Beige Book Report: Atlanta
November 29, 2017
Summary of Economic Activity
Reports from Sixth District business contacts described economic conditions as modestly improving since the previous report. Most businesses continue to expect slow and steady growth for the remainder of the year. District firms continued to describe a tight labor market as many faced difficulty finding workers. Wage growth remained modest. On balance, nonlabor input costs were stable. Retail sales, including auto, increased across most of the District. Reports from the hospitality sector were mostly positive. Residential real estate contacts noted that home sales were flat to down, although home prices improved modestly from the previous report. Commercial real estate contacts continued to report that the pace of construction had picked up from a year ago. Manufacturers indicated that activity grew at a modest pace since the previous report. Bankers reported that ample credit was available.
Employment and Wages
The District, specifically Florida, incurred notable payroll losses in September because of Hurricane Irma. Contacts continued to cite challenges filling highly skilled/specialized and low-skilled/entry-level positions. Several firms noted broadening their geographical search for candidates, and some expanded their physical presence to new locations where they expected more abundant labor supply. In a survey of business contacts, most respondents indicated that they planned to increase employment over the next 12 months as a result of expected sales growth, a need for skills not possessed by current staff, and to mitigate concerns about current staff being overworked. The top factors restraining hiring plans were challenges finding workers with required skills and a desire to keep operating costs low. Amidst these challenges, in an effort to attract workers, most respondents reported that they raised wages, signing bonuses, or total compensation offered.
Contacts continued to report some wage growth, with acceleration in highly skilled/specialized positions or in highly competitive geographic labor markets. Firms continued to use non-wage mechanisms to attract and to retain talent and keep wages down. Business contacts continued to describe efforts to enhance and modernize their corporate culture in order to encourage people to join the firm and to build loyalty among existing employees. Staffing agencies shared that from the job seeker's perspective, these non-wage mechanisms were increasing in importance as compared with compensation.
Prices
While the majority of non-labor input cost changes reported were modest, several contacts mentioned a recent uptick in costs, most notably in transportation. Contacts also reported little pricing power. The Atlanta Fed's Business Inflation Expectations survey showed year-over-year unit costs were up 1.7 percent in October. Survey respondents also indicated that they expect unit costs to rise 1.8 percent over the next twelve months.
Consumer Spending and Tourism
Most District retailers reported that sales levels rose modestly since the last report. The outlook remains optimistic for the upcoming holiday season. Post Hurricane Irma, automobile dealers noted an increase in the momentum of auto sales.
District contacts noted that Florida tourism activity bounced back after Hurricane Irma with the exception of the Florida Keys. Marketing efforts across various cities emphasized that the state was open for tourism. Georgia and Louisiana contacts reported continued growth in business, leisure, and group travel. Year to date, Mississippi casino gaming revenues decreased compared to a year ago. The outlook among most contacts for the first quarter of 2018 remains optimistic.
Construction and Real Estate
Relative to a year-ago, District brokers and builders indicated home sales were flat to down in September. Most builders reported that buyer traffic was flat to down, while brokers gave mixed reports. Builders cited flat to higher inventory levels, while most brokers noted lower inventories. Most builders and brokers reported that home prices increased in September. Builder reports on construction activity came in mixed. The majority of builders reported labor cost increases from year-ago levels and most said material costs had increased over the same period. Over the next three months, many contacts expect home sales to be flat and construction activity to hold steady or increase slightly. The majority of builders and half of broker respondents indicated that Irma had an impact on their business and that they faced higher material prices, a shortage of materials in some cases, tighter than normal labor markets, less buyer traffic, and activity and sales delays.
Many commercial real estate contacts reported improvements in demand that resulted in rent growth and continued to caution that improvement varied by metropolitan area, submarket, and property type. The majority of contractors indicated that the pace of nonresidential construction activity had increased from one year ago; most reported healthy backlogs. Commercial construction contacts' expectations for the pace of nonresidential construction were mixed, while their outlook for the pace of multifamily construction continued to level off.
Manufacturing
Manufacturers reported that business activity expanded at a modest pace compared with the previous period. Contacts indicated that production levels decreased, while new orders and finished inventory levels remained relatively flat. Hiring activity increased at a healthy pace and supplier delivery times were reported to be slightly longer than in the previous report. Purchasing managers stated that input prices continued to increase. Contacts' outlooks for future production were relatively unchanged from the previous period, with about half expecting higher production levels over the next six months.
Transportation
On balance, transportation activity in the District was relatively unchanged since the previous report. Year to date, total rail traffic was down compared with year earlier levels, as shipments of grain, petroleum and petroleum products, and metallic ores declined by double digits. These were only slightly offset by modest increases in movements of pulp and paper products, non-metallic minerals, and coal. Intermodal traffic continued to improve. Port contacts reported sustained growth in container trade. Truck freight volumes accelerated further and increased shipments of rebuilding supplies to Texas and Florida contributed to capacity constraints in the aftermath of Hurricanes Harvey and Irma. Logistics contacts reported that they anticipate considerable year-over-year increases in e-commerce shipments during the holiday season.
Banking and Finance
Credit remained readily available for most qualified borrowers, although some contacts faced challenges obtaining financing for long-term residential developments. Credit tightened somewhat for energy-related industries. Liquidity was plentiful, but some banking contacts reported pressure to increase deposit rates. Some bankers noted increased competition for loans.
Energy
Overall, energy contacts reported a steady pace of activity. They noted that the new natural gas pipeline capacity that came online was facilitating the demand for export of liquid natural gas. Both crude oil and gasoline inventories continued to decrease; however, levels were higher than the average range. Contacts reported that industrial and commercial utility usage remained flat. Broadly, utility contacts indicated they are preparing for a colder winter than the previous year.
Agriculture
Agriculture conditions across the District were mixed. Most of the District remained drought free although parts of Alabama, Georgia, Louisiana, and Mississippi were classified as abnormally dry or in moderate drought conditions. Initial assessments of Hurricane Irma's damage to Florida's agriculture industry indicated that citrus growers felt the biggest impact; nursery crops, sugarcane, vegetable and non-citrus fruit, cattle, and dairy also reported losses. Compared to last year, District crop production forecasts were up for soybeans, peanuts, cotton, and sugarcane, and down for rice and pecans. On a year-over-year basis, prices paid to farmers in September were up for corn, rice, oranges, broilers, and eggs and were down for cotton, soybeans, and beef.
For more information about District economic conditions visit: www.frbatlanta.org/economy-matters/regional-economics