Beige Book Report: Atlanta
April 19, 2017
Summary of Economic Activity
Sixth District business contacts indicated that economic conditions improved modestly from the previous report. The majority of contacts remain optimistic in their outlook for growth over the next three to six months. The labor market remained tight and wage growth remained stable. Firms characterized non-labor input costs as steady. Retail sales softened since the previous report while automotive dealers remarked that sales of light trucks and large vehicles had improved. Hospitality contacts noted solid domestic activity. Residential real estate builders and brokers indicated that home sales were flat to slightly up. New home construction increased since the previous report. Demand for commercial real estate continued to improve and construction increased from the year-ago level across most of the District. Manufacturers cited solid increases in new orders and production. Drought and cold weather caused agricultural conditions to weaken.
Employment and Wages
Firms continued to struggle to find, hire, and hold onto quality workers, particularly in skilled technical jobs, but also in sales, finance, information technology, and compliance positions. Clerical and other entry-level jobs were also reported as increasingly difficult to fill. Leisure and hospitality contacts shared that they are exploring automation options for housekeeping and food preparation services. Partnerships expanded with workforce development organizations and educational institutions to develop custom training programs as a means to build larger pipelines of talent. Additionally, firms continued to increase investment in internal training programs in order to develop otherwise unqualified workers. In spite of these efforts, a number of contacts continued to express that the inability to find labor was restraining growth. Manufacturing, construction, and professional services firms reported strong additions to employee headcount levels. Reports of turnover increased since the previous report, particularly for entry level positions. Businesses continued to actively ramp up efforts to reduce turnover by offering bonuses, increasing flexible time policies, absorbing more healthcare costs, and offering other benefits.
Wage growth remained in the 2 to 3 percent range for most job categories, with the exception of stronger wage pressures for specialized positions in high demand.
Prices
Non-labor input costs were stable and businesses reported pricing power was still constrained. According to the Atlanta Fed's Business Inflation Expectations survey, year-over-year unit costs were up 1.7 percent in March. Survey respondents indicated that they expect unit costs to rise 2.1 percent over the next twelve months.
Consumer Spending and Tourism
Most District retail contacts reported that sales levels were softer since the last report. They reported that the delay in federal income tax refunds weighed down retail spending in February. However, merchants expect a boost to sales in March following tax disbursements at the end of February. Auto dealers noted sales of light trucks and large vehicles increased in February compared to a year ago.
On balance, reports from tourism and hospitality contacts across the District were cautiously optimistic. Contacts in Georgia, Louisiana, and Tennessee reported strong tourism activity since the last report; while some areas of Florida reported a slight decrease in the number of international visitors during the same time period. With the exception of South Florida, hotel occupancy and revenue per available room were up year-over-year. The outlook among most contacts for the second quarter of the year remains upbeat.
Construction and Real Estate
Reports from residential real estate contacts in the District continued to point to slow but steady growth in February. Most builders noted that construction activity was up from the year-ago level. Builders and brokers indicated that home sales were flat to slightly up relative to one year earlier. The majority of builder and broker contacts noted that buyer traffic was equal to or higher than the previous year's level. Residential contacts reported that inventory levels were similar to or down relative to the year-ago level. Builders and brokers noted modest gains in home prices. Home sales expectations improved in February, with most brokers and builders anticipating sales to increase slightly over the next three months relative to the year-earlier level. Most builders expect construction activity to hold steady at the current pace or increase slightly over the next three months.
Most commercial real estate contacts noted improvements in demand that continued to result in rent growth and increased absorption, but cautioned that the rate of improvement varies by metropolitan area, submarket, and property type. Many 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 from District contacts on the pace of multifamily construction continued to be mixed, with roughly half indicating that the pace increased from the year-earlier level and the rest suggesting that the pace 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 reported a solid increase in overall business activity compared to the previous report. New orders and production levels rose notably and finished inventory levels were higher. Purchasing managers also indicated that supply delivery times were longer. The outlook for future production continued to be optimistic, as nearly two-thirds of firms expect higher production levels over the next six months.
Transportation
District transportation contacts continued to report varying levels of activity since the previous report. Railroad contacts cited a slight uptick in total rail traffic, as large increases in shipments of crushed stone, sand and gravel, waste and nonferrous scrap metal, were mostly offset by declines in petroleum and petroleum products, and metallic ore loads. Ports cited robust growth in cargo overall, led by significant increases in tonnage of containerized and break bulk cargo. A majority of contacts anticipate activity to remain the same over the next three to six months.
Banking and Finance
Credit remained readily available for most qualified borrowers, although some small businesses continued to experience difficulty obtaining credit. For larger businesses, private equity sources remained a competitive alternative to bank financing. Regulatory capital requirements constrained commercial and construction lending at some banks. Some bank contacts reported increased pricing pressure on deposits.
Energy
Reports from energy contacts noted that crude oil inventories remained at historically high levels due to weak demand, oversupply, and continued production. Utility industry contacts noted continued investments in renewable energy. Contacts cited robust construction on gas liquefaction plants in southwest Louisiana, however, skilled labor shortages were also noted. Operational liquefied natural gas plants experienced steady export activity.
Agriculture
Agriculture conditions across the District softened. By late-March, drought conditions expanded in the District with drought ratings ranging from dry to extreme. During the same time period, parts of the District also experienced a cold snap that damaged some fruit and vegetable crops. There were limited reports of poultry that tested positive for avian flu in Alabama, Georgia, and Tennessee with stop movement orders, surveillance, quarantine, and depopulation employed as containment methods. The March forecast for Florida oranges was down from February and last season. Some citrus contacts indicated that they are looking for alternative crops in light of the chronic problems caused by citrus greening. Contacts continued to report farm consolidations. On a year-over-year basis, prices paid to farmers in January were up for cotton and soybeans, but down for corn, rice, beef, broilers and eggs.