Beige Book Report: Atlanta
January 17, 2018
Summary of Economic Activity
Sixth District business contacts remained largely positive with most noting that economic conditions were improving at a modest pace over the reporting period. Most contacts expect continued slow and steady growth in the near-term. Business contacts experienced on-going labor market tightness but limited wage growth. Non-labor input costs increased slightly from the previous report. Contacts reported that holiday retail sales exceeded expectations, but auto sales softened. Reports from the hospitality sector were positive, reflecting strong advance bookings. Residential real estate brokers and builders noted mixed sales activity for both existing and new homes. Home prices rose and inventory levels were described as flat or down. Commercial real estate contacts reported increased demand in nonresidential construction, especially industrial and warehousing. Manufacturers indicated that new orders picked up since the previous report.
Employment and Wages
Job growth across the District returned to a steady pace in November, following large hurricane-related losses in September. In a survey of business contacts, a little over half indicated that they expect their firms to increase employment over the next 12 months, while about one-third responded that they expect employment to remain unchanged. The remaining respondents expect some staff reductions over the next 12 months. Contacts indicated the most important factor for adding to payrolls was an expectation for high sales growth in their business while the top constraints to hiring were a desire to keep operating costs low and an inability to find workers with requisite skills. A number of contacts continued to describe challenges filling and retaining highly-skilled/specialized and low-skilled/entry-level positions. To find and retain workers, firms continued to broaden their geographical search for candidates and develop or expand training programs.
On balance, contacts noted steady but modest wage growth; however, compensation negotiations were more prevalent among highly-skilled/specialized workers.
Prices
Increases in non-labor input costs were reported as mostly modest. Firms reported that pricing power continued to be limited. The Atlanta Fed's Business Inflation Expectations survey showed that year-over-year unit costs were up 1.8 percent in December, and respondents expect unit costs to rise 2.1 percent over the next twelve months.
Consumer Spending and Tourism
District retail contacts reported an uptick in sales levels since the last report. Merchants noted that early holiday sales activity was above expectations. According to automobile dealers in the District, however, momentum of auto sales slowed compared with year-earlier levels.
Holiday reports from District travel and hospitality contacts indicated much higher-than-anticipated tourism activity. Further, the outlook among contacts remains positive for the first quarter of 2018 with strong advance bookings in the conference and business travel segments.
Construction and Real Estate
Reports from residential real estate contacts in the District signaled modest growth since the previous report. The majority of builders reported construction activity was slightly up in November compared with one year earlier. Brokers indicated that home sales activity was flat to slightly down from the year-ago level, yet builders said home sales were flat to slightly up over the same period. Many brokers reported buyer traffic was flat to down; meanwhile, builders said buyer traffic was flat to up. Most brokers indicated inventory levels were down from one year ago, while builders reported that inventory levels remained unchanged. Builders and brokers continued to note home price increases in November. Over the next three months, residential real estate contacts expect home sales activity to either hold steady or increase slightly relative to the year-ago level, while many builders expect the pace of construction activity to remain unchanged or increase slightly.
Many commercial real estate contacts from the District reported improvements in demand that resulted in rent growth, specifically in industrial and warehouse/distribution properties and to a lesser degree in office and multifamily. Contacts cautioned that the rate of improvement varies 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. Most contacts continued to report a healthy pipeline of activity, with the majority indicating backlogs greater than or similar to the previous year's level. While the majority of reports indicated that the pace of multifamily construction matched or exceeded the year-ago level, a growing share continued to report that activity was down from one year earlier. Commercial construction contacts' outlook for nonresidential and multifamily construction activity improved across the District since the last report.
Manufacturing
Manufacturing contacts reported increases in overall business activity. New orders continued to rise, while production levels at District firms remained somewhat subdued. Most contacts indicated that hiring activity continued to increase at a healthy pace and suggested that supplier delivery times were getting somewhat longer. Finished inventory levels were reported to have increased slightly and input prices also continued to rise. Contacts' outlook for future production was similar to from the previous period, with about half expecting higher production levels over the next six months.
Transportation
Transportation contacts in the District noted increased activity during the reporting period. Ports saw growth in volumes across most sectors; however, automobile shipments were flat year-over-year. Containerized exports and imports were up by double digits from year earlier levels, and solid growth in lumber, iron and steel break bulk cargo was attributed to increased manufacturing and construction activity. Available warehouse capacity was at record low levels. Year-to-date total rail volume was flat compared with last year; intermodal traffic was up modestly. Trucking companies experienced a robust peak season due to substantial increases in e-commerce volumes, and logistics contacts noted greater demand for services due in part to hurricane rebuilding efforts and tighter capacity. All District contacts surveyed anticipate continued growth in activity for 2018.
Banking and Finance
Credit remained readily available for most qualified borrowers. Credit union contacts noted strong auto and first mortgage lending and increased credit card activity. Some banking contacts reported a diminished ability to raise deposits.
Energy
Contacts indicated that overall, utilities continued to move to natural gas power generation. Pipeline take-away capacity from production to refineries continued to be constrained. It was noted that liquid natural gas exports ticked up slightly with additional liquefaction capacity that came online.
Agriculture
Agriculture conditions across the District were mixed. Drought conditions expanded in parts of Alabama, Florida, Georgia, Louisiana, and Mississippi and were classified as abnormally or moderately dry. The District's December cotton production forecast was up over last year, mostly because of increased acres, although there were some reductions in yields. The December forecast for Florida's orange crops was down from the previous report. The USDA designated many counties in Florida and Georgia as natural disaster areas due to damages and losses attributed to Hurricane Irma. On a year-over-year basis, prices paid to farmers in November were up for rice, oranges, beef, broilers, and eggs and down for corn, cotton, and soybeans.
For more information about District economic conditions visit: www.frbatlanta.org/economy-matters/regional-economics