Beige Book Report: Atlanta
April 18, 2018
Summary of Economic Activity
Sixth District business contacts indicated that economic conditions continued to improve modestly from the previous report. The majority of contacts were relatively optimistic with expectations for continued modest growth over the next three to six months. The labor market remained tight and overall wage growth was modest. Most firms noted that most nonlabor input cost pressures were muted, though some noted increases related to the threat of tariffs. Retail sales remained stable since the previous report while automotive dealers remarked that demand for vehicles had weakened. Hospitality contacts noted solid domestic activity. Residential real estate builders and brokers indicated that home sales were flat to slightly down. New home construction increased slightly since the previous report. On balance, commercial real estate conditions continued to improve. Manufacturers cited increases in new orders and production.
Employment and Wages
District contacts continued to report difficulties filling positions in high-demand/high-growth sectors, particularly in the information technology, long-haul transportation, construction, and medical fields. Several contacts from the transportation sector reported elevated driver turn-over. In response to labor shortages, firms continued to enhance training efforts for less-experienced candidates, expand partnerships with workforce development entities and community colleges, and broaden their geographical search for candidates.
Overall, reports of wage growth were mixed across the District. Many contacts noted steady but modest wage growth; however, geographies and sectors experiencing high growth continued to report large wage increases in order to attract and retain workers. In particular, contacts from the transportation sector reported that they were compelled to provide drivers with sizeable bonuses and wage increases in an attempt to thwart turnover. Employers continued to share that they were increasing the proportion of employee compensation that is not permanent and can be withdrawn, if needed (e.g., bonuses, incentives, etc.).
Prices
Overall, businesses continued to report relatively benign input-cost pressures. However, some contacts noted rising prices for transportation, as well as steel as tariff rhetoric increased. The Atlanta Fed's Business Inflation Expectations survey showed year-over-year unit costs were up 1.9 percent in March. Looking ahead, survey respondents indicated that they expect unit costs to rise 2.1 percent over the next twelve months.
Consumer Spending and Tourism
District retailers continued to report steady sales levels during this reporting period, on net. Home improvement retailers noted an increase in sales levels during the first two months of the year; automotive dealers reported a decline in demand for February compared to the same time last year.
Travel and tourism contacts reported strong domestic travel while group and convention travel softened since the last report. Demand for hotel rooms accelerated even though occupancy rates declined due to an increase in the number of rooms coming on line and a pick-up in online lodging services. Sentiment from travel and tourism contacts remains optimistic heading into spring.
Construction and Real Estate
Reports from District residential real estate contacts signaled continued modest growth. Builders reported flat to slightly higher construction activity in February compared to one year earlier. Builders and brokers indicated that home sales activity was flat to slightly down from the year-ago level. Many brokers reported mixed buyer traffic, while builders characterized traffic as unchanged from the previous report. Builders reported that inventory levels remained flat whereas brokers indicated lower levels compared to one year ago. Builders and brokers continued to note that home prices increased in February. Looking ahead, residential real estate contacts expect home sales activity to hold steady or increase slightly over the next three months relative to the year-ago level, with many builders expecting construction activity to remain unchanged or increase slightly.
District commercial real estate contacts cited continued improvement in general economic conditions and the availability of capital as factors supporting favorable commercial real estate demand and pricing. However, contacts continued to caution that the rate of improvement varied by metropolitan area, submarket, and property type. Contacts continued to report healthy activity pipelines. The outlook among commercial contacts for nonresidential and multifamily construction remained positive, with the majority anticipating activity to match or exceed the current level.
Manufacturing
Manufacturing contacts indicated that overall business activity remained strong since the last reporting period. New orders and production levels rose, and most firms indicated they were adding to their payrolls. Contacts suggested that prices for their finished products were holding steady, while some input costs continued to increase. Most firms indicated that they are optimistic about the near term.
Transportation
Transportation contacts continued to note varying levels of activity over the reporting period. Railroads again cited decreases in year-to-date total traffic, albeit at a slower rate of decline than described in the previous report. Trucking contacts reported increases in freight volume, but driver shortages continued to constrain capacity. District ports indicated further strength in shipments of containers and breakbulk cargo, and air cargo contacts noted year-over-year increases in freight tonnage.
Banking and Finance
District bankers continued to report solid commercial and consumer loan growth. Contacts noted that lending rates have coalesced around a narrow range but pricing for consumer lending is increasing. Banking contacts also noted that commercial acquisitions slowed due to difficulties over pricing of the targets.
Energy
Sentiment among energy contacts was mostly positive as demand picked up. Global demand for liquefied natural gas (LNG) continued to intensify, resulting in rising exports of LNG out of Louisiana's Sabine Pass liquefaction terminal. In petrochemical markets, contacts shared that supplies remained tight and backlogs continued to build after freezing conditions across the Gulf Coast temporarily reduced or ceased operations at several plants, and in some cases, caused power outages and infrastructure damage. Elevated Mississippi River water levels prevented many petrochemical plants from receiving input products needed to produce chemicals for domestic and global use, which also contributed to growing backlogs and imports.
Agriculture
Agriculture conditions across the District were mixed. Drought conditions improved in much of the District although light frosts in March affected some crops. Agricultural exporters indicated that the weaker dollar was having a favorable impact. On a year-over-year basis, prices paid to farmers in February were up for rice, 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