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Atlanta: July 2022

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Beige Book Report: Atlanta

July 13, 2022

Summary of Economic Activity
Economic activity in the Sixth District expanded modestly from mid-May through June, albeit at a slightly slower pace. Labor markets remained tight and wage pressures persisted. Some nonlabor costs continued to rise. Firms' pricing power remained steady. Retailers experienced solid demand, on balance, and demand for new autos increased but was hindered by low inventory; used vehicle sales declined Leisure travel activity was robust, and business travel improved. Demand for housing slowed amid record home prices and rising mortgage interest rates. Commercial real estate activity remained mixed. Manufacturing demand remained strong. Transportation activity was mixed. Deposit growth slowed at financial institutions, but demand for loans increased.

Labor Markets
Labor market conditions were largely unchanged from the previous report. Most contacts continued to report tightness. Competition for employees remained high and turnover was elevated by most accounts; some reported modest improvements in labor availability. Firms continued to adapt their businesses and policies, including more widespread adoption of flexible work arrangements, to attract and retain workers. Some firms reported shifting the composition of their workforce to more part-time staff to reduce benefits costs or attract candidates in or near retirement. Contacts reported increasing training and workforce development efforts to upskill staff, and some were streamlining operations, enabling them to grow without the need to hire.

Reports of upward pressure on wages persisted, particularly among lower-wage positions. Firms noted providing recruitment and retention bonuses, and a number reported giving bonuses to help offset higher gas and housing costs. Several employers anticipate wage pressures to subside later this year.

District contacts noted continued cost increases over the reporting period, particularly for concrete, steel, and petroleum-based products like plastics and resin. Several contacts, however, noted a slight decrease in freight costs due to slowing demand. Pricing power was described as moderately stable. The Atlanta Fed's Business Inflation Expectations survey showed year-over-year unit cost growth ticked up slightly to 4.3 percent, on average, from 4.2 percent in May. Firms' year-ahead inflation expectations remained unchanged at 3.7 percent, on average.

Consumer Spending and Tourism
District retail contacts reported healthy sales levels, on balance, since the previous report; however, some segments, such as furniture and apparel, experienced a slight softening. Rising gas and food prices were noted as cause for growing uncertainty for the remainder of the year. Automotive dealers reported strong demand for new vehicles, which continued to be hampered by inventory shortages, while used vehicles sales declined.

Travel and tourism contacts reported that business travel and convention activity continued to recover, with solid bookings for the fall. Leisure travel activity remained robust as summer began. While travelers' per capita spending remained elevated, contacts shared concerns about rising prices weakening long-term demand.

Construction and Real Estate
Housing demand throughout the District continued to slow as affordability declined. Home prices reached record levels while mortgage rates rose sharply. The combination of these factors led to a sharp drop in affordability throughout the District. Mortgage originations and pending sales fell in most markets compared with year-earlier levels, as more potential buyers were priced out of the market. Still, the number of days on market remained near record lows. Supply chain disruptions and cost inflation moderated somewhat for new homes. However, builders reported greater buyer resistance to price increases and the need to offer incentives, such as covering closing costs, to sell homes.

District commercial real estate (CRE) contacts reported strong demand in the multifamily and industrial segments. However, concerns regarding a slowdown in the industrial market grew over the reporting period. In the lower-tier office segment, contacts reported a slight deceleration. Employers' returning to the office mitigated some of the downward trend in the office sector; however, heightened levels of sublease space remained an impediment to recovery. Some CRE contacts reported elevated concerns regarding potential declines in CRE values. Contacts noted increased instances of buyers seeking concessions, shrinking pools of buyers, and declining prices in some property sectors.

District manufacturers reported continued strong demand and increased revenues, on balance. However, several firms indicated that production remained hindered by supply chain disruptions and persistent employee turnover. A few contacts reported some slowing in sales which resulted in cancelled shifts and an elimination of overtime. Some firms cited increasing uncertainty about future production amid rising interest rates and costs, and ongoing concerns over supply chain interruptions.

Transportation activity in the District was mixed. Port contacts again cited record container volumes. In air cargo, demand remained robust even as carriers raised prices. Activity for inland barge companies was flat since the previous report. Railroads experienced continued declines in total rail traffic, but intermodal traffic improved slightly. Trucking firms reported further slowing in domestic freight and an easing of capacity constraints. While expected to eventually dissipate, contacts suggested that supply chain disruptions could persist for the next year or beyond.

Banking and Finance
Activity at District financial institutions slowed amid rising interest rates. Mainly, deposit growth decelerated, and financial institutions slowed expansion of securities portfolios. Still, most loan portfolios grew, except for construction and development loans at larger institutions. Some portfolios, such as agriculture loans and credit cards, experienced higher delinquency rates, though those rates remained below pre-pandemic levels. The allowance for credit losses, as a percentage of nonperforming loans, remained sufficient for the existing credit environment.

Demand for refined products was robust. Oil refining remained at historically high production levels and some refiners delayed maintenance projects to ensure supply availability. Natural gas production rose, and exports soared amid increasing global demand. Contacts reported planned or ongoing domestic pipeline projects to transport natural gas from producers to processing plants and/or export terminals. Utility contacts reported that the recent heat wave put pressure on utility systems and some regions were at high risk of interrupted service due to heightened demand and insufficient generation capacity. Utilities also experienced higher fuel and power costs which are expected to eventually result in higher utility bills for customers. Investment in renewables remained robust, particularly in solar and offshore wind, as well as recently announced carbon capture facilities in the District.

Agricultural conditions remained mixed. Most of the District was drought free. On a month-over-month basis, the June production forecast for Florida's orange crop increased slightly from the previous forecast, but was still well below last season's production. The USDA reported year-over-year prices paid to farmers in April were slightly up for cattle corn, cotton, eggs, milk, soybeans, rice, and broilers. On a month-over-month basis, prices decreased for broilers, corn, cotton, eggs, milk, rice, and soybeans. Cattle prices were unchanged.

For more information about District economic conditions visit:‐matters/regional-economics.aspx