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Beige Book Report: Atlanta
April 14, 2021
Summary of Economic Activity
On balance, economic activity in the Sixth District expanded modestly from mid-February through March. Labor market conditions improved, and wage pressures remained muted. Some nonlabor costs continued to rise, and pricing power was mixed. Retail sales activity rose, and auto sales increased. Tourism and hospitality activity strengthened as hotels reopened and capacity limits were eased. Housing demand was steady, but inventories of new and existing homes remained constrained. Overall, home prices continued to rise. Commercial real estate conditions were mixed. Manufacturing activity was strong and new orders and production levels increased. Conditions at financial institutions were steady, however loan demand remained slow.
Employment and Wages
Sixth District contacts reported improvements in labor market conditions since the previous report. While the remote work stance remained in place for many firms, some began bringing employees back into the office or were making plans to do so over the coming months as vaccine accessibility increases. A majority of contacts anticipate hybrid work models will become the norm for many office workers, and some firms plan to utilize full-time remote positions to attract and retain workers for hard-to-fill positions. Among on-site workers, absenteeism due to illness was down sharply and some firms have eliminated pay premiums and leave policies related to COVID-19. The ability to attract and hire employees varied considerably among contacts, depending on the industry. For example, challenges to fill commercial driver and nursing positions remained. While firms in the hospitality sector were generally successful at filling permanent positions, temporary positions were extremely difficult to fill. Employers noted that unemployment insurance benefits have made it hard to attract workers for temporary and low-wage positions. Some noted that child-care and concerns about COVID-19 exposure continued to lessen worker availability as well.
Most contacts noted that wage pressures remained subdued and mostly limited to occupations in short supply such as nurses, commercial drivers, and warehouse workers. Despite shortages of low-wage workers, there seemed to be less talk of raising wages as compared with reports of late last year. Many expect normal merit increases during 2021, with higher increases in critical and high-demand fields.
Consistent with previous reports, input costs, particularly for lumber, steel, transportation, and shipping continued to rise over the reporting period. Some contacts expect a portion of these increases to diminish as supply chain constraints ease. Reports on pricing power were mixed. Industries with strong demand have managed to pass through most input cost increases, while others plan to implement price increases over the coming year as activity returns. The Atlanta Fed's Business Inflation Expectations survey showed year-over-year unit costs were relatively unchanged at 2.2 percent on average in March. Year-ahead expectations increased to 2.4 percent in March, up from 2.2 percent in February.
Consumer Spending and Tourism
District retailers reported an increase in sales since the previous report. Some contacts noted that spending by consumers, driven by increases in tourism, rose above 2019 levels. Automobile dealers noted that auto sales levels continued to improve, even as production and inventory levels have been adversely affected by chip shortages.
District travel and tourism contacts reported a significant uptick in leisure travel activity since the previous report. Many hotels fully reopened and reported occupancy levels in the 80-90% range over the first three weeks in March. Restaurants and attractions reported a continuation of COVID-19 capacity limits; however, demand in some areas of the District exceeded capacity. Hospitality contacts noted solid bookings for the remainder of spring and through the summer months and beyond.
Construction and Real Estate
Despite a slight uptick in mortgage interest rates, housing demand throughout the District remained steady. Existing home sales continued to increase over year-earlier levels. Meanwhile, existing home inventory levels contracted as homes for sale did not keep pace with demand. As demand for new homes continued to surge throughout the District, builders noted persistent challenges with rising material and labor costs. Both existing and new home prices continued to rise. Although low interest rates have kept housing moderately affordable overall, affordability declined in many markets as prices rose. Mortgages either in forbearance or in delinquency remained elevated, especially in tourism-dependent markets like Central and South Florida, as well as rural areas along the Gulf Coast.
Commercial real estate contacts reported that the sector remained somewhat hindered by the effects of the COVID-19 pandemic. Conditions in the retail segment improved modestly as more stores reopened, and consumer spending at traditional retail establishments rose. Multifamily conditions were mixed; however, leasing activity appeared to pick up in some of the harder hit areas. Office dynamics struggled across the District as more space was delivered and absorption was negative.
Manufacturing contacts reported a solid increase in overall business activity since the previous report. New orders and production levels rose at a robust pace. Supply delivery times increased significantly due to challenges in supply chains, while finished inventory levels grew slightly. Expectations for future production remained optimistic, with almost two-thirds of contacts expecting higher levels of production over the next six months.
Transportation activity expanded moderately, on net, since the previous report. Railroads experienced considerable growth in intermodal traffic as compared with year-earlier levels, largely offset by substantial declines in shipments of grain and farm products, petroleum and petroleum products, aggregates, and motor vehicles and parts. Air cargo contacts noted significant improvements in freight volumes over the reporting period. District ports saw strong container cargo activity. Most transportation contacts expect continued growth in activity over the next six months.
Banking and Finance
Conditions at District financial institutions were steady. Banking contacts reported that cash balances continued to increase as deposits remained elevated, and overall loan demand weakened. Net interest margins remained compressed. Financial institutions also continued to add to their securities portfolios. Loan portfolio balances remained flat across most portfolios with commercial real estate balances declining slightly. Increases to loan loss reserves have slowed as credit quality has not deteriorated.
Contacts reported that domestic demand for energy products picked up gradually over the reporting period. Fuel delivery and carrier capacity remained tight as trucks worked to clear backlogs resulting from February's winter storms and fuel supply issues caused delivery delays. Renewable generation projects geared up, especially solar power, biodiesel, and renewable diesel. Industrial construction contacts noted that craft workers remained sidelined, waiting for activity to pick up. Utilities contacts cited continued softness in commercial and industrial segments, while residential markets remained elevated. Overall, District energy contacts noted an improved recovery outlook.
Agricultural conditions remained mixed. Abnormally dry conditions persisted in some areas. On a month-over-month basis, the March production forecast for Florida's orange crop was down while the grapefruit production forecast was unchanged; both forecasts were below last year's production. The USDA reported year-over-year prices paid to farmers in February were up for corn, cotton, soybeans, broilers, and eggs but down for cattle and milk; rice was unchanged. On a month-over-month basis, prices increased for corn, cotton, rice, soybeans, cattle, broilers, and eggs, but decreased for milk.
For more information about District economic conditions visit: www.frbatlanta.org/economy‐matters/regional‐economics