Beige Book Report: Atlanta
October 19, 2022
Summary of Economic Activity
Economic activity in the Sixth District grew slightly from mid-August through September. Labor market pressures continued to ease, but labor availability largely remained tight. While wage pressures persisted, some easing was reported, and firms continued to offer a variety of incentives to employees. Certain commodity costs moderated while other nonlabor costs, such as freight and fuel, rose. Many firms reported continued pricing power. Retailers reported flat year-over-year unit sales. Demand for automobiles increased, and inventory levels grew. Leisure travel activity softened, but business and convention bookings continued to improve. Demand for housing slowed amid persistently high prices and rising mortgage interest rates. Commercial real estate activity remained mixed. Manufacturing activity was robust, though demand for certain discretionary products slowed. Transportation activity was mixed. At District banks, overall loan growth improved, but deposit growth slowed further since the previous report. Hurricane Ian made landfall in southwest Florida at on September 28, too late to collect input from business contacts for this report. The storm devastated many communities across the state, and its impact will inform reporting in the coming months.
Labor Markets
Labor market pressures modestly eased since the previous report; turnover rates held steady or had improved by most accounts. However, conditions remained tight as many firms remained understaffed and continued to backfill open positions, particularly among healthcare, manufacturing, and commercial construction firms. Some contacts noted that there was greater availability of hourly workers; however, most firms indicated that workers were resistant to overtime scheduling. Employers continued to focus on efforts to attract and retain workers through increased wages and bonuses, and enhancements to benefits. To address labor shortages and save costs, several contacts reported offshoring positions in addition to continued investments in automation.
Most employers reported upward wage pressures, although several indicated that pressure had eased in recent months. Bonuses for retention, performance, sign-on and referral continued to be reported. Several contacts said that wage increases would be more targeted going forward and many indicated a greater focus on enhancements to benefits including attractive scheduling, flexible work arrangements, expanded healthcare coverage, and more vacation.
Prices
District contacts noted moderation in some commodity costs like aluminum and resin over the reporting period, but supply chain imbalances remained an issue for planning and contract negotiations. Even as some input costs eased, a few contacts mentioned increasing costs for freight (a reversal of sentiment from the previous two reports), labor, and fuel. Some contacts noted strong pricing power as buyers hedged against future price hikes and/or uncertainty around supply availability. The Atlanta Fed's Business Inflation Expectations survey showed year-over-year unit cost growth decreased to 4.1 percent, on average, from 4.3 percent in August. Firms' year-ahead inflation expectations decreased to 3.3 percent, on average, from 3.5 percent in August.
Consumer Spending and Tourism
Retailers reported flat unit sales compared to the same time period last year. Auto inventories improved and automobile dealerships reported healthy demand for new vehicles. Retail and auto contacts remain cautiously optimistic for the remainder of the year.
Demand for leisure travel was described as normalizing down to pre-pandemic levels. Business and convention travel was noted as healthy with strong bookings for the Fall season.
Construction and Real Estate
Residential real estate contacts reported continued slowing in housing demand throughout the District as record high home prices and rapidly rising interest rates pushed more potential buyers out of the market. Home sales in most areas throughout the District declined sharply on a year-over-year basis. Though rising, inventory levels remained low in many markets, leading to still record high, year-over-year price appreciation in places like Tampa, Nashville, and Orlando. The share of homes on the market with a reduced asking price continued to rise over the reporting period. New home builders reported further moderation in activity since the previous report. Buyer traffic at new subdivisions declined, contract cancellations rose, and more builders offered incentives to attract buyers.
Commercial real estate (CRE) activity was mixed. Multifamily and industrial market conditions were stable, though some contacts voiced concerns that negative sentiment associated with a potential economic slowdown curbed some activity over the reporting period. Demand for lower-tier office and some segments of retail slowed somewhat. More firms returning to the office appeared to be mitigating some of the downward trend in the office sector; however, heightened levels of sublease space remained an impediment to market recovery. Contacts reported increasing concerns about possible declining CRE values amid a widening bid-ask spread and expectations for potential negative net operating income. There were more instances of buyers seeking greater concessions, shrinking pools of buyers, and declining prices in some of the less robust property types.
Manufacturing
District manufacturers reported solid activity, on balance, over the reporting period. According to the Atlanta Fed's Business Inflation Expectations Survey, manufacturers' sales levels increased slightly, and profit margins widened somewhat. However, a softening of demand was noted by producers of certain discretionary consumer products. Shortages of certain inputs and employee turnover continued to hold back production for some manufacturers.
Transportation
Transportation activity remained mixed. District ports continued to experience substantial year-over-year increases in container volumes; however, shipments of auto imports remained below 2019 levels. Trucking contacts saw increases in freight tonnage compared with year-earlier levels, citing rising industrial demand and a rebound in retail sales since the previous report. Year-to-date total rail traffic fell slightly from 2021 levels and intermodal freight was flat. Air cargo carriers reported a slowdown in activity, but revenues remained well above pre-pandemic levels.
Banking and Finance Conditions at District financial institutions were similar to the previous report. Including residential mortgages, loan growth for a majority of portfolios was positive. However, growth in consumer loans, particularly vehicle loans, slowed. Deposit growth declined and institutions increased borrowing as a source of funding. Additions to securities portfolios slowed and unrealized losses increased. Asset quality remained healthy, but near-term delinquencies trended higher.
Energy
Energy contacts indicated that oil and gas production was strong; however, getting products to market continued to be constrained by limited pipeline capacity. Refiners described high utilization and solid overall demand, although it has fallen from its summer peak. Broadly, contacts continued to report upward pressure on input costs, including operating expenses, parts and equipment, and services, and described very little easing of supply chain bottlenecks. Utility providers reported rising demand for power among commercial, residential, and industrial customers. Many energy contacts continued to report increasing their investment portfolio in renewables, particularly solar, wind, and biodiesel.
Agriculture
Agricultural conditions in the District were mixed. Cotton growers noted some softening, which was attributed to slowing demand for textiles. Cattle ranchers reported strong sales and increased prices for livestock. Demand for chicken was strong amid reports of domestic consumers trading down from other protein sources; however, poultry exports weakened due to concerns by foreign importers over avian flu outbreaks. Row crop production remained solid, but farmers were hesitant to invest in equipment amidst concerns over future crop demand.
For more information about District economic conditions visit: https://www.atlantafed.org/economy‐matters/regional-economics.aspx