Beige Book Report: Atlanta
March 02, 2016
Sixth District business contacts indicated that economic activity continued to improve, albeit modestly, from January to mid-February. The outlook among contacts remained positive with the majority expecting growth to be at or above current rates over the near term.
On balance, retailers cited moderate sales growth since the previous report. Motor vehicle dealers indicated auto sales were modest. Tourism activity remained healthy as contacts cited solid advanced bookings for the first half of the year. Residential real estate builders indicated that construction was up, new home sales were flat to slightly up, and inventory levels were mixed compared with a year ago. Residential real estate brokers reported that existing home sales were mixed and inventory levels were down from a year earlier. Home prices continued to modestly improve. Commercial real estate activity continued to increase at the same rate as in the previous report. Commercial construction increased, especially in the multifamily segment. Manufacturers noted improved activity as new orders and production increased. Reports from banking contacts continued to cite increases in loan activity. Labor market activity was mixed. Overall, wage pressures and non-labor input costs remained restrained.
Consumer Spending and Tourism
Generally, District merchants reported a moderate start to the year. High-end retailers noted softer sales growth since the previous report while off-price retailers experienced increased demand over the holiday season and into the beginning of the year. Restaurant and catering establishments noted an increase in average spending by domestic consumers. Automotive dealers cited a slow start to 2016 with lower than expected light vehicle sales in January.
Low gas prices were noted as a contributing factor to a rise in visitors at local tourist attractions and areas. Hospitality contacts continued to report solid advanced bookings in the business and convention segments for the first two quarters of 2016. District tourism contacts are cautiously optimistic regarding tourism activity for 2016 as concerns remain about softening demand from international visitors.
Real Estate and Construction
District real estate contacts were slightly more upbeat about conditions since the last report. Many builders continued to report that construction activity was up from the year-ago level. Most builders cited flat to slightly up home sales relative to one year earlier; while reports from brokers continued to be mixed. Buyer traffic was also flat to slightly up from one year ago, according to the majority of builders and brokers. Builders noted inventory levels were mixed, while most brokers said that inventory levels were down from the year-ago level. Most contacts continued to report modest home price appreciation. Residential builders and brokers expect home sales to increase slightly over the next quarter. Builders expect construction activity to be flat to slightly up over the next three months.
District commercial real estate brokers reported improvement in demand resulting in increased absorption and rent growth across property types, but cautioned that the rate of improvement continued to vary by metropolitan area, submarket, and property type. Commercial contractors noted that the pace of nonresidential construction activity had increased from one year ago, with most citing a backlog greater than or equal to the previous year. Reports on multifamily construction indicated that activity remained robust. District commercial real estate contacts expect the pace of construction activity to continue to increase slightly over the next quarter.
Manufacturing and Transportation
District manufacturers indicated that business activity picked up slightly compared with the previous reporting period. New orders and production levels increased notably, and payrolls at manufacturing firms rose slightly. Finished inventory levels were reported to be higher and supply delivery times were shorter, while commodity prices continued to decrease. Expectations for future production remained about the same as the previous reporting period, with a little more than one-third of businesses anticipating an increase in production levels.
District transportation firms cited mixed results from January through mid-February. Ports reported continued volume increases in container traffic and bulk cargo from one year ago, while air cargo contacts indicated slight declines in overall tonnage from year earlier levels. Total rail carloads were down by double-digits over the same period last year; however, intermodal volumes continued to experience modest gains.
Banking and Finance
Banking contacts reported that credit remained available with attractive terms for qualified households and businesses and demand for credit was robust at some District community banks. Pricing for commercial loans remained competitive. Recent increases in interest rates had little impact on borrowing or lending behavior, but some business customers appeared to be making efforts to refinance their debt ahead of future interest rate increases. Banks reported healthy pipelines in residential lending and increased mortgage refinancing. Even with cheap money readily available, some borrowers indicated a continued preference toward deleveraging. Auto lending slowed some in January.
Employment and Prices
Employment activity across the District varied based on market segment. Some retailers continued to note that hiring had become easier, particularly for low to mid-skilled positions. However, firms seeking employees for high-demand fields, such as information technology, engineering, and construction continued to experience difficulty filling jobs. A number of businesses reported hiring less qualified workers and increasing investment in training programs in response to challenges finding experienced labor. The oil and gas industry continued to impose layoffs as conditions deteriorated.
Wage growth remained subdued, with little evidence of a broad-based acceleration in wages outside of select skill categories, industries, and geographies. Within District firms, wage pressures remained concentrated towards top performers, those with specialized skills and lower skill, entry-level employees. Non labor input cost pressures continued to be restrained, and a number of firms that had held prices steady in 2015 have begun to experience pressure to pass commodity cost savings to their customers. According to the Atlanta Fed's Business Inflation Expectations (BIE) survey, unit costs were up 1.2 percent from a year ago (their lowest level since the survey's inception in late 2011). Survey respondents also indicated they expect unit costs to rise 1.8 percent over the next 12 months.
Natural Resources and Agriculture
Continued weak global demand and an oversupply of oil and gas were driving down business investment and employment in the District's energy sector. Contacts noted that businesses that had shifted from exploration to production, and merger and acquisition activity continued to preserve cash flow. Refinery demand along the Gulf Coast remained steady and pricing for gas-based feedstock continued to be competitive. Utilities experienced increased usage in residential and commercial power while industrial sector sales slowed across the District.
With the exception of Florida, where rainfall was categorized as much above normal, the District saw January rainfall totals ranging from near average to below average. However, by mid-February the District was drought free with only a small portion of Georgia characterized as abnormally dry. In parts of Florida where rainfall was excessive, there were reports of flooding, damaged fields, and delayed fieldwork. Florida's orange forecast remained unchanged from January and down from last season. On a year-over-year basis, monthly prices paid to farmers for corn, cotton, rice, soybeans, beef, broilers, and eggs have declined.