Beige Book Report: Atlanta
October 19, 2016
Sixth District business contacts described economic conditions as improving at a modest pace from mid-August through September. The outlook among firms remains optimistic with the majority of contacts expecting growth to be sustained at or slightly above current levels for the remainder of the year.
Most district merchants cited that sales growth remained steady since the previous reporting period. However, automobile dealers continued to note softening sales. Hospitality contacts reported that tourism activity had improved since the previous report. Residential real estate contacts indicated that home sales and prices were slightly ahead of last year's levels. Commercial real estate contacts continued to note improving demand and construction activity was up from the prior year. Manufacturers indicated that activity slowed as new orders decreased. Bankers noted improving credit conditions for most of their contacts. Most firms continued to cite labor market tightness, with some reports of wage pressures, but overall input cost pressures were muted.
Consumer Spending and Tourism
District retailers reported relatively flat sales growth compared with the same time period last year. Some contacts noted that international customers were spending less due to the strength of the dollar. Automotive dealers continued to report a slowdown in the momentum of auto sales.
Tourism and hospitality contacts in the District reported a bounce back in bookings since the previous report. The convention segment in Georgia continued to boom as several large conferences were held in Atlanta. Overall, the Zika virus had little impact on visitation to South Florida. Contacts in that region reported a few cancellations of small group meetings; however, large group meetings and convention bookings continued to be solid. The outlook among contacts is positive for the remainder of 2016.
Real Estate and Construction
District residential real estate contacts continued to report slow but steady growth. The majority of builders noted that construction activity was flat to up from the year-ago level. Most builders and brokers said home sales were slightly up relative to the year earlier level. Brokers reported that inventory levels were flat to down from the previous year, while most builders indicated that inventory levels were flat to rising. Both builders and brokers continued to note modest gains in home prices. The majority of builders expect construction activity to hold steady at the current pace or increase slightly over the next three months. Builders' and brokers' home sales expectations moderated a bit in August, with mixed broker outlooks and a sizable portion of builders anticipating a leveling off over the next three months relative to the year earlier level. Contacts mentioned several factors that could be contributing to the expectation that activity will flatten out, including the close of the summer selling season, tight inventory levels at lower price points, and rising home prices.
Commercial real estate contacts continued to report improvement in demand resulting in rent growth and increased absorption, but cautioned 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 one 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. Looking ahead, most District commercial real estate contacts expect the pace of overall nonresidential construction activity to rise slightly over the next quarter, while many indicated that they expect the pace of multifamily construction to level off in the coming quarter.
Manufacturing and Transportation
Contacts reported a mild decrease in manufacturing activity compared with the previous reporting period. Purchasing managers indicated that new orders declined and production levels were flat. Payroll levels increased slightly and finished inventory levels decreased, while supplier delivery times were reported to be taking slightly longer. Contacts also revised down their outlook as roughly one-third of firms expect an increase in production over the next six months, compared with almost one-half in the previous report.
District transportation contacts reported a slowdown in activity since the previous report. Air cargo contacts cited a drop in overall trade, reflecting significant year-to-date declines in exports primarily to Latin America and the Caribbean. Logistics firms reported softness in the movement of some consumer goods; however, warehousing and trucking contacts cited growth in e-commerce activity. Total rail traffic weakened compared with year-ago levels, impacted mostly by lower shipments of agricultural and energy-related products. District ports, however, continued to see year-over-year increases in container volumes and cargo tonnage.
Banking and Finance
Credit remained readily available for most qualified borrowers. Banking contacts noted that consumer confidence and credit issues for many homeowners had improved. Demand for most types of loans remained strong. Competition for deposits increased and some financial institutions noted raising rates on CDs to attract deposits. Energy-related companies continued to report challenges in obtaining credit and some small businesses also reported difficulty obtaining credit from traditional banks.
Employment and Prices
Labor market tightening persisted across most parts of the District. Firms still experienced challenges finding qualified workers at various levels to fill job openings, and low-skilled positions were becoming increasingly more difficult to fill. Business contacts continued to report investing in automation with an end game of reducing headcounts and increasing productivity. Regions and industries directly tied to oil and gas continued to experience layoffs.
Firms reported that annual wage increases remained stable, with the exception of wage pressure in a broad range of highly skilled jobs in fields such as information technology, healthcare, and specialized construction. There were also reports of some wage pressure for businesses requiring large numbers of low-skilled or manual laborers. Non-labor input cost pressure was restrained and pricing power was limited. Margins appeared to be holding steady. According to the Atlanta Fed's survey of business inflation expectations, year-over-year unit costs were up 1.5 percent and survey respondents indicated they expect unit costs to rise 1.9 percent over the next 12 months.
Natural Resources and Agriculture
Energy contacts in the District indicated that the drawdown of crude oil inventories continued, yet inventories remained at high levels. A pipeline disruption from the Gulf Coast to areas northeast of the incident created temporary supply shortages of U.S. gasoline, and to a lesser extent, diesel. The line was repaired quickly, but the leak impacted gas prices and inventories for several days.
Agriculture conditions across the District were mixed. Drought conditions persisted throughout much of the District, ranging from abnormally dry conditions to areas of extreme drought. The USDA designated many counties in Alabama, Georgia, Mississippi, and Tennessee as natural disaster areas due to damages and losses attributed to drought conditions, while several counties in Louisiana were designated as natural disaster areas due to damages and losses attributed to severe storms and flooding. On a year-over-year basis, prices paid to farmers for rice, soybeans, and broilers increased, while corn, cotton, beef, and egg prices decreased. However, on a month-over-month basis, prices paid to farmers for cotton, rice, and eggs were up, while prices for corn, beef, and broilers were down.