Beige Book Report: Atlanta
September 6, 2023
Summary of Economic Activity
The economy of the Sixth District grew at a modest pace from July through mid-August. Labor availability and retention improved, and wage pressures eased. Nonlabor input costs moderated further, and pricing power diminished somewhat. Retail sales were strong. New auto sales were robust; the sale of used vehicles slowed. Domestic leisure travel slowed while business and international travel improved. Housing demand was healthy, existing home inventories remained low, but new home inventory increased. Commercial real estate conditions were mixed. Transportation activity softened. Loan growth was solid except for consumer loans, and delinquencies remained low. Energy demand was strong amid high summer temperatures. Agriculture demand was unchanged.
Labor Markets
Most contacts continued to report improvements in labor availability and retention; however, some firms slowed the pace of hiring or reduced headcount. Despite improvements, labor availability remained a top priority for employers. Some expected skill shortages to persist and were investing in technology and automation to reduce reliance on a shrinking workforce. Employers in south Florida and along the Gulf Coast reported that the cost of living, particularly housing, restricted the supply of workers. Employers noted a growing preference among workers for fewer work hours and greater flexibility. Reactions to a new Florida immigration law were mixed; several noted no impact to business, while others said workers were leaving the state.
Wage growth remained elevated as compared with pre-pandemic levels, but most firms noted that wage pressure had eased, and many anticipate further moderation next year. Some contacts said that lower-wage workers continued to be attracted away for higher pay, better working conditions, and greater scheduling flexibility.
Prices
Contacts described nonlabor input costs as continuing to stabilize, though they were still higher than 2019 levels. Notable exceptions included rising construction input costs (like concrete and electrical equipment), which were in contrast to price deflation in some food products (like eggs and corn). Property and liability insurance costs in coastal areas remained a top concern regarding housing affordability and firms' investment plans. Pricing power was largely reported as eroding, though most firms were holding prices steady. The Atlanta Fed's Business Inflation Expectations survey showed year-over-year unit cost growth was little changed at 3.3 percent, on average, in August, from 3.2 percent in July. Firms' year-ahead inflation expectations decreased in August to 2.5 percent, on average, from 2.8 percent in July.
Community Perspectives
Contacts serving low-income communities described economic conditions as largely unchanged to slightly declining. Capital and credit deployment to small businesses slowed due to rising borrowing costs and tighter underwriting standards. Lenders and investors expect an increase in small business capital availability with the roll out of federal programs like the State Small Business Credit Initiative. On the consumer side, several finance and credit contacts noted that delinquency rates for automobile loans and some credit card accounts rose slightly, and elevated auto delinquencies among lower-income populations are anticipated going forward. Contacts also noted that demand for food and housing assistance remained higher than pre-pandemic levels.
Consumer Spending and Tourism
District retailers reported that consumer spending was robust, largely attributed to the strength in employment. Contacts continued to describe spending shifts away from discretionary items, though demand for high-end luxury products remained strong. Automobile dealers reported that rising inventory levels and demand for new vehicles drove robust sales; the pace of growth for used vehicle sales slowed.
Tourism contacts reported that demand for leisure travel slowed, which was considered a normalization of activity and aligned with expectations following pandemic-driven, pent-up demand. International, group, and business travel continued to improve but were not back to 2019 levels. Advanced bookings for the Fall were meeting expectations.
Construction and Real Estate
The housing market throughout the District remained healthy despite higher mortgage rates. Although the pace of sales was below that of a year ago, home prices continued to rise in most markets. Supply shortages in the resale market persisted, as homeowners with low-rate mortgages were reluctant to sell. The share of new home inventory increased as builders ramped up construction to meet demand. Builder contacts indicated an increased reliance on rate buydowns as an incentive to attract buyers. Builder optimism fell, however, as rising interest rates and construction costs put strains on affordability and buyers' ability to qualify.
Commercial real estate conditions slowed. Activity decelerated for high-end multifamily units and industrial real estate. More contacts reported growing concerns about financing, as lenders heightened underwriting standards and reduced funding commitments. Contacts reported challenges with the availability of financing for office space, and transaction volume continued to deteriorate. Participants noted growing uncertainty amid declining asset values.
Transportation
Demand for transportation services varied by industry segment, but was on average, depressed. Trucking firms reported a continued slump in freight volumes, and e-commerce activity slowed. International air freight remained sluggish amid a global supply chain recovery and geopolitical issues that strained trade flows. Ocean carriers reported strong exports to the Middle East and Asia from the U.S., but trade with Europe softened. Imports from China fell. Ports experienced mixed demand. Railroads noted fewer shipments of consumer goods, resulting from the rightsizing of inventories and mixed consumer spending, but they saw strong activity in energy, automotive, equipment, and metals.
Banking and Finance
District financial institutions reported sustained solid loan growth across most portfolios, with the notable exception of auto and other consumer loans. Most institutions have yet to report significant increases in delinquencies. Financial institutions continued to fund loan growth using large time deposits and other borrowings as they faced increased competition for core deposits. The rising cost of funds put more pressure on net interest margins, slowing earnings growth. Despite changes in interest rates, financial institutions reported stability in their securities portfolios with unrealized losses still elevated compared with pre-pandemic levels.
Energy
Demand for and supply of energy were described as normalizing, and contacts noted ample reserves to handle increased demand resulting from high summer temperatures. Investment in renewables drove additional capacity for utilities companies. Contacts reported robust activity in plant expansions for oil and gas refineries, chemical manufacturers, and low carbon and green energy projects. Related to increased energy production, contacts described strong demand for onshoring large-scale modular plant construction since some chemical, petrochemical, and liquefied natural gas customers were "burned" by offshoring these builds over the last several years, which resulted in late delivery and poor-quality structures.
Agriculture
Agricultural conditions were little changed since the previous report. Demand for cattle was strong. Egg supply increased, but the supply of hens remained lower than normal. The supply of chickens continued to exceed demand, although there was some improvement in the market. There continued to be excess supply of milk in the market. Many row crops were expected to have a strong harvest. Demand for cotton remained weak, leading some growers to exit the cotton market.
For more information about District economic conditions visit: https://www.atlantafed.org/economy-matters/regional-economics.aspx