Beige Book Report: Atlanta
September 7, 2016
According to reports from businesses across the Sixth District, economic activity expanded at a modest pace from July through mid-August. The outlook among contacts remains optimistic as most expect higher growth over the remainder of the year.
Reports from retailers, including automotive, indicated that the pace of sales had softened. The hospitality sector continued to experience weakening activity. On balance, residential brokers and builders cited that sales of existing and new homes were flat to slightly up from a year ago and home prices continued to rise modestly. Commercial real estate firms reported that demand continued to improve and construction increased from a year ago. Manufacturers noted that activity increased slightly since the previous report. Bankers indicated that credit conditions continued to improve. Businesses reported continued tightness in the labor market. Firms cited slight wage pressure and modest non-labor input costs.
Consumer Spending and Tourism
Most District retail contacts reported that year-to-date revenues grew slightly compared with a year ago; however, some merchants noted a recent slowdown in year-over-year sales growth. Retailers expect the usual boost in sales activity during Labor Day weekend. Automotive dealers continued to report a slowdown in the momentum of auto sales.
In general, tourism and hospitality contacts in the District reported that while activity over the reporting period was higher than a year earlier, it was softer than expected. Contacts in South Florida reported a decrease in the number of international visitors since the previous report. They also indicated that they are monitoring the developments and impact of the Zika virus. Contacts in Louisiana reported that year-to-date occupancy and hotel-tax revenues were slightly higher compared with the same period last year. Mississippi's casino gaming revenues increased year-over-year. The outlook for the remainder of the year is for tourism activity to be in line with forecasts made earlier in the year.
Real Estate and Construction
Residential real estate contacts across the District continued to report slow but steady growth. The majority of builders noted 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 the year-earlier level. Most builders and brokers indicated that buyer traffic was equal to or higher than the previous year's level. Brokers' reports on inventory levels were mixed and builders' reports suggested that inventory levels were either equal to or higher than the year-earlier level. Builders and brokers continued to note modest gains in home prices; they anticipate sales over the next three months 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 rent growth and increased absorption, but continued to caution that the rate of improvement varied by metropolitan area, submarket, and property type. The majority of commercial contractors indicated that the pace of nonresidential construction activity had increased from a year ago, with many reporting backlogs of one to two years. Many District contacts also indicated that the pace of multifamily construction continued to increase from the year-earlier level. Over the coming quarter, most District commercial real estate contacts expect the pace of nonresidential construction activity to increase slightly, however, many indicated that they expect the pace of multifamily construction to level off.
Manufacturing and Transportation
Manufacturing contacts indicated that overall business activity increased slightly compared with the previous report, although declines in new orders were reported. Purchasing managers also reported that factory payroll levels continued to increase, production levels remained relatively flat, and finished inventory levels rose. Expectations for future production increased considerably, with almost one-half of firms expecting an increase in production levels over the next six months, up from a third in the previous report.
District transportation firms continued to cite mixed results. Rail activity remained relatively flat since the previous report, and overall volume remained well below year-earlier levels, driven mainly by declines in coal, metallic ores, and petroleum products. Intermodal traffic continued to decline slightly, while automotive shipments by rail remained strong. Most ports noted year-over-year volume increases in container traffic, bulk cargo, and automotive and machinery. Demand for ocean carriers was down, which contacts attributed to a combination of a normal summer slowdown coupled with overall soft market conditions. Some trucking contacts noted a slowdown in freight volumes, while others indicated broad based increases that were in line with expectations.
Banking and Finance
Credit remained readily available for most qualified borrowers. Energy-related companies reported challenges in obtaining credit. While some small to medium-sized businesses also reported challenges in obtaining credit, many of them indicated they were seeking loans from non-traditional lenders. Contacts from financial institutions indicated credit quality was improving and delinquencies and charge-offs were down. Some banking contacts were challenged by low growth of deposits. Loan demand for commercial real estate, residential mortgages, refinancing, and home improvement increased.
Employment and Prices
Business contacts continued to describe a tightening labor market with challenges finding high-quality workers to fill open positions, particularly in fields that require high-skills, such as information technology, finance, and engineering. As a result, contacts from staffing agencies noted that demand for recruitment services remained steady. Regions and industries directly tied to the oil and gas sector continued to experience layoffs; however, business contacts noted an uptick in hiring at petrochemical refining companies as plant expansions continued across South Louisiana and the Mississippi Gulf Coast.
Across the district, firms reported little evidence of wage pressure and labor costs were generally well contained. Non-labor input costs remained modest. A number of contacts noted pricing power continued to be relatively weak. According to the Atlanta Fed's survey of business inflation expectations, year-over-year unit costs were up 1.5 percent. Survey respondents also indicated that they expect unit costs to rise 1.8 percent over the next 12 months.
Natural Resources and Agriculture
The District's oil and gas sectors continued to sell off assets, cut costs, and adapt to an environment of lower oil prices. Contacts indicated oil production continued to decline and inventory drawdowns were evident; however, inventories remained near historically high levels. Natural gas production continued to fall while supply remained elevated. Broad based industrial and commercial electricity usage across the District experienced a decline due to greater efficiencies. The utility and power generation segments continued to migrate to natural gas-fired power and to reduce coal usage.
Agriculture conditions across the District were mixed. Damage and losses from drought conditions in the region caused the USDA to designate many counties in Alabama, Georgia, Mississippi, and Tennessee as natural disaster areas. Additionally, parts of southern Louisiana experienced severe flooding and there are preliminary reports of crop damage. Compared with last year, District cotton production is forecasted to be higher, while soybean and peanut production is expected to be lower. On a year-over-year basis, prices paid to farmers for corn and soybeans increased, while cotton, rice, beef, broilers and egg prices decreased. However, on a month-over-month basis, prices for corn, cotton, soybeans, and broilers were up, while prices for beef and eggs were down.