Beige Book Report: Atlanta
March 8, 2023
Summary of Economic Activity
The Sixth District economy grew at a modest pace from January through mid-February. Labor markets improved somewhat amid persistent wage pressures. Many nonlabor costs increased, particularly food, utilities, and insurance; however, freight and shipping costs moderated. Low-income families continued to face barriers to full-time employment opportunities, and rising food and gas prices further strained household budgets. District retail sales exceeded expectations, and auto sales remained solid. Leisure travel activity showed continued strength, and business travel grew. Housing demand improved slightly as mortgage rates fell. Commercial real estate activity slowed. Transportation activity was mixed. Loan growth at financial institutions was solid, but delinquency rates rose slightly. On balance, energy demand was strong. Agricultural conditions remained mixed.
Labor Markets
Labor market pressures continued to ease since the previous report; however, contacts still described conditions as tight, especially among front-line, skilled trades, and IT positions. Most firms continued to hire. Layoffs or hiring freezes were noted by a few contacts, but they were largely limited in scope. Restaurants continued to close dining rooms and other firms noted postponing planned projects due to lack of available labor. To combat labor shortages, firms reported investments in training to upskill employees and capital expenditures in technology to reduce reliance on labor. Overall turnover has eased somewhat but not among hourly paid staff, who continued to change jobs for higher pay. Several employers also noted that affordable housing and childcare availability and costs further restrained the supply of workers at all levels.
Wage pressure remained persistent, though some easing was noted. Several contacts indicated that the wage levels for various positions, especially lower wage jobs, jumped significantly over the last year. Upward wage pressure is expected to persist this year, but many firms are targeting more modest increases than last year.
Prices
District contacts noted moderation in freight and shipping costs along with improvements in supply chain imbalances over the reporting period. Some construction inputs, like lumber, saw prices decline, while concrete prices rose, increasing building project costs, on balance. Food and utilities costs also rose, further straining businesses' balance sheets. Rising insurance costs and wages were cited most often as risks to the business outlook over the coming year. The Atlanta Fed's Business Inflation Expectations survey showed year-over-year unit cost growth at 3.5 percent, on average, in February, down from 4.3 percent in January. Firms' year-ahead inflation expectations were relatively unchanged at 2.9 percent in February, on average.
Community Perspectives
District nonprofits serving low-income households noted that rising wages have not yet offset obstacles (e.g., access to childcare and transportation, affordable housing) challenging their ability to hold traditional full-time employment. Some workers have chosen part-time jobs, self-employment, and participation in the gig economy to maintain needed flexibility. Elevated food and gasoline prices continued to impact household cash flow. Consumer-facing contacts noted that rising prices resulted in increased use of credit for routine purchases.
Consumer Spending and Tourism
District retailers reported higher-than-expected sales levels over the reporting period. Pent-up demand continued to fuel solid automobile sales. Despite ongoing inflationary pressures and rising interest rates, retail and auto contacts cite cautious optimism for the first half of the year.
Travel and tourism contacts noted continued strong demand, on balance, for leisure travel accompanied by positive growth in business travel and conventions. Hotel occupancies and average daily rates were above pre-pandemic levels, although there was a slight softening in on-premises spending, such as for spa services and gift shop purchases. Hotel bookings for spring break were reported as healthy.
Construction and Real Estate
Although purchase transactions remained substantially below year ago levels, housing demand improved slightly since the previous report as mortgage rates edged lower. Contacts indicated marginal increases in buyer traffic and sales in January as mortgage rates moderated from the highs experienced in October 2022. Though down from peak levels, year-over-year home price appreciation throughout the District was slightly stronger than the nation as a whole. Affordability remained a significant headwind primarily for entry-level buyers, and a larger share of homes sold at a discount from the asking price. New home builders continued to experience a high rate of cancellations and the majority offered incentives to attract buyers.
Commercial real estate (CRE) contacts reported slowing market conditions in lower-tier office, multifamily, and certain segments of retail. The downward trend in the office sector eased further as more employers required staff to return to the office; however, heightened levels of sublease space remained an impediment to market recovery. Concerns regarding declining CRE values accelerated. Contacts reported increases in operating expenses and slowing or negative net operating income and rent growth. Additionally, firms continued to report instances of declining asset prices and buyers seeking greater concessions.
Transportation
Transportation activity was mixed over the reporting period. Railroads experienced significant declines in shipments of farm products, pulp and paper, non-metallic minerals, and pet coke, which were offset by increased carloads of coal, metallic ores, aggregates, and primary metal and forest products; intermodal freight volumes fell significantly. Air cargo contacts reported stable demand. Freight brokerages noted that revenue per load declined as trucking capacity rose. District ports saw increases in exports, vehicle imports, and heavy machinery exports amid slowing container volumes.
Banking and Finance
District financial institutions reported solid loan growth across all portfolios, particularly in construction and development loans. The level of unrealized losses in securities portfolios improved marginally but remained high compared to year-earlier levels. Financial institutions reported placing additional reliance on higher cost alternatives as a source of funding amid slow deposit growth and elevated unrealized losses. Delinquency rates rose slightly, especially for loans past due 90 days or more, though the levels remain below historical norms.
Energy
Crude oil refining and petrochemical manufacturing contacts continued to report strong demand, although contacts noted that demand for chemicals related to adhesives and steel manufacturing fell. A few contacts described reduced investment in the gasoline industry as demand for gasoline slowed amid improvements in fuel efficiency and growing demand for electric vehicles. The ongoing trend in renewable energy investments remained robust. Utility providers reported strong demand across segments and continued infrastructure investment.
Agriculture
Agricultural conditions remained mixed. Demand for beef increased, especially for calves, following the downsizing of Texas herds during the recent drought. Demand for milk declined amid reduced exports of powdered milk to China, and demand for butter fell from high levels. Cotton demand remained weak. While Florida's production of citrus fruits was limited by tree damage, demand remained strong. The Avian flu continued to limit the supply of eggs, which are generally sold domestically, and to drive prices upward. However, Avian flu-related restrictions on exports substantially softened global demand for poultry meat, thus increasing domestic supply; poultry companies reported losing money amid high costs and falling prices.
For more information about District economic conditions visit: https://www.atlantafed.org/economy-matters/regional-economics.aspx