Beige Book Report: Atlanta
April 17, 2019
Summary of Economic Activity
Sixth District business contacts indicated that economic conditions improved, albeit at a modest pace, from the previous report. The majority of contacts expect growth to continue at relatively the same pace over the next few months. While the labor market remained tight, wage growth remained subdued for most jobs, with the exception of in-demand or hard-to-fill positions. Most firms noted that nonlabor input cost pressures were muted, though some observed increases related to tariffs, freight, and construction costs. Overall, retail sales grew slightly and automotive dealers remarked that demand for vehicles weakened since the previous report. Hospitality contacts reported solid activity. Residential real estate contacts indicated an improvement in home sales as increased supply reduced price pressures since the end of last year. On balance, commercial real estate conditions continued to advance. Manufacturers cited increases in new orders and production levels. District bankers noted banking activity remained steady.
Employment and Wages
While District business contacts maintained that they continued to add to staffing levels, several contacts communicated that hiring remained limited by tight labor markets. Some firms mentioned setting up satellite locations in larger, metropolitan cities or moving to more populated suburban areas to find workers. In addition, businesses continued investing more heavily in training and development and viewed such expenditures as providing a competitive advantage in both recruiting and retention. More broadly, businesses continued to fine tune their suite of tools used to attract and retain workers through enhanced benefits, renewed focus on culture, visas to employ immigrants, tuition reimbursement, and increased compensation. Reports also indicated that firms continued to invest in automation to offset labor costs.
District firms noted that annual wage increases, on average, remained around 3 percent, though much higher for in-demand and difficult-to-fill positions (e.g., medical professionals, engineers, drivers, skilled laborers, IT professionals, and executives). Some employers shared that although wage growth had successfully helped secure staff, there was little appetite for significant upward movement in 2019.
Prices
Firms across the District noted little change in pricing pressure since the last report. Those impacted by tariffs, freight, and construction costs continued to experience price increases. The Atlanta Fed’s Business Inflation Expectations survey showed year-over-year unit costs were up 2.0 percent in March. Survey respondents also indicated that they expect unit costs to rise 1.9 percent over the next twelve months.
Consumer Spending and Tourism
District retailers reported softening sales growth in February followed by an uptick in sales growth during the first two weeks of March. Automotive dealers reported a decline in demand for February compared to the same period last year. Most retailers expect similar levels of activity over the coming months.
Tourism contacts across the District noted overall activity was good. Advance bookings for 2019 were strong. Contacts noted that demand for hotel rooms continued to be robust even though the window for bookings has become shorter as a result of the increased usage of smartphone travel apps where travelers can take advantage of lower room rates for last minute travel plans. On balance, business sentiment among travel and hospitality contacts is cautiously optimistic for 2019.
Construction and Real Estate
Reports from District brokers and homebuilders came in slightly more optimistic than the previous report as activity moved into the early stages of the spring selling season. The recent moderation in mortgage rates was cited as helping to alleviate some of the pressure on housing affordability in the District. Though still flat or down from a year ago, existing home sales in many markets across the District improved at the start of 2019 from lows experienced at the close of 2018. Inventory levels, albeit increasing on a year-over-year basis, remained low in most markets. Home price appreciation continued to moderate as weaker year-over-year sales and slightly rising inventory levels created less upward pressure on prices. As a result of the spring selling season, the near term outlook among real estate contacts remains positive.
Overall economic growth continued to positively influence and propel commercial real estate fundamentals in most District markets and property sectors. Multifamily occupancies remained tight, and overall rents grew at a more robust pace compared with a year ago. Industrial sector dynamics remained robust, while office fundamentals accelerated. Contacts noted that moderating interest rates may encourage some commercial buyers back into the market.
Manufacturing
District manufacturing contacts indicated that overall business conditions remained solid over the reporting period. New orders and production levels continued to rise, albeit at a slightly slower pace than the previous report. Supply delivery times were reportedly longer, while finished inventory levels increased moderately. Purchasing managers’ expectations for future production levels remained generally positive, with nearly half of contacts expecting higher production levels over the next six months.
Transportation
Transportation activity across the District was largely unchanged since the last report. Ports cited continued growth in containerized cargo, and logistics contacts reported further expansion of e-commerce activity. Demand for warehouse space increased. On a year-over-year basis, however, overall railroad traffic slowed since the previous report, driven primarily by significant declines in farm products, excluding grain, and metallic ores, which were somewhat offset by double-digit increases in grain and primary forest products; intermodal volumes fell substantially over the reporting period.
Banking and Finance
Conditions at financial institutions in the District were stable. Earnings improved due in part to the effects of tax reform changes and the positive impact of increasing interest rates. Overall loan growth was stable although borrowing levels in the consumer portfolio started to decline. Asset quality metrics at financial institutions were strong. Despite the increased competition for deposits, which increased funding costs, transaction accounts remained a significant portion of the deposit base and provided the majority of funding.
Energy
Energy sector contacts described District activity as steady to up from the previous report. Offshore exploration and production increased gradually in the Gulf of Mexico, while onshore shale drilling remained robust. Contacts described petrochemical refining and chemical processing plant expansion activity as balanced from the prior period, yet many expect an uptick in activity in subsequent quarters. Crude oil export terminal project planning and development continued along the Gulf Coast, as businesses aim to capitalize on growing crude oil exports. Firms engaged in natural gas and crude oil pipeline projects noted that construction remained very active. Utilities demand increased across residential, commercial, and industrial sectors, due to the cold weather and an uptick in industrial activity. Utilities contacts shared they were initiating planning for power transmission and distribution projects. Renewables industry contacts also mentioned that various new projects were in the planning stage, particularly construction of wind and solar systems across the U.S.
Agriculture
Agricultural conditions across the District were mixed. Recent reports showed that much of the District was drought-free although some areas experienced abnormally dry to moderate drought conditions. In early March, tornadoes in Alabama damaged several thousand acres of timber. In late-March, weekly cash prices were up for corn and beef, while cotton, rice, soybean, broiler and egg prices were down from a year ago.
For more information about District economic conditions visit: www.frbatlanta.org/economy-matters/regional-economics