Beige Book Report: Atlanta
April 13, 2016
Sixth District business contacts indicated that economic conditions, from mid-February through March, were unchanged from the previous report. However, the short term (next three to sixth months) outlook for growth among the majority of firms remains positive.
Retail sales grew for low-end retailers, while high-end sales softened over the reporting period. Automotive dealers cited improved sales levels since the previous report. Tourism-related contacts noted domestic and business travel remained solid. Residential real estate builders indicated that construction was up, new home sales were slightly up, and inventory levels were mixed compared with a year ago. Residential real estate brokers indicated that existing home sales were mixed and inventory levels were down from a year earlier. Most real estate contacts noted modest home price appreciation. Demand for commercial real estate continued to improve and construction increased from the year-ago level across most of the District. Manufacturers cited increases in new orders and production. On balance, bankers reported improvements in credit conditions. Reports on hiring were mixed. Firms noted stable wage growth and soft non-labor input costs.
Consumer Spending and Tourism
Off-price District retailers continued to experience rising demand. However, high-end merchants reported softer sales activity, particularly from international shoppers, from mid-February through March compared with a year earlier. Auto retailers experienced higher sales activity in February compared with the previous reporting period and noted that continued lower fuel prices was prompting some buyers to purchase larger vehicles. On balance, the outlook among District merchants remains positive.
Across the District, hospitality contacts reported domestic and business travel remained strong, while Florida and Georgia reported softening demand from international visitors from a year ago. Capital expenditures on tourism-related infrastructure for 2016 are expected to be in line with or above 2015 levels. The outlook remains optimistic as advanced bookings in the hotel and conference segments is strong for the second quarter.
Real Estate and Construction
Reports on activity from District residential real estate contacts continued to be upbeat. The majority of builders reported that construction activity was up from the year-ago level. Many builders indicated that home sales were up slightly relative to one year earlier while broker reports remained mixed. The majority of builders and brokers indicated that buyer traffic was flat to slightly up from one year ago. Most brokers continued to note that inventory levels were down from the year earlier level, while the inventory report from builders remained mixed. Builder and broker contacts reported modest gains in home prices. Many real estate contacts expect home sales to increase slightly over the next three months, while the majority of builders expect construction activity to be flat to slightly up over the same time period.
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 varied by metropolitan area, submarket, and property type. Commercial contractors indicated that the pace of nonresidential construction activity had increased from one year ago, with many reporting backlogs of one to two years. Reports on multifamily construction suggested that activity remained fairly robust across the District, although there seemed to be growing concerns around overbuilding. District commercial real estate contacts expect the pace of construction activity to increase slightly over the next quarter.
Manufacturing and Transportation
Industry contacts indicated that overall manufacturing activity continued to strengthen from mid-February through March. New orders increased and production levels were higher than the previous report. Payroll levels rose slightly. Supply delivery times were faster and finished inventory levels were notably higher. Input prices continued to be low. Expectations for future production fell from the previous reporting period, with a little less than one-third of businesses anticipating an increase in production levels.
Transportation activity in the District was largely unchanged, on net, since the last report. Year-to-date total rail traffic was down as coal, farm products, petroleum, primary metal products, and forest, lumber, and wood shipments declined substantially compared with year earlier levels; however, intermodal and auto shipments increased. Trucking contacts cited notable increases in overall tonnage during the reporting period. Port contacts cited continued growth in container traffic, bulk and break bulk cargo, and autos.
Banking and Finance
Banking contacts reported that credit remained available with attractive terms for qualified borrowers. The increase in bank lending rates was noted as having little impact on borrowing or lending behavior. Credit availability tightened somewhat for financially and economically vulnerable companies and for risky deals. Traditional institutions were less willing to lend for development and developers often turned to private equity firms for financing. Financial institutions in areas dependent on the energy sector noted continued risk, with some adding additional reserves for bad debt. Business contacts continued to indicate that credit was readily available, though activity tended to be focused on refinancing or paying down debt. Demand for business loans increased in metropolitan areas but was weak in rural areas.
Employment and Prices
Firms seeking employees for high-demand fields, such as information technology, engineering, and construction continued to experience difficulty filling jobs. Outside of these specialized fields, challenges finding workers eased some. Some businesses that hired inexperienced workers to fill open positions reported an increase in training investment. The oil and gas industry continued to impose layoffs as conditions deteriorated.
Most contacts reported relatively stable wage growth, despite continued upward pressure for select high-skill positions and high-demand sectors. Several businesses noted strength in margins, as they successfully held the line on prices in the face of soft or declining input costs. According to the Atlanta Fed's Business Inflation Expectations (BIE) survey, year-over-year unit costs were up 1.3 percent. Survey respondents also indicated they expect unit costs to rise 1.8 percent over the next 12 months.
Natural Resources and Agriculture
Contacts indicated that output and supply of oil and gas continued to remain greater than demand. Oil and gas business activity continued to decline and investment activity focused on maintenance. The unusually warm winter weather decreased natural gas demand. Refineries began spring maintenance outages that are not expected to adversely affect the supply of gasoline, jet fuel, or distillate fuel. Utilities experienced normal usage in residential power across the District while commercial and industrial sector usage slowed.
Agricultural conditions were mixed, while most of the District remained drought free, there were some areas in Florida, Georgia, and Louisiana categorized as abnormally dry. Due to excessive rain and flooding earlier in the year, the USDA designated several counties in central and southern Florida as primary natural disaster areas. Florida's orange crop forecast increased from the previous month but continued to be lower than last season. On a year-over-year basis, monthly prices paid to farmers for corn, cotton, rice, soybeans, beef, broilers, and eggs have declined.