Beige Book Report: Atlanta
March 01, 2017
Summary of Economic Activity
Business contacts indicated that economic activity in the Sixth District continued to expand, albeit modestly, from the previous report. The outlook among contacts for the next three to six months remains positive.The labor market remained tight and wage pressures were mostly subdued. Overall, non-labor input costs remained modest. Retailers cited steady sales since the previous report. Automobile dealers indicated sales were better than expected. Tourism activity improved. Residential real estate builders indicated that construction activity was up, and new home sales and inventory levels were flat to slightly up compared with a year ago. Residential real estate brokers reported that existing home sales increased and inventory levels were down from a year earlier. Home prices continued to modestly improve. Demand for commercial real estate continued to improve and commercial construction activity increased. Manufacturers noted increases in new orders and production.
Employment and Wages
Contacts reported ongoing tightening in the labor market since the previous report. Firms continued to struggle finding workers across various fields and skill levels. Firms continued to note growing partnerships with area workforce development organizations, community colleges, and universities to develop customized training programs to help develop larger pipelines of talent. Additionally, many firms continued to increase investment in internal training programs to develop existing personnel, rather than seek qualified labor across a limited pool of external candidates. Turnover picked up in banking and finance, manufacturing, and construction, where some industry contacts indicated they had to evaluate and adjust compensation structures, such as, increasing bonuses and incentive pay, to retain high-quality workers. There were scattered reports of plans to increase employee headcounts over the next 12 months, though overall, contacts indicated that they intend to keep employment levels steady. Wage growth continued to be evident in select geographic locations and particular occupations.
Prices
Most contacts reported modest non-labor input cost pressures, except for manufacturing purchasing managers who noted greater increases in commodity prices. According to the Atlanta Fed's survey of business inflation expectations, year-over-year unit costs were up 1.7 percent in February. The survey respondents indicated they expect unit costs to rise 2.0 percent over the next 12 months.
Consumer Spending and Tourism
On balance, District retailers reported that sales levels grew at a steady pace since the last report. Merchants noted that on-line sales levels continued to rise, while brick and mortar sales remained sluggish. Automotive dealers reported stronger-than-expected sales in December.
Hospitality contacts across the District reported growth in business, leisure, and group travel since the last report. Georgia contacts stated that business travel and convention bookings continued to be strong. The total number of visitors to the state of Florida increased over the reporting period, however, there continued to be a slow-down in the number of international visitors. Louisiana reported increases in hotel occupancies, average daily rates, and revenue per available rooms since the last report. The outlook remains optimistic with healthy advanced bookings through the first quarter of this year.
Construction and Real Estate
Reports from District residential real estate contacts continued to indicate slow but steady growth in January. Most builders noted that construction activity was up from the year-ago level. Builders continued to indicate that home sales were flat to slightly up relative to the year-earlier level, while brokers reported an increase in home sales over the same period. The majority of builders and brokers noted that buyer traffic was equal to or higher than the previous year's level in January. Brokers reported that inventory levels were down relative to a year ago, while most builders indicated that inventory levels were flat or rising. Builders and brokers continued to note modest gains in home prices. Home sales expectations improved in January, with most brokers and builders anticipating sales to 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. Many commercial contractors indicated that the pace of nonresidential construction activity had increased from a year ago, with many reporting backlogs greater than one year. Reports on the pace of multifamily construction continued to be 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, the majority of District commercial real estate contacts expect the pace of nonresidential and multifamily construction activity to increase slightly over the next quarter.
Manufacturing
District manufacturing contacts indicated that overall business activity expanded since the last report. New orders and production levels continued to increase. Supply delivery times were slightly longer, while finished inventory levels fell. Expectations for future production rose with nearly two-thirds of firms expecting higher production levels over the next six months.
Transportation
Transportation activity in the District was relatively unchanged since the last report. District ports cited continued growth in shipments of containers, autos, and machinery. Trucking freight volumes declined further since the previous report, and carriers indicated they are working to reduce capacity to improve pricing. Rail contacts, however, reported that total traffic was flat compared with year-earlier levels following several months of declines. Intermodal traffic was down slightly.
Banking and Finance
Credit remained readily available for most qualified borrowers. However, some small and medium-sized businesses continued to have difficulty obtaining credit. Some contacts noted that development projects were being funded by hedge funds and private equity sources, rather than banks.
Energy
Reports from District energy contacts indicated that liquefied natural gas exports from the Gulf Coast region increased. Refinery contacts reported that interstate pipeline reversals have eased some of the transportation costs for moving oil and gas to Gulf Coast refiners. Contacts noted crude oil inventories remain at historically high levels. Utility industry contacts continued to upgrade power generation plants to natural gas, and there has been continued activity to expand wind generation power.
Agriculture
Agriculture conditions across the District were mixed. By early February, rain brought some improvement to drought conditions. However, much of the District continued to experience varying degrees of drought with small areas of north central Alabama and northeastern Georgia categorized in extreme drought. Florida's February orange forecast was down from January, remaining below last season's production. On a year-over-year basis, prices paid to farmers in December were up for cotton, soybeans, and broilers, but down for corn, rice, beef, and eggs.