January 18, 2017
Summary of Economic Activity
Sixth District business contacts indicated that economic activity expanded at a modest pace since the previous report. The outlook among most contacts for first half of 2017 remains optimistic. Businesses continued to report a tightening labor market and steady wage growth. Non-labor input costs remained relatively unchanged since the previous report. District merchants and automobile dealers cited an increase in sales. Tourism reports were mixed. Residential real estate contacts indicated that December new home sales were flat to slightly up from a year earlier and that existing home sales were mixed. Home prices increased modestly since the last report. Commercial real estate contacts continued to indicate improving demand. Manufacturers noted an increase in new orders and production.
Employment and Wages
Contacts reported continued tightening in the labor market since the previous report. Firms and staffing agencies had difficulty filling positions for certain professional jobs, craft labor jobs, and low-skill jobs. For professional positions in particular, employers noted that they were being more selective than they were prior to the recession. Manufacturers reported moderate increases in payroll levels, while retailers encountered the typical seasonal uptick in payrolls. In order to fill vacancies for low-skill positions, a number of firms and staffing agencies reported that they had reduced job qualification requirements. Businesses continued to report investing in technology to automate certain positions as a way to address the challenges of finding workers. Firms continued to engage in partnerships with community colleges and workforce development organizations to develop customized training programs, apprenticeship programs, and internship opportunities. Most contacts reported relatively stable wage growth, despite continued upward pressure for select high-skill or high-demand positions.
Prices
Contacts reported little change in input costs and prices. Exceptions were reports from purchasing managers of continued increases in commodity prices, downward pricing pressure in trucking and maritime shipping due to excess capacity, and lower refined gasoline and diesel prices due to excess supply. According to the Atlanta Fed's Business Inflation Expectations survey, year-over-year unit costs were up 1.7 percent in December. Survey respondents indicated they expect unit costs to rise 2.1 percent over the following twelve months.
Consumer Spending and Tourism
Most District retail contacts reported that sales levels rose modestly since the last report. Early reports from merchants for holiday sales indicated that levels appeared to have been slightly above expectations. Automobile dealers noted that incentives, such as cash bonuses and discounts, boosted overall vehicle sales in November.
Reports from tourism and hospitality contacts across the District continued to be mixed. Contacts in Georgia reported continued growth in business, leisure, and group travel; while contacts in Florida reported a slight decrease in tourism activity since the last report. The outlook among most contacts for the first quarter of the year remains optimistic.
Construction and Real Estate
Overall, reports from District residential real estate contacts continued to note slow but steady growth in December. The majority of builders noted that construction activity was up from the year-ago level. Many builders indicated that home sales were flat to slightly up relative to the year-earlier level, while brokers indicated home sales were mixed over the same period. Most builders and brokers noted that buyer traffic was equal to or higher than the previous year's level. Brokers reported that inventory levels were mixed relative to the year-earlier level, while most builder reports indicated that inventory levels were flat or rising. Builders and brokers continued to note modest gains in home prices in December. Home sales expectations improved a bit since the previous report, with many brokers and builders anticipating sales to remain flat or increase slightly over the next three months relative to the year-earlier level. Most builders anticipate construction activity will hold steady at the current pace or increase slightly over the next three months.
Most commercial real estate contacts noted improvements 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 one year ago, with many reporting backlogs greater than one year. Reports on the pace of multifamily construction were mixed, with roughly half indicating that the pace had increased from the year-earlier level and the rest suggesting that the pace had leveled off or slowed. Looking forward, most District commercial real estate contacts expect the pace of non-residential construction activity to increase slightly over the next quarter while many anticipate the pace of multifamily construction to continue to level off in the coming quarters.
Manufacturing
Manufacturing contacts reported that overall business activity increased since the last report. Purchasing managers indicated that new orders increased and production activity continued to rise at a firm pace. Supplier delivery times were reported to be slightly longer, while inventory levels of finished goods rose notably compared to the previous report. Expectations for future production remained fairly consistent with the previous report, with almost half of firms anticipating an increase in production levels over the next six months.
Transportation
District transportation contacts reported mixed levels of activity. Ports cited substantial growth in containerized cargo, which was attributed to a strengthening in export demand and a busy peak season. Year-over-year total rail traffic fell further since the last report due to significant declines in the shipments of petroleum and petroleum products, metallic ores, coal, and farm products. Intermodal traffic was also down. Trucking companies reported a continued slowdown in truckload freight; however, holiday e-commerce shipment volumes far exceeded expectations, placing constraints on capacity and negatively impacting on-time delivery rates. The majority of transportation contacts forecast higher levels of activity over the next year.
Banking and Finance
Credit remained readily available for most qualified borrowers. However, some small businesses continued to have difficulty obtaining credit.
Energy
Contacts continued to report weak demand and an over-supply in the oil and gas sectors. Contacts among a growing global liquefied natural gas export market along the Gulf Coast noted that they are positioned to meet demand and capacity. Utility industry contacts noted that investment in windfarm projects continued to expand, and that changing customer behaviors and energy efficiency improvements in end-use technologies continued to challenge growth in electricity demand.
Agriculture
Agriculture conditions across the District were mixed. By the end of November, much of the District was categorized as experiencing severe to exceptional drought conditions. December rains brought some relief, although parts of Alabama and Georgia remained classified in severe or extreme drought categories and dry conditions expanded through most of Florida. The USDA again designated many counties in the District as natural disaster areas due to damages and losses attributed to the drought. Florida's December orange forecast was unchanged from November, remaining below last season's production. On a year-over-year basis, prices paid to farmers in November were up for cotton, soybeans, and broilers, but down for corn, rice, beef, and eggs. In light of poor pasture conditions caused by the drought, livestock producers using corn for feed benefited from low corn prices.