Beige Book Report: Atlanta
July 12, 2017
Summary of Economic Activity
On balance, reports from Sixth District business contacts indicated that economic activity continued to expand at a modest pace from mid-May through June. The outlook among businesses remains positive as most expect an increase in activity over the next year. District firms continued to report difficulties filling positions of all calibers. Wage growth, aside from wages for jobs in high demand, remained steady. Businesses reported muted non-labor input costs. District merchants noted sales activity softened since the previous reporting period. The pace of vehicle sales slowed from a year ago. The tourism sector continued to report softness in activity in parts of the District. Reports from residential brokers and builders indicated home sales increased from year earlier levels. Real estate contacts also noted that home prices modestly appreciated. Commercial real estate contacts continued to cite improved demand for most property types and construction increased from a year ago. Manufacturing activity grew, albeit at a slower pace than the previous report. Bankers noted credit continued to be available for qualified borrowers.
Employment and Wages
Contacts continued to describe a tightening labor market in which they struggled to find and hold onto quality workers, a narrative that has broadened across job types and skill levels, from construction, information technology (IT), finance, and transportation to low to mid-skill and professional positions. Several contacts maintained that labor market tightness was a major barrier to growth. Some contacts reported that planned changes to immigration policy made it more difficult to hire and retain high-skill immigrants, including engineers, technicians, and IT workers. Firms continued to deploy various tactics in an effort to find and develop pipelines of talent and retain workers; for example, developing partnerships with workforce development entities, schools, and military bases, expanding internal and external training and apprenticeship programs, strengthening recruiting efforts, and seeking out retirees to return to work. Some firms also enhanced compensation and benefits packages, particularly variable pay, healthcare contributions, flexible work arrangement offerings, and added vacation time. Additionally, firms continued to explore or deploy technology as viable future replacements for labor, especially in hard-to-fill jobs. Contacts report that wage pressures remained mostly stable, however there were also continued reports of rising starting salaries for lower-skill entry-level positions and ongoing upward wage pressure for some high-skill, low-supply positions.
Prices
In general, growth in input costs was restrained. Some contacts reported ability to pass along commodity input increases as they occurred. According to the Atlanta Fed's Business Inflation Expectations survey, year-over-year unit costs were up 1.9 percent in June. Survey respondents indicated they expect unit costs to rise 2.0 percent over the next twelve months.
Consumer Spending and Tourism
District retail contacts reported that sales levels were softer than expected in May. Retailers noted that overall sales activity during Memorial Day weekend was at or slightly below expectations and sales levels from international shoppers weakened since the last report. Automotive dealers reported a slow-down in the momentum of auto sales from a year ago.
On balance, tourism and hospitality contacts across the District reported slightly softer than expected activity during the start of the summer season, which they attribute poor weather conditions. However, with the exception of South Florida, hotel occupancy and revenue per available room were up year over year. Year-to-date Mississippi casino gaming revenues decreased compared with the same time period last year. The outlook among most contacts for the remainder of the summer season remains optimistic.
Construction and Real Estate
Reports on activity in May from District residential real estate contacts continued to signal modest but steady growth. Most builders said construction activity increased from the year-ago level. Brokers and builders continued to report that home sales were up relative to one year earlier. The majority of builder and broker contacts noted that buyer traffic was up from the previous year's level. Many residential contacts indicated that inventory levels were down from the year-ago level. Both builders and brokers reported modest gains in home prices. Home sales expectations remained positive in May, with most brokers and builders anticipating that sales would hold steady or increase slightly over the next three months compared to the year-earlier level. Most builders expect construction activity to match or exceed the current pace 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 they 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 increasing backlogs. While most reports indicated that the pace of multifamily construction matched or exceeded the year-ago level, a growing share of contacts are reporting that multifamily construction is down. Looking forward, the majority of District commercial construction contacts expect nonresidential construction activity to increase, while expectations for the pace of multifamily construction was mixed.
Manufacturing
On balance, manufacturing contacts continued to report growth in overall activity. New orders and production levels continued to rise, but at a slower pace than the previous reporting period. Purchasing agents indicated that supply delivery times continued to get longer and finished inventory levels increased slightly. The outlook for future production decreased somewhat, with just under half of firms expecting higher production levels over the next six months.
Transportation
Most District transportation contacts reported an expansion of activity during the reporting period. Logistics companies noted steady growth in ecommerce shipments, and trucking contacts reported notable increases in freight volume and tonnage. District ports cited continued strength in shipments of automobiles and machinery, and record container volumes. Rail contacts reported a slight uptick in intermodal traffic; however, year- over- year rail traffic was relatively unchanged since the previous report.
Banking and Finance
Credit remained readily available for most qualified borrowers. Competition for loan customers increased among financial institutions. Overall loan growth varied--some institutions reported flat to slow growth while others indicated strong growth. Small business loans were up year over year at some institutions. Credit card usage increased yet delinquency levels remained stable. Deposit levels were up at many institutions.
Energy
Reports from energy contacts indicated that Tropical Storm Cindy caused limited disruptions to oil and gas operations in the Gulf of Mexico. Contacts noted that trends in continued gains in energy efficiency has slowed growth among residential and commercial gas customers. Reports indicated that natural gas demand was below normal and inventories remained above average levels. Contacts reported that Gulf Coast refineries ran at record high levels and crude oil inventories remained above average levels.
Agriculture
Agriculture conditions across the District were mixed. By mid-June, rains had significantly improved drought conditions in much of the District. However, recent heavy rainfall due to Tropical Storm Cindy exacerbated areas' crop moisture conditions in much of the District that were already categorized as abnormally moist to excessively wet, and there were early indications of some crop damage. During the reporting period, the District's cotton crop was mostly on par with the five-year averages and soybean planting in Louisiana, Mississippi, and Tennessee was ahead of their five-year averages. The June forecast for Florida oranges was up slightly from May but remained considerably lower than last season's production. On a year-over-year basis, prices paid to farmers in April were up for cotton, soybeans, and broilers but remained down for corn, rice, beef, and eggs.
For more information about District economic conditions visit: www.frbatlanta.org/economy-matters/regional-economics