Beige Book Report: Atlanta
May 31, 2017
Summary of Economic Activity
Sixth District business contacts reported economic activity continued at a modest pace from April through mid-May. The outlook among contacts remains optimistic with most firms expecting growth to accelerate over the next three to six months. District firms continued to report difficulties filling a range of positions, and wage growth remained steady. Non-labor input cost pressures were subdued. On balance, District merchants reported no change in sales since the previous report; however, auto dealers indicated sales of light trucks and SUVs continued to improve. The tourism sector noted some softening in activity. According to residential real estate contacts, new and existing home sales were up, and home prices modestly appreciated compared with a year ago. New home construction increased since the previous report. Commercial real estate contacts noted demand continued to improve. While overall nonresidential construction increased from a year ago, multifamily construction showed some signs of slowing. Manufacturing purchasing managers cited increases in new orders and production.
Employment and Wages
While some contacts noted that demand for mid- to high-skilled professional and business service positions had moderated, many continued to describe a tightening labor market among information technology, skilled craft and technical, and increasingly in entry-level positions, particularly in hospitality and food services. Many contractors and manufacturers from construction-related fields continued to report that their inability to find qualified workers was impeding growth. Contacts from the energy industry mentioned that the lack of available skilled craft labor was a roadblock to petrochemical-related construction. In response to labor shortages and rising turnover, a growing number of firms indicated that they were directing resources towards creating internal training and development programs for both new hires and existing staff, covering technical education as well as company culture and soft skills. Firms also continued to mention workforce development partnerships, apprenticeships, early education training, and dual enrollment programs at high schools. Wage growth remained stable with exceptions in high-growth areas and in high-demand trades.
Prices
Non-labor input costs remained muted in general; however, manufacturing purchasing managers continued to note greater increases in commodity prices. Contacts still indicated limited ability to raise prices. According to the Atlanta Fed's Business Inflation Expectations survey, year-over-year unit costs were up 1.8 percent in May. Survey respondents indicated they expect unit costs to rise 2.0 percent over the next twelve months.
Consumer Spending and Tourism
On balance, District retail contacts reported that sales levels remained flat since the last report. Retailers noted that consumers were cautious about their discretionary spending and expect modest increases in spending over the summer months. Sales of light trucks SUVs increased in April, according to auto dealers.
Sentiment among tourism and hospitality contacts across the District remains cautiously optimistic. Reports noted an increase in the number of visitors in the first four months of the year compared to the same time period last year. However, contacts noted that the pace of food, beverage, and merchandise spending from visitors slowed since the last report, a trend that is expected to persist for the remainder of the year.
Construction and Real Estate
Reports from District residential real estate contacts in April signaled continued growth. Most builders noted that construction activity was up from the year-ago level. Many brokers and builders reported an increase in home sales relative to one year earlier. The majority of builder and broker contacts said buyer traffic was up from the previous year's level. Residential contacts noted that inventory levels were unchanged or down compared to the year-ago level. Both builders and brokers indicated modest gains in home prices. Home sales expectations were positive, with most brokers and builders anticipating sales will 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.
Many District commercial real estate contacts reported improvements in demand that have resulted in rent growth and increased absorption, but 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 risen from one year ago, with many reporting increasing backlogs. While most reports indicated that the pace of multifamily construction matched or exceeded the year-ago level, a growing share of contacts reported that multifamily construction is down. Looking forward, the majority of District commercial construction contacts expect nonresidential construction activity to increase in the second quarter, while expectations for the pace of multifamily construction was mixed.
Manufacturing
District manufacturers continued to indicate that overall business activity remained strong. New orders and production levels increased at a solid pace and purchasing agents reported that supply delivery times were persistently getting longer. The outlook for future production remained optimistic, with just over half of firms expecting higher production levels over the next six months.
Transportation
District transportation contacts indicated that demand was largely consistent with the previous report. Rail activity, including intermodal, remained relatively flat. District ports noted further strength in shipments of containers, automobiles, and breakbulk cargo. Trucking companies cited increased movements of construction-related materials, and logistics contacts reported continued growth in ecommerce shipments. Roughly half of contacts expect higher levels of activity in the second half of the year.
Banking and Finance
Credit remained readily available for most qualified borrowers, although some small businesses continued to experience difficulty obtaining loans. Contacts noted that regulatory capital requirements constrained commercial and construction lending at some banks, and most commercial lending activity revolved around refinancing. Lenders increased oversight of construction loans and were growing more cautious in multi-family lending.
Energy
Reports from energy contacts indicated that rising shale production created new pipeline projects to transport oil and gas to refining centers on the Gulf Coast. Contacts also indicated that oil and gas inventories remained elevated despite increased demand. Utility industry contacts across the District reported that demand in industrial and residential usage increased slightly while commercial demand declined.
Agriculture
Agriculture conditions across the District were mixed. By early-May, overall drought conditions had improved in Louisiana, Mississippi, and Tennessee while Alabama, Georgia, and Florida reported sizeable areas of drought conditions ranging from abnormally dry to extreme. The May forecast for Florida oranges was up slightly from April but remained considerably lower than last season's production. District cotton, soybean, rice, and peanut plantings in early May were ahead of the five-year average, with the exception of Tennessee's cotton and soybean crops and Florida's peanut crop, which were modestly below their five-year averages. On a year-over-year basis, prices paid to farmers in March were up for cotton, soybeans, and broilers but remained down for corn, rice, beef, and eggs.