June 1, 2016
Sixth District business contacts reported economic activity continued at a modest pace from April through mid-May. The outlook among contacts remains optimistic with most firms expecting growth to be higher than current rates over the next three to six months.
District merchants reported modest sales growth over the reporting period. Auto sales declined slightly from last year's high level. The tourism sector continued to experience solid activity. According to residential real estate contacts, new and existing home sales were flat to slightly up, inventories were down, and home prices modestly appreciated compared with a year ago. Commercial real estate contacts noted demand continued to improve. While overall nonresidential construction increased from a year ago, multifamily construction showed some signs of slowing. Manufacturing purchasing managers cited increases in new orders and production. Banking contacts indicated that there was ample credit available to qualified borrowers. District firms continued to report difficulties filling a range of positions. Wage pressures remained modest and non-labor input cost pressures were subdued.
Consumer Spending and Tourism
On balance, District retailers continued to experience modest sales growth from April through mid-May. Merchants reported a decline in sales activity from international shoppers compared with a year ago, and contacts indicated that they were being cautious in how they manage inventory levels. Auto dealers noted sales of light trucks and larger vehicles had softened slightly from previously high levels. The outlook among District merchants remains generally optimistic.
Hospitality contacts continued to report positive activity. Contacts in Georgia and Florida reported an increase in the number of visitors, while Louisiana reported some softening compared with a year ago. Year-to-date Mississippi casino gaming revenues increased compared with the same time period last year. The outlook remains optimistic, with contacts reporting healthy advanced bookings through the summer season.
Real Estate and Construction
District residential real estate contacts continued to report improving conditions since the previous report. Most builders indicated that construction activity was up from the year-ago level. The majority of builders and brokers said home sales were flat to slightly up relative to one year earlier. Most builders indicated that buyer traffic was up from the previous year's level, while broker reports were mixed. The majority of builders and brokers reported that inventory levels were down from the year earlier level. They also continued to note modest gains in home prices. The majority of contacts anticipate sales heading into the spring and summer selling season to be comparable or slightly higher than the year-ago level. The majority of builders expect construction activity to increase slightly over the next three months.
Commercial real estate contacts continued to report 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. Most 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. Amid ongoing concern regarding the overbuilding of apartments, reports from District multifamily contacts suggested that there has been some pullback in the pace of construction. Looking forward, most commercial real estate contacts expect the pace of nonresidential construction activity to increase slightly over the next quarter. However, expectations for the pace of multifamily construction activity are mixed, with roughly half of contacts responding that the pace over the next quarter will be flat or down, while the other half report that the pace will continue to increase.
Manufacturing and Transportation
Manufacturing contacts across the region indicated that activity remained relatively strong from April through mid-May. New orders and production levels were reported to have increased from the previous report. Payroll levels also continued to increase, while supplier delivery times were longer than in the previous report. Finished inventory levels were relatively unchanged, and input prices were reported to be rising. Expectations for future production rose from the previous reporting period, with almost half of the businesses surveyed anticipating an increase in production levels.
District transportation contacts continued to report varying levels of activity during the reporting period. Ports cited strong growth in containerized, bulk, and break-bulk cargo. Railroad contacts reported that total traffic, as compared with a year ago, was down significantly due to continued substantial declines in the shipment of farm products, petroleum, and coal. Trucking activity slowed since the last report; however, contacts noted an uptick in freight in early May. Most contacts anticipate higher levels of activity over the course of the year.
Banking and Finance
District bankers indicated that credit with attractive terms remained available for qualified borrowers. Credit quality remained good and loan pipelines were healthy. Contacts reported strong loan demand and increased loan portfolios except in areas dependent on the energy sector. Businesses and consumers continued to pay down debt and some institutions were aggressive and used low interest rates to increase loan volume. Banking contacts are optimistic about the outlook for the rest of the year.
Employment and Prices
District firms seeking employees for high-demand fields, such as information technology, healthcare, engineering, and construction continued to experience difficulty filling jobs. Business contacts also indicated that low-skill positions were becoming more difficult to fill. Layoffs continued in the oil and gas (O&G) industry, as well as other industries and areas with O&G business dealings. Contacts in parts of the District reported that these layoffs had loosened some of the local labor markets.
Many contacts across the District continued to report only modest wage pressure from April through mid-May. However, there were some reports of rising starting pay for low-skill and entry-level positions and ongoing upward wage pressure for some high-skill, low-supply positions. There were also several reports of significant wage increases in construction and skilled manufacturing. Businesses continued to report that lower input costs were supporting margins, though fewer contacts than the previous report expect a continued decline in input costs. According to the Business Inflation Expectations (BIE) survey, year-over-year unit costs were up 1.5 percent. Looking ahead, survey respondents indicate they expect unit costs to rise 1.9 percent over the next twelve months.
Natural Resources and Agriculture
The District's oil and gas sectors continued to cut capital spending budgets, reduce workforces, restructure loans, and renegotiate contracts to rebalance cash flow and expenses. Capital investment in petrochemical industrial manufacturing continued on an upward trend across the region with new facilities and expansions being fueled by low natural gas prices. Many exploration and production companies continued to sell off their upstream and midstream assets to infuse cash to service debt. Utilities in the industrial sector showed some weakness resulting from the oversupplied global market.
Agricultural conditions across the District were mixed. While most of the region remained drought free, abnormally dry to moderate drought conditions were reported in parts of Florida, Georgia, Tennessee, and Alabama. Contacts continued to focus on efficient production and controlling input costs to optimize income in a low commodity price environment. However, low feed prices benefited protein producers relying on grain for feed. On a year-over-year basis, monthly prices paid to farmers for corn, cotton, rice, soybeans, beef, broilers, and eggs declined, although on a month over month basis prices increased for soybeans, beef, and broilers.