Beige Book Report: Atlanta
July 15, 2015
Reports from Sixth District business contacts indicated that economic activity expanded at a moderate pace from mid-May through June. The outlook among businesses remained positive as most anticipate higher growth in the near term. District merchants noted a modest improvement in sales activity since the previous report. Vehicles sales remained strong. The tourism sector continued to experience solid activity. Reports from residential brokers and builders indicated home sales increased from year earlier levels. Real estate contacts also noted that home prices modestly appreciated since the previous report. Commercial real estate contacts continued to cite improved demand for properties and construction increased from a year ago. Overall, manufacturing activity continued to expand. Bankers noted increased loan demand. District firms reported continued tightness in the labor market. On balance, businesses reported subdued wage and input cost pressures.
Consumer Spending and Tourism
Some District retailers indicated a slight rebound in sales from the weather- and West Coast port-disruptions experienced earlier this year. Apparel and general merchandise retailers noted the pace of sales growth was, at best, slow year-over-year. Expectations are for improved activity as the next major holiday falls on a weekend. Auto sales continued to experience robust sales activity.
On balance, travel and tourism contacts continued to report positive activity from mid-May through June. Contacts in Georgia, Florida, and Louisiana reported strong occupancy numbers and an increase in consumer spending from a year ago. Year-to-date Mississippi casino gaming revenues increased compared with the same period last year. Advanced bookings in the hotel and conference segments were noted as being strong for the summer season.
Real Estate and Construction
Most residential brokers indicated that home sales met or exceeded their plan from mid-May through June. More than half of contacts reported that home sales had increased from the year earlier level. The majority of brokers indicated that inventory levels had remained the same or fallen from the prior year's level. Further, most contacts noted that buyer traffic was up compared with a year earlier. Brokers continued to report modest home price appreciation, and noted that they expect home sales activity to increase slightly over the next three months.
The majority of homebuilders indicated that construction activity was up from the year-ago level. New home sales activity and buyer traffic was also described as being slightly up from a year earlier. Many builders indicated that the inventory of unsold homes remained unchanged from a year earlier. 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 remains positive.
District commercial real estate brokers indicated that demand continued to improve for all property types, but 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. Many contacts continued to report that apartment construction remained robust. Most contacts reported a backlog that was greater than the previous year. The outlook among District commercial real estate contacts remains positive.
Manufacturing and Transportation
Manufacturers indicated that overall activity expanded from the previous reporting period, even though decreases in new orders and production were observed. Employment levels at factories continued to rise, while supplier delivery times increased and finished inventory levels were slightly elevated. Similar to the previous report, less than half of contacts expect an increase in production levels over the next three to six months.
District transportation contacts reported that activity moderated from mid-May through June. Logistics contacts reported a slowdown in freight. Year-to-date railroad volumes were flat, though year-over-year increases were noted in the movement of petroleum products and metallic ores. Shipments of iron and steel scrap and primary forest products were down notably. Domestic activity for maritime shipping companies slowed as shipments of coal and steel related to energy production deteriorated. Air cargo contacts continued to note a decline in overall tonnage. Freight volumes at District ports, however, remained robust with double-digit increases in break bulk cargoes and container trade.
Banking and Finance
Banking contacts continued to report that credit was readily available for qualified borrowers. Competition for loans remained elevated as private equity firms and individual lenders competed in the same lending arena traditionally occupied by banks. Lenders reported increased mortgage refinancing as rates dipped and home equity levels continued to improve. Auto lending remained strong. Bankers in Louisiana continued to report a slowdown in lending tied to the energy sector.
Employment and Prices
Businesses continued to report that the labor market was tightening. Competition for workers led to increased turnover, mostly for mid- and higher-level positions. Contacts also noted that it was more difficult to retain employees. Firms continued to invest in technology and human capital to improve productivity. The outlook for employment remained positive in most sectors outside of energy, where contacts indicated they implemented labor cutbacks including layoffs, worker hour reductions, and reduced wages.
The majority of contacts continued to budget staff-wide wage increases of between 2 and 3 percent for the coming year. The rising pressure to retain high-value staff continued to put upward pressure on labor costs for high-demand workers. Firms reported using both traditional wage increases and additional channels, such as increased paid time off or bonus opportunities to help retain and attract staff. Businesses cited subdued input cost pressure and modest success passing on price increases, with the exception of retailers, who continued to face strong pressure to keep prices in check. According to the Atlanta Fed's survey of business contacts, year-over-year unit costs were up 1.4 percent in June, the lowest reading since October 2012. Restrained costs across a number of commodities, combined with strength in the dollar, supported higher margins for businesses that consume or purchase substantial quantities of commodities or imported goods.
Natural Resources and Agriculture
Firms engaged in oil and gas production continued to curtail capital expenditures and focus on cost management and operational efficiency strategies. Contacts cited that these efforts resulted in labor cutbacks and reductions in soft and variable costs, which applied downward pressure on the rates charged by oilfield support service providers and suppliers. Where occurring, most new energy industry capital investment was concentrated in deepwater exploration and production and pipeline construction for crude oil transportation.
Parts of Alabama, Florida, Georgia, Mississippi, and Tennessee experienced drought conditions categorized from abnormally dry to some pockets of severe drought, the driest designations being in the southernmost tip of Florida and South Georgia. Soybean planting in Louisiana was on par with their five year average, while Mississippi and Tennessee were slightly behind. Cotton planting has been or is almost completed in Alabama, Georgia, Louisiana, Mississippi, and Tennessee and on par or slightly ahead of their five-year averages.