Beige Book Report: Atlanta
December 2, 2015
Sixth District business contacts described economic conditions as modestly improving from October through mid-November. On balance, the outlook 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 and the early part of 2016.
Retail sales across the District were greater than expected and sales of vehicles were up from October through mid-November. Reports from the hospitality sector remained positive as the sector experienced increased activity from both leisure and business travelers. Residential real estate contacts noted that existing and new home sales were flat to slightly up from a year ago, and home prices improved modestly. Commercial real estate contacts reported a slight uptick in construction activity. Manufacturers indicated that levels of new orders and production increased since the previous report, although expectations are subdued going forward. Bankers indicated that loan activity remained competitive for the reporting period. The District continued to experience a tightening labor market and greater demand for entry-level workers since the last report. On balance, input cost and wage pressures remained subdued.
Consumer Spending and Tourism
According to District merchants, retail sales rose slightly above expectations from October through mid-November. The outlook among retailers for the upcoming holiday season remains optimistic. District auto dealers continued to see sales of vehicles increase and reported a notable rise in the sale of larger vehicles, which they attributed to lower gas prices.
Tourism and hospitality contacts continued to report an expansion of activity during this reporting period. In Georgia, contacts reported increases in business travel and attendance at major conventions compared with a year ago. Positive trends in leisure travel and hotel occupancy continued in Florida. Mississippi gaming venues continued to report year-over-year revenue growth. The outlook among contacts remains upbeat heading into 2016.
Real Estate and Construction
District real estate contacts indicated that sales and construction activity held steady since the last report. Many builders indicated that construction activity was up from the year-ago level. Most builders and brokers reported that home sales were flat to slightly up relative to one year earlier, although reports on the level of buyer traffic were mixed. Builders and brokers noted that inventory levels were largely unchanged, on balance. Most indicated that they were experiencing modest home price appreciation. Residential brokers' expectations for home sales activity over the next three months remain positive, with the majority indicating that they expect activity to pick up slightly. Builders' outlooks for home sales and construction activity were mixed.
District commercial real estate brokers indicated improvements in demand that resulted in increased absorption and rent growth across property types, but they cautioned that the rate of improvement varied by metropolitan area, submarket, and property type. Most commercial contractors indicated that nonresidential construction activity was slightly up from one year ago, regardless of market, with all reporting a backlog greater than or equal to the previous year. Reports on apartment construction continued to suggest 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 reported an uptick in business activity from the previous reporting period. Contacts indicated that new orders and production levels were up, and employment levels improved at District firms. Finished inventory levels were reported to be rising, while supplier delivery times increased slightly. Costs of commodity inputs continued to decline, and expectations for future production were subdued, with only about one-third of businesses expecting higher production over the next three to six months.
On balance, transportation contacts noted that activity slowed since the last report. District railroad contacts cited continued decreases in shipments of coal, iron and steel scrap and metal, primary forest products, and phosphate, which have contributed to significant year‑over‑year decreases in total carloads. Other haulers of industrial products, primarily for export, reported a continued deceleration of volumes from October through mid-November. However, port contacts reported that record numbers of containers moved through District ports.
Banking and Finance
Banking contacts indicated that credit was available with attractive terms for qualified borrowers. Lending remained competitive, and some community depository institutions cited difficulties in competing with loan structures and terms offered by larger institutions. Small businesses indicated ongoing constraints in obtaining financing. In areas more dependent on the energy sector, there was a pullback of both demand for and supply of credit. Purchase mortgage activity was up, but first-time home buyers struggled to qualify for mortgages.
Employment and Prices
Business contacts continued to describe a tightening labor market, and difficulties finding workers with specialized skills persisted. Demand for entry-level workers increased, and some contacts noted recruiting challenges, leading firms to adjust expectations and implement or enhance on-site training programs for new and existing staff. In some cases, in order to attract and retain talent, businesses redesigned incentive and benefits programs. Energy sector firms continued to cite layoffs.
Outside of select high-demand and specialized positions, wage pressures remained muted. However, there were some signs of emerging pressures to raise starting wages, even among lower skilled jobs. Non-labor input cost pressures remained restrained, helping support ongoing improvement in profit margins, particularly for businesses with large commodity or imported inputs. Firms with lower input costs were generally able to hold prices steady, though the majority of business contacts reported little or no ability to push through price increases. According to the Atlanta Fed's survey of business inflation expectations, year-over-year unit costs were up 1.3 percent in October and are expected to increase 1.8 percent over the coming year.
Natural Resources and Agriculture
Sentiment among energy sector contacts was mixed. Business activity and investment fell at oil and gas exploration and services firms as a result of continued weak global demand and an oversupply of oil. On the other hand, petrochemical firms were optimistic about industrial activity as refiners set capacity and production records. Continued scarcity of tank and vessel storage space for excess supplies of crude led to various storage terminal projects along the Gulf Coast.
Heavy showers improved drought conditions in much of the District. However, areas where drought conditions remained were categorized as abnormally dry. Louisiana and Mississippi's soybean harvests were behind their five year averages. Cotton harvesting was behind the five-year average in much of the District with the exception of Alabama's crop, which met the five-year average. Peanut harvesting was behind the five-year average. On a year-over-year basis, many agriculture product prices decreased, and concerns about the strong dollar and its effect on agriculture exports persisted.