April 15, 2015
Economic conditions in the Sixth District continued to improve at a steady pace from mid-February through March, according to business contacts. The majority of firms report a positive outlook for growth over the next three to six months.
Retailers from areas affected by the severe winter weather indicated sales grew at a slower pace than during the previous period. On balance, automobile sales remained steady. Hospitality reports were mixed with some areas experiencing strong activity while other regions saw a slowdown due to the weather. Residential real estate brokers and builders reported both existing and new home sales were flat to slightly up from a year ago. Brokers indicated inventories were down, while builders cited levels that were flat to slightly up. Most contacts noted modest home price appreciation. Demand for commercial real estate continued to improve and construction increased from the year-ago level across most of the District. Manufacturers witnessed solid growth in new orders and production. Bankers reported improvements in overall lending activity. Businesses continued to add to payrolls. Firms noted muted wage pressures and low material costs.
Consumer Spending and Tourism
Retailers in parts of the District experienced a slight slowdown in the pace of growth from mid-February through March as severe winter weather dampened overall sales results. Apparel merchants were negatively impacted because winter clothing had already been replaced by spring merchandise. Motor vehicle sales softened due to the weather as well; however, automotive dealers noted that continued lower fuel prices prompted some buyers to purchase larger vehicles. On balance, the outlook among contacts remains positive.
Reports on tourism and business travel remained mostly positive. Florida and Louisiana reported high occupancy numbers at hotels and resorts, while Georgia, Tennessee, and Alabama indicated that activity was slower than anticipated due to the adverse weather. Contacts cited lower gas prices as a contributing factor to a rise in visitors to drive-to destinations. The outlook remains optimistic as advanced bookings in the hotel and conference segments remain strong for the second quarter.
Real Estate and Construction
Since the last report, District brokers continued to note improvements in existing home sales activity. Many contacts reported that home sales were flat to up slightly compared with the year earlier level, although some brokers found that sales were weaker than expected due to the weather. The majority of brokers indicated that inventory levels had fallen from the prior year's level and noted that buyer traffic was flat to slightly up compared with a year earlier. Brokers continued to cite modest home price appreciation. They also expect home sales to increase over the next three months.
Incoming signals from District homebuilders were somewhat mixed. Most builders characterized construction as flat to down slightly from the year-ago level. New home sales were described as flat to slightly up from a year earlier. However, similar to brokers, some builders reported weak new home sales due to the weather. Most 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-earlier level. Despite the mixed report on activity, most builders cited some degree of home price appreciation. The outlook among builders for new home sales and construction over the next three months remained positive, with the majority indicating that they expect activity to increase modestly.
District commercial real estate brokers remarked that demand continued to improve, but cautioned that the rate of improvement varied by metropolitan area, submarket, and property type. Commercial contractors indicated that nonresidential construction had increased from the year-ago level across the District and noted that the strength in apartment construction persisted. Most contacts reported a backlog that was greater than their year earlier level. The outlook among District commercial real estate contacts remains optimistic.
Manufacturing and Transportation
District manufacturers indicated that business activity expanded from mid-February through March, continuing the trend described in the last report. Contacts witnessed increased employment levels with solid growth in new orders and production. Supplier delivery times and finished inventories rose slightly, while commodity prices remained low. Optimism regarding the outlook waned slightly since the previous report as a little less than half of purchasing agents polled expecting production levels to be high over the next three to six months.
Reports on transportation activity were mixed. Contacts at East Coast ports cited significant upticks in cargo volumes as shipments were redirected away from the West Coast due to months of labor disputes that resulted in heavy congestion and substantial backlogs. District trucking companies indicated the need to expand capacity, reflecting solid year-over-year increases in demand for freight services. Railroad cargo traffic, however, was described as flat to only slightly up compared with year earlier levels. Double-digit increases in the movement of petroleum products, aggregates, and metallic ores were noted, though volumes of phosphates and iron and steel scrap continued to decline. The majority of logistic contacts anticipate higher growth for the year.
Banking and Finance
Credit conditions were largely unchanged from the previous reporting period. Credit remained readily available for qualified borrowers. Loan activity was strongest in commercial real estate. Auto lending continued to be solid. Bankers noted small business lending grew in anticipation of rising rates. Commercial and industrial lending in areas linked to the energy industry slowed as a result of oil price declines. Community banks noted increased lending activity and an increase in consumer debt. Bankers were optimistic that overall loan and deposit growth would be strong this year.
Employment and Prices
On balance, businesses reported that they added to payrolls from mid-February through March. However, contacts continued to note difficulty filling a growing list of skilled and professional positions, in some cases causing firms to put projects on hold or turn down work. Increasing turnover was also described as a challenge, putting some firms in a continuous hiring mode. Layoffs were reported in areas with heavy ties to energy exploration; however, the situation has provided some relief to firms that compete with the energy industry for workers.
Outside of high-demand and specialized skill positions, wage pressures were subdued. Though most consumers continued to have very little tolerance for nominal price increases, lower costs for oil and some raw materials have helped to boost margins for commodity and transportation-dependent firms. According to the Atlanta Fed's survey on business inflation expectations, firms' unit costs were up 1.5 percent on a year-over-year basis. Looking forward, survey respondents indicated that they expected unit costs to rise 1.7 percent over the coming 12 months, consistent with the previous report.
Natural Resources and Agriculture
Energy investment slowed in the region due to declining oil and natural gas prices. Contacts cited delays and cancellations of efforts not already underway, including industrial construction and exploration and production projects. Contacts also shared that although drilling permits for new oil wells declined in the region, production levels continued to rise. Consequently, development of storage infrastructure, such as tanks, vessels, and pipelines, increased as crude oil storage inventory levels continued to build across the Gulf Coast. The petrochemical industry, on the other hand, experienced growth due to low energy prices, and utility contacts described increased industrial power activity, which returned to pre-recession levels. On balance, energy industry contacts indicated that 2015 growth expectations were reduced and employee layoffs were imminent.
Strong global demand for poultry coupled with lower corn and soy feed prices allowed District producers to experience favorable margins. Land rents were reported to be down from last year due to low commodity prices. The most recent USDA forecast for Florida orange production was down from their previous forecast. Dry conditions were reported in much of Alabama, extreme northern Georgia, the panhandle and southern tip of Florida, as well as the southern portions of Mississippi and Louisiana.