Beige Book Report: Atlanta
September 2, 2015
According to reports from businesses across the Sixth District, economic activity modestly improved from July through mid-August. Most firms continue to be optimistic and expect higher growth over the remainder of the year.
Reports from retailers were mixed with some noting improved sales growth compared with a year ago, while others experienced little to no growth. Automobile dealers continued to report solid activity. The hospitality sector remained upbeat. On balance, residential brokers and builders cited that sales of existing and new homes were ahead of last year's levels and home prices continued to rise modestly. Commercial real estate firms reported that demand continued to improve and construction increased from a year ago. Manufacturers noted that new orders and production were up since the previous report. Bankers indicated that lending activity continued to modestly improve. Businesses reported continued tightness in the labor market. Firms cited modest wage growth and subdued non-labor input cost pressures.
Consumer Spending and Tourism
District retailers reported mixed activity since the last report. Some contacts reported healthier sales growth compared with a year ago while others reported slow or no growth year-over-year. Overall, merchants expect improved activity as the next major holiday falls on a weekend. Auto sales continued to experience robust sales activity.
Reports on tourism and business travel remained upbeat from July through mid-August. Hospitality contacts in Georgia, Florida, and Louisiana reported strong occupancy numbers as attendance at major conventions and attractions was up from a year ago. Year-to-date Mississippi casino gaming revenues increased compared with the same period last year. Industry contacts expect business and leisure travel to exceed forecasts for the remainder of 2015.
Real Estate and Construction
District contacts indicated that real estate activity continued to improve since the last report. Three-fourths of residential brokers noted that home sales met or exceeded their plans. The majority of contacts reported that home sales increased from the year-earlier level, and that inventory levels remained the same or fell. Buyer traffic was also reported to be up relative to one year ago. Most brokers continued to report modest home price appreciation. Brokers' outlook for home sales activity remained positive, with most expecting sales to hold steady or increase slightly over the next three months.
The majority of homebuilders continued to indicate that construction activity was up from year-earlier levels. Reports on new home sales and buyer traffic described activity as being flat to up slightly from one year ago. Most builders indicated that their inventory of unsold homes was flat to slightly up compared with the prior year's level. Builders also reported modest 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 hold steady or increase slightly.
Commercial real estate brokers from across the District indicated that demand continued to improve for all property types, but they cautioned that the rate of improvement varied by metropolitan area, submarket, and property type. The majority of commercial contractors indicated that nonresidential construction activity was up from their year-earlier levels. Reports on apartment construction continued to suggest that activity remained robust. Most contacts reported a backlog that was greater than the previous year, with activity booked six months to three years out. The outlook among District commercial real estate contacts remained positive, with most expecting the pace of construction activity to increase slightly.
Manufacturing and Transportation
District manufacturers reported that business activity was solid from July through mid-August. Contacts indicated that new orders and production had rebounded from the previous report and were now on par with the levels observed earlier in the year. Firms noted that payrolls continued to increase at a steady rate, finished inventory levels had fallen somewhat, and delivery times for inputs reduced. Reversing the previous report's moderate uptick, input prices were reported to have fallen. Optimism for future production levels strengthened since the previous report, with half of contacts expecting an increase over the next three to six months.
Transportation activity in the District was roughly unchanged since the last report. Port contacts indicated continued growth in container traffic, bulk and break bulk cargo, and autos and machinery. Year-to-date total rail traffic was flat to slightly down, but intermodal volumes continued to grow; coal and iron and steel scrap shipments declined substantially compared with year-earlier levels. Trucking contacts cited slight decreases in overall tonnage over the reporting period; however, tonnage was up notably year-over-year.
Banking and Finance
Banking contacts continued to report that credit was available for qualified borrowers. Competition for loans remained elevated and some contacts noted loan growth and increased loan volume for home purchases versus refinancing. Banking contacts reported that even though credit was readily available at a low cost, many firms used cash for capital expenditures or funded investments internally. Credit union contacts indicated auto lending remained strong. Bankers in Louisiana continued to report a slowdown in lending tied to the energy sector. Compliance costs continued to burden community banks.
Employment and Prices
Employment continued to increase in most areas of the District, with reports of greater competitiveness and tightening in the labor market. Firms continued to report challenges retaining employees. Firms that were experiencing difficulties filling vacancies, noted ramping up internal training programs to better position themselves to take on inexperienced workers.
Input cost pressures remained muted across most sectors. The majority of contacts continued to cite relatively stable annual wage growth of 2 to 3 percent. However, labor costs continued to accelerate for some specialized positions that are in high demand. Referral and signing bonuses and other benefits enhancements remained popular tools used to attract and retain talent. Softness in prices for imported goods and many commodities continued to bolster margins as firms indicated keeping final prices steady. According to the Atlanta Fed's survey of business contacts, unit costs were up 1.5 percent in July relative to a year ago, however, respondents expected that growth in unit costs would rise to 2.0 percent over the next 12 months.
Natural Resources and Agriculture
Weak global demand and an oversupply of oil resulted in continued downward pressure on oil prices. Contacts indicated that low oil prices are driving large producers to reassess the timing and scale of deepwater projects which continued to result in labor cutbacks, while small production companies have taken advantage of the lower cost of deepwater drilling prices and expanded their drilling activity. Firms engaged in refining continued investment to expand capacity to provide flexibility in order to refine lighter crude from shale. Utilities experienced increased usage in residential, commercial, and industrial power.
Areas affected by drought conditions expanded in the District since the last report. Most drought-affected areas were categorized as abnormally dry to moderate, but parts of southeastern Florida experienced severe to extreme drought conditions. All District states forecasted lower cotton production than last year. Conversely, District soybean and peanut production forecasts showed a net production increase. The USDA reported year-over-year farm real estate value increasing everywhere in the District except Georgia which reported a slight decline.