Beige Book Report: Atlanta
January 13, 2016
Reports from Sixth District business contacts remained largely positive with most noting that economic conditions were improving at a moderate pace over the reporting period. Contacts are optimistic about the near-term outlook with nearly all expecting growth to be either the same or higher, unchanged from the previous reporting period.
Retail sales were in line with expectations and auto sales were strong. Reports from the hospitality sector remained positive with robust attendance and occupancy numbers across the District. Residential real estate brokers and builders noted mixed sales activity for both existing and new homes. Home prices rose modestly and inventory levels were relatively flat. Commercial real estate contacts reported increased activity in nonresidential construction, and apartment construction remained robust. Manufacturers indicated that new orders and production decreased since the previous report. Bankers reported an increase in residential lending and mortgage refinancing. The District continued to experience a tightening labor market. On balance, input cost and wage pressures remained subdued.
Consumer Spending and Tourism
District retail contacts noted that sales activity since the last report met expectations. Retailers anticipated that the additional shopping day between Thanksgiving and Christmas would have a positive impact on overall holiday sales. Automobile dealers noted that incentives such as cash bonuses and low APRs boosted overall vehicle sales on Black Friday. SUV sales continued to be strong in late November through early December, which auto dealers attributed to sustained lower gas prices.
On balance, tourism contacts reported record attendance and occupancy numbers at conferences and hotels since the last report. Although solid advance bookings were reported in the conference segment for the first two quarters of 2016, concerns were cited about the strong dollar softening demand from international visitors.
Real Estate and Construction
Feedback from District real estate contacts was slightly less optimistic since the last report, although several attributed the softening conditions to seasonal factors.
Many builders continued to indicate that construction activity was up from the year-ago level. In addition, most reported that home sales were flat to slightly up relative to one year earlier. Meanwhile, reports on home sales and traffic from brokers were mixed.
On balance, builders and brokers described inventory levels as flat. Most contacts indicated that they were seeing modest home price appreciation. Expectations for home sales activity over the next three months were mixed, with builders anticipating construction activity to be flat to slightly up.
District commercial real estate brokers continued to report rising demand that resulted in increased absorption and higher rents 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, with all reporting a backlog greater than or equal to 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 reported slowing and in some cases declining business activity from mid-November through December. Contacts noted a decrease in production levels and new orders. Inventory levels of finished goods rose and supply delivery times increased, while commodity input costs continued to decline. Despite the decline in new orders and production, manufacturing contacts indicated that employment levels increased slightly. Expectations for future production improved from the previous reporting period, with greater than one-third of businesses anticipating an increase in production levels, while firms expecting lower production levels fell to less than a tenth.
Logistics contacts noted a surge in e-commerce shipments during this reporting period that exceeded forecasts and resulted in reduced on-time delivery rates. District port contacts cited strong retail goods imports compared with year-ago levels; conversely, shipments of exports remained soft across commodities including minerals, forest products, chemicals and heavy machinery. Rail activity was generally unchanged since the last report.
Banking and Finance
Banking contacts indicated that credit remained available with attractive terms for qualified borrowers. The commercial loan market was competitive and some banks offered long-term fixed rates to attract borrowers; however, some businesses self-financed rather than utilize credit lines or loans. There was a persistent pullback of both demand for and supply of credit for firms in energy-dependent areas. Banks reported healthy pipelines in residential lending and increased mortgage refinancing, although first-time home buyers still struggled to qualify for mortgages.
Employment and Prices
Business contacts continued to describe a tightening labor market. In addition to ongoing challenges with filling some high- and mid-skilled positions, employers increasingly experienced trouble filling some low-skilled and entry-level jobs. For a number of firms, difficulties with attracting and retaining employees were cited as key obstacles to growth. However, oil and gas industry layoffs continued, and firms from supporting industries, including transportation, retail, and financial services, cited layoffs resulting from the energy sector slowdown.
Most contacts reported relatively stable wages. Notable exceptions included persistent wage pressures for some high-skilled positions and increased reports of rising wages at the lower end of the pay scale. Non-labor input costs were mostly flat and firms heavily reliant on commodities reported some declines. The softness in commodity prices and imported goods continued to support strong margins as many businesses indicated they held prices steady. According to the Atlanta Fed's Business Inflation Expectations (BIE) survey, year-over-year unit costs were up 1.5 percent. Survey respondents also indicated they expect unit costs to rise 1.9 percent over the next twelve months.
Natural Resources and Agriculture
Contacts indicated that output and supply of oil and gas remained greater than demand. Crude oil storage terminal capacity on land expanded further, while tank and vessel capacity on water remained scarce. Oil and gas business activity and investment continued to decline at exploration and services firms and projects were postponed. Overall utilities sales slowed due to the weakness in the industrial sector; electricity sales were mixed across the Southeast due to the unseasonably warm weather.
Most of the District remained free from drought conditions, but as a result of excessive rain, winds, and flooding earlier in the year, the USDA declared several counties in Alabama, Florida and Georgia as natural disaster areas. Florida's orange forecast was down both from last month's forecast and last season's production. On a year-over-year basis, prices paid to farmers for cotton, rice, soybeans, beef, and broilers have declined while corn's price rose slightly.