacts in the energy sector reported that the downturn in the price of oil has influenced their outlook and strategic planning for 2015, including a heightened focus on cost management, more prudent investments, and faster, more efficient drilling techniques. Exploration and production firms shared plans to continue drilling operations across the Gulf Coast and in Louisiana in 2015, though they intend to approach projects more cautiously. The same goes for oil service companies in the region, which are evaluating cost reduction strategies if low energy prices are sustained.
While the District experienced varying degrees of drought ranging from abnormally dry conditions to a few areas of severe drought, some areas of Alabama, Georgia, and the Florida panhandle saw some moderate improvement in drought conditions. Protein producers that rely on corn for feed reported improved margins because of continuing low corn prices. The most recent cotton and orange crop forecasts were slightly higher than last season's production.