Beige Book Report: Atlanta
October 14, 2015
Sixth District business contacts described economic conditions as improving at a modest pace from mid-August through September. The outlook among firms remains largely optimistic with the majority of contacts expecting growth to be sustained at or slightly above current levels for the remainder of the year.
Some retailers cited an improvement in sales growth, while others reported slower or no growth compared with a year ago. Automobile dealers continued to note strong sales. Hospitality contacts reported strong activity. Residential real estate contacts indicated that existing and new home sales and prices were slightly ahead of last year's levels. Commercial real estate contacts continued to note improving demand and construction activity was up from a year ago. Manufacturers indicated that overall activity slowed with new orders and production decreasing since the previous report. Banking contacts noted lending activity was mixed. Payrolls expanded slowly, and businesses continued to report challenges filling positions. Contacts indicated wages continued to grow at a slow, steady pace and input cost pressures were almost nonexistent.
Consumer Spending and Tourism
District retailers reported mixed activity from mid-August through September. Most contacts reported healthier sales growth compared with a year ago while others reported slow or no growth. Industry contacts expect activity to improve from current levels for the upcoming holiday season. Auto sales continued to experience robust sales activity.
Reports on leisure and business travel remained positive. Tourism contacts in Georgia, Florida, and Louisiana reported a solid summer season with occupancy numbers and attendance at major conventions 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 and many already report strong advanced bookings in the hotel and conference segments for the first quarter of 2016.
Real Estate and Construction
District contacts indicated that residential real estate and construction activity continued to improve since the last report. The majority of homebuilders indicated that construction activity was up from the year-ago level and had met or exceeded their plan for the period. Most builders and brokers reported home sales were flat to up slightly and buyer traffic increased relative to one-year earlier. Three-fourths of builders noted that inventory levels were on par with last year; broker reports on inventory levels were mixed. Most real estate contacts indicated that they were experiencing modest home price appreciation in their markets. Business contacts' expectations for home sales and construction activity over the next three months remain positive, with the majority indicating that they expect activity to pick up slightly.
Commercial real estate brokers indicated improvements in demand that resulted in increased absorption and rent growth across property types, but they continued to caution that the rate of improvement varied by metropolitan area, submarket, and property type. Most commercial contractors indicated that nonresidential construction activity was up from one year ago, with many also reporting a backlog greater than the previous year. Reports on apartment construction suggested that activity remained robust. The outlook among District commercial real estate contacts remains positive, with most expecting the pace of construction activity to increase slightly over the next quarter.
Manufacturing and Transportation
District manufacturers indicated that business activity declined since the previous report. Contacts noted a decrease in new orders and production, while employment levels at District manufacturing firms were relatively unchanged. Finished inventory levels were reported to be slightly lower than the previous report. However, reports indicated that commodity input costs continued to decline. Optimism for future production fell, with less than one-quarter of businesses expecting higher production over the next three to six months.
Transportation contacts cited mixed levels of activity from mid-August through September. Trucking companies reported healthy demand, which was mostly attributed to growth in e-commerce; meanwhile, flatbed volume, primarily steel shipments, showed some slowing in growth. District rail contacts indicated that total carload volume declined slightly due to year-over-year, double-digit decreases in shipments of coal, iron and steel scrap, and metals. District port contacts reported strong demand across all types of cargo.
Banking and Finance
Reports indicated that credit remained readily available for qualified borrowers. Competition for new commercial loan customers remained tight and some financial institutions were reported to be extending term amounts and maturities to attract customers. Small businesses indicated continued difficulty in obtaining financing and noted funding some expansion with cash. As mortgage refinancing activity slowed, purchase transactions made up a greater share of mortgage loans. Consumer lending activity was strong and bad debt on the consumer side was significantly reduced.
Employment and Prices
Many District companies continued to report adding to headcounts, albeit modestly. Hiring challenges persisted and intensified in some areas. Contacts also reported that labor market tightness was prompting some firms to implement training programs and referral or signing bonuses to address labor shortages. Contacts indicated that hiring and retention challenges were most prevalent among higher skilled occupations though firms also noted greater competition for lower skilled labor.
Businesses continued to report negligible non-labor input cost pressures, although lower commodity prices and lower costs for imported goods aided in improving margins, and firms were generally able to hold prices steady. Wage growth remained in the 2 to 3 percent range for most job categories, with the exception of specialized positions in high demand, which continued to receive outsized increases. According to the Atlanta Fed's survey of business inflation expectations, year-over-year unit costs were up 1.3 percent in August, the lowest reading in two years. Survey respondents also indicated that they expect unit costs to rise 1.7 percent over the next 12 months.
Natural Resources and Agriculture
Continued weak global demand and an oversupply of oil drove exploration and production companies to further reduce capital investment and business activities that do not improve cash-flow. That said, contacts reported that liquid natural gas projects already in progress will continue on schedule. Refineries have been running near capacity with feedstock readily available at low costs. Deepwater drilling activity showed signs of slowing with a drop in rig counts. Utility contacts reported increased energy usage in both the residential and commercial sectors.
Areas affected by drought conditions expanded in the District since the last report. Most drought-affected areas were categorized as abnormally dry to severe, and parts of Mississippi experienced extreme drought conditions. Mississippi's rice harvest was well underway although slightly behind its five-year average, while in Louisiana, the harvest was almost completed and on par with its five-year average. Both Louisiana and Mississippi's soybean harvests were well underway and ahead of its five-year average. Cotton and peanut harvesting were in the early stages throughout the District.