Beige Book Report: Atlanta
March 4, 2015
The Sixth District's economy continued to grow at a moderate pace from January to early February. The majority of contacts are optimistic and expect near-term growth to be sustained at, or slightly above, current rates.
Overall, District retail reports were positive over the reporting period. Motor vehicle dealer contacts indicated lower gas prices helped spur an increase in light truck sales. The District's tourism industry remained a bright spot with reports of increased activity in the business and convention segments. Residential real estate reports on home sales were mixed; however, both brokers and builders continued to witness modest home price appreciation. Commercial real estate markets continued to see improvements in demand and nonresidential construction was ahead of year-ago levels. Manufacturers reported increases in new orders and production. Bankers indicated that loan demand was strong for most business lines. On balance, the District's labor force continued to grow. Firms continued to cite nominal wage increases for most jobs and other input costs remained subdued.
Consumer Spending and Tourism
After experiencing a moderate 2014 holiday season, District merchants appeared optimistic during the early months of 2015. Recreation-and-vacation-centric retailers experienced solid overall growth last year, and expect a similar trend for the first half of 2015. Casual dining establishments saw an uptick in volume as consumers seem to be trading up from fast food options. Many contacts cited evidence, such as a noticeable increase in purchases of light trucks that lower gasoline prices had led to increased spending on other goods and services.
Hospitality contacts reported an increase in business and convention bookings. Reports from industry contacts also indicated that the U.S. dollar exchange rate was not negatively affecting international visitors to the District. Lower gas prices were also reported as a contributing factor to a rise in visitors of drive-to destinations. Hoteliers anticipate that the next three to six months will outperform last year based on advanced bookings.
Real Estate and Construction
Since the last report, District brokers' reports on home sales activity improved a bit. Most contacts reported that home sales were flat to up slightly compared with the year earlier level. Brokers continued to report modest home price appreciation. The majority of brokers indicated that inventory levels either remained flat or had fallen from the prior year's level and noted that buyer traffic was flat to slightly up compared with a year ago. Brokers noted that they expect home sales activity to increase over the next three months.
Incoming signals from District builders have dampened a bit since the last report. Builders characterized construction activity and new home sales activity as flat to down slightly from the year earlier level. Many builders indicated that their inventory of unsold homes was flat to slightly up from a year ago, and noted that buyer traffic was flat to slightly down compared with the year-ago level. However, most builders continued to report some degree of home price appreciation. The outlook among builders for new home sales and construction activity over the next three months was fairly positive, with most indicating that they expect activity to increase modestly.
Commercial real estate brokers around 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 indicated that nonresidential construction activity had increased from the year-ago level across the District and noted the strength in apartment construction has persisted. Most contacts reported a backlog that was greater than their year earlier level. The outlook among District commercial real estate contacts remained positive.
Manufacturing and Transportation
District contacts indicated that manufacturing activity rebounded during the current reporting period, following a modest slowdown in December. Increases in new orders and production were notable, and factory employment continued to increase. Supplier delivery times slowed slightly, while contacts reported a moderate rise in finished inventory levels. With over half of contacts expecting production levels to increase over the next three to six months, optimism remained consistent with the previous reporting period.
Transportation contacts reported an expansion of activity from January to early February. Trucking companies cited steady freight volume and notable year-over-year increases in tonnage. District ports reported significant increases in bulk cargo, container traffic, and shipments of autos from year-earlier levels. Contacts in the air cargo industry reported record freight tonnage led by strong international activity. Railroads cited marked year-over-year increases in the shipment of metallic ores, petroleum products, grain and aggregates, but volume declines in phosphates and iron and steel scrap metals. However, contacts did note that west coast port congestion may be contributing to some of the District's port activity, particularly where increases were noted. Substantial, ongoing capital investments in rail infrastructure continued to be reported.
Banking and Finance
Credit conditions were largely unchanged from the previous reporting period. Overall, credit remained readily available and small businesses reported more access to credit. Loan demand was strong among most lines of business, particularly commercial and mortgage lending. Bankers noted increased lending to businesses such as hotels and restaurants. Loan pricing and structure remained competitive. Banking contacts indicated their lending standards remained fairly conservative.
Employment and Prices
Overall, businesses indicated that they continued to add to payrolls. However, contacts continued to report difficulty filling skilled positions in the information technology, finance, construction, and manufacturing industries. In addition, a number of contacts noted that retail and other service-based entry-level positions were becoming more difficult to fill. Some firms engaged in energy exploration and production and oilfield service providers reported layoffs resulting from declines in energy prices.
Input cost pressures remained subdued for most firms. The Atlanta Fed's poll of business contacts in January indicated that, on average, firms anticipate unit costs to rise 1.7 percent over the coming 12 months, down two-tenths of a percentage point from the December reading. The decline in fuel prices was overwhelmingly seen as an opportunity to improve margins rather than lower prices. Plans for wage increases in 2015 were little changed, with most contacts budgeting two-to-three percent increases for the year. However, figures remained higher for more competitive or difficult-to-fill positions, and several contacts indicated increasing entry-level wages.
Natural Resources and Agriculture
Crude oil storage continued to expand onshore and off, which contributed to high crude oil inventory levels across the Gulf Coast. Impacts of declining energy prices have been mixed. Petrochemical, industrial power, transportation, and manufacturing contacts with business dealings in the energy sector described positive outcomes, such as improved profit margins from lower fuel and feedstock costs, as well as steady project bookings through 2015. However, firms engaged in exploration and production and oilfield service providers began to report negative effects to business activity, including employee layoffs.
Drought conditions improved in parts of the District although there were still some areas reportedly affected by dry conditions. Florida citrus crop producers continued field practices to combat citrus greening while the USDA announced additional funding to help fight the disease. The most recent 2015 domestic production forecasts for rice, soybeans, peanuts, and cotton were unchanged from a month ago while beef, pork, and broilers production projections were up from the prior month.