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Beige Book Report: Atlanta

March 7, 2018

Summary of Economic Activity
Business contacts indicated that economic activity in the Sixth District continued to expand, albeit modestly, from early January through mid-February. The near-term outlook among District contacts remains positive. On balance, the labor market remained tight and wage pressures were mild. Contacts indicated that non-labor input costs picked up slightly. Retailers cited steady sales since the previous report; however, automobile dealers indicated sales were soft. Tourism activity was robust across most of the District. Residential real estate builders and brokers indicated that home sales and inventory levels were flat to slightly down compared with a year ago. Home prices continued to increase modestly. Demand for commercial real estate continued to improve and commercial construction activity was flat or increased slightly. Manufacturers noted solid activity.

Employment and Wages
District contacts continued to report challenges filling certain positions, particularly in information technology, nursing, some skilled crafts, long-haul transportation, manufacturing, accounting, and low-skill/entry-level positions in many industries. Many employers noted that they continued to broaden their geographical area search for candidates, often pursuing workers from rural areas or from abroad. Firms also resorted to workforce training and education services to increase the pipeline of qualified workers. Additionally, employers further adopted strategies to improve worker satisfaction as an important tool to help attract and retain workers.

Broadly, contacts noted steady but modest wage growth; however, an increasing number of contacts reported either recently increasing wages or plans to do so in the coming months. This narrative was apparent among firms in the transportation, retail, finance, construction, and professional and business services sectors.

Prices
Businesses across the District reported a slight uptick in non-labor input costs and some contacts indicated an ability to pass along price increases. The Atlanta Fed's Business Inflation Expectations survey showed year-over-year unit costs were up 1.8 percent in February. Looking ahead, survey respondents indicated that they expect unit costs to rise 2.0 percent over the next twelve months.

Consumer Spending and Tourism
On balance, District retailers reported steady sales levels since the last report. Recreation retailers noted an increase in sales levels during the first few weeks of the year, while automotive dealers reported a slow start to 2018. The outlook among most retail contacts remains positive.

Travel and tourism contacts across the District noted a strong start to 2018 with growth in business and leisure travel since the last report. Hotel demand was higher than expected in the fourth quarter of 2017; a trend that has carried over into the first quarter of 2018. Contacts in Georgia and Florida cited an uptick in the number of visitors and spending over the first six weeks of the year. The outlook remains positive with healthy advanced bookings across the District through the first quarter of this year.

Construction and Real Estate
Reports from District residential real estate contacts signaled continued modest growth. Builder reports on construction activity in January compared to one year earlier were mixed. Builders and brokers indicated that home sales activity was flat to slightly down from the year-ago level. Many brokers reported buyer traffic was flat to down slightly, while builder reports were mixed. Most builders and brokers said inventory levels were down from one year ago. Builders and brokers noted that home prices increased in January. Looking ahead, brokers and builders expect home sales activity over the next three months will hold steady or increase slightly relative to the year-ago level. Many builders expect the pace of construction activity over the next three months to remain unchanged or to increase slightly.

Many District commercial real estate contacts reported improvements in demand that resulted in rent growth, particularly in industrial and warehouse/distribution properties. However, contacts continued to caution that the rate of improvement varies by metropolitan area, submarket, and property type. The majority of commercial contractors indicated that the pace of nonresidential construction activity was flat to slightly up relative to one year ago. Most contacts indicated that they have a healthy pipeline of activity, with the majority indicating backlogs greater than or similar to the previous year's level. The majority of reports noted that the pace of multifamily construction matched the year-ago level. The outlook among commercial contacts for nonresidential and multifamily construction remained positive, with the majority anticipating activity to match or exceed the current level.

Manufacturing
District manufacturers reported solid overall business activity since the last reporting period. Although most contacts indicated that production levels were holding steady, demand for their products continued to be relatively strong. Firms said that employment levels were flat to slightly up, and most contacts reported that they had open positions they were finding difficult to fill. Firms reported that input costs continued to rise, specifically steel, brass, and copper. In general, contacts are optimistic about future demand, suggesting that they expect sales levels to be up over the short to medium term.

Transportation
District transportation firms cited mixed results since the previous report. Ports continued to see year-over-year increases in container volumes and cargo tonnage. Year-to-date total rail traffic was down by double digits compared with year-ago levels, impacted mostly by decreased shipments of grain, non-metallic minerals, iron and steel scrap, and metallic ores. Intermodal traffic was also down. Trucking firms reported some pricing power amid strong demand and tight capacity.

Banking and Finance
District bankers indicated that credit remained readily available for most qualified borrowers except for some contacts in energy and commercial real estate industries. Banking contacts noted healthy loan pipelines and community banks, in particular, reported good loan demand. Some banks indicated more deposit pressure as short-term interest rates increased.

Energy
Planning and build out of natural gas and crude oil pipelines continued along the Gulf Coast. Contacts indicated that increased spending on pipeline infrastructure and other oil and gas projects intensified labor constraints in an already tight environment for certain skilled crafts. Freezing conditions across the Gulf Coast led a number of refineries to temporarily reduce or cease operations. Some refineries experienced power outages and other technical issues, however contacts indicated that the impact to product supplies was not significant. Persistent and unusual freezing temperatures across the region also caused power consumption to surge, which led to a brief spike in natural gas and heating oil pricing.

Agriculture

Agriculture conditions across the District were mixed. Drought conditions persisted in much of the District. However, rain in February brought some relief. The January forecast for Florida's orange crops was down further from the previous report as the effects of the Hurricane Irma continued to be felt. On a year-over-year basis, prices paid to farmers in December were up for cotton rice, beef, broilers, and eggs and down for corn and soybeans.

For more information about District economic conditions visit: www.frbatlanta.org/economy-matters/regional-economics