Beige Book Report: Atlanta
June 3, 2015
Sixth District business contacts reported economic activity continued at a steady pace from April to May. The outlook among contacts remains optimistic with most firms expecting either the same or a slightly higher level of growth for the remainder of the year.
District merchants continued to note a softness in sales growth over the reporting period. Auto sales increased, particularly for light trucks and larger vehicles. The tourism sector saw a pickup in activity. According to residential real estate contacts, new and existing home sales were slightly up, inventories were down, and home prices modestly appreciated compared with a year ago. Commercial real estate contacts noted demand continued to improve and nonresidential construction increased from a year ago. Purchasing managers in the manufacturing sector cited notable increases in new orders and production. Banking contacts indicated that there was ample credit available to qualified borrowers and overall loan demand continued to grow. District firms continued to add to payrolls; however, reports of difficulties filling a range of positions persisted. Wage and non-labor input cost pressures remained subdued.
Consumer Spending and Tourism
District retailers continued to experience softness in sales growth from April to May. On balance, contacts indicated that the expected increase in consumer spending due to the decline in gasoline prices had yet to materialize. Some retailers noted inventory challenges resulting from the labor dispute at west coast ports. Auto dealers, on the other hand, reported increased sales of light trucks and larger vehicles, which they attributed to lower gasoline prices. The outlook among District merchants remains generally optimistic.
Reports on tourism and business travel were positive. Florida, Georgia, and Louisiana reported strong occupancy rates at hotels and resorts. Hospitality contacts continued to report increasing capital expenditures on infrastructure as well as strong advanced bookings of hotel rooms and conferences going into the summer season.
Real Estate and Construction
District brokers continued to report improvements in home sales activity. Many contacts reported that home sales were slightly up compared with the year earlier level. 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 report modest home price appreciation, and they expect home sales activity to increase over the next three months.
Incoming signals from District builders improved. Most builders characterized construction activity as flat to up slightly from the year-ago level. New home sales activity and buyer traffic was also described as slightly up from a year earlier. The majority of builder contacts indicated that their inventory of unsold homes was down from a year ago. Most builders reported some degree of home price appreciation. The outlook among builders for new home sales and construction activity over the next three months remained positive, with the majority indicating that they expect activity to increase.
District commercial real estate brokers indicated that demand continued to improve, but they cautioned that the rate of improvement varied by metropolitan area, submarket, and property type. Commercial contractors indicated that nonresidential construction activity increased from the year-ago level across the District and noted the strength in apartment construction persisted. On balance, 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 manufacturing contacts indicated that business activity expanded since the last report. New orders and production were notably higher, and employment levels continued to increase. Supplier delivery times for inputs were slightly longer than the previous period and finished inventory levels rose slightly. The outlook remained similar to the previous report, with a little less than half of purchasing agents expecting production levels to be higher over the next three to six months.
District transportation contacts continued to report varying levels of activity during the reporting period. Ports continued to report strong growth in containerized, bulk, and break-bulk cargo. Railroad contacts reported that total traffic, as compared with a year ago, was flat to slightly down. Trucking activity expanded as compared with year earlier levels. Most contacts expect higher levels of activity over the course of the year.
Banking and Finance
On balance, bankers described credit conditions as unchanged from April to May. Credit remained readily available for qualified borrowers. Contacts reported increased loan demand attributed to an improved business climate rather than anticipation of higher interest rates in the near future. Competition between some lenders resulted in looser lending standards. Pricing for both commercial and consumer loans was extremely competitive as many financial institutions strived to grow their loan portfolios. Auto lending continued to grow at a steady pace.
Employment and Prices
Many businesses reported that they added to payrolls, generally in response to increased demand or expectations of higher sales growth. Contacts noted that employee retention was becoming a challenge, as a growing number of employees were being recruited away by other firms or leaving for different jobs. Firms continued to cite difficulties filling positions in professional and skilled roles, and some contacts also reported challenges filling lower-skilled, entry-level positions. The outlook for employment remains positive, with many firms indicating plans to hire over the next twelve months.
Wage pressures remained muted, despite a growing expectation that compensation may have to be adjusted in the future to retain and attract workers. Employers were closely watching how the recent minimum pay announcements from a number of high-profile employers would affect local labor markets. Non-labor input cost pressures remained subdued, helping to support ongoing improvement in profit margins. According to the Atlanta Fed's survey of business inflation expectations, unit costs are expected to increase 1.9 percent over the coming year, up from 1.7 percent earlier in the year.
Natural Resources and Agriculture
Reductions in drilling activity attributed to oil price declines continued to impact District oil and gas support services, leading to decreased business activity and a pickup in layoffs. Contacts continued to cite delays in investment of industrial refining and onshore drilling projects, specifically ones that had not already begun.
Significant rain alleviated drought conditions in much of the District. Florida's orange forecast was below both the previous month's reading and last year's production level, primarily due to citrus greening. Some Alabama producers reported planting less cotton in favor of crops commanding better prices or crops that cost less to produce (such as soybeans and peanuts). By mid-May, soybean planting was ahead of the five-year average in Louisiana, Mississippi, and Tennessee. Cotton planting in Alabama and Georgia and rice planting in Louisiana and Mississippi were short of their five-year averages.