September 3, 2014
According to reports from businesses across the Sixth District, economic activity increased modestly from July to mid-August. Regarding the outlook, most firms continue to be optimistic and expect higher growth over the remainder of the year.
Retailers noted sales had increased from their year-earlier level and automobile sales continued on their upward trend. Reports from contacts in the travel and tourism sector remained upbeat. Residential brokers and builders cited that sales of existing and new homes were ahead of last year's levels. Contacts also indicated that inventory levels were mostly down and home prices continued to rise on a year-over-year basis. Commercial real estate firms reported that demand continued to improve and construction activity grew modestly, on balance. With the exception of motor vehicle producers, manufacturers generally noted a decline in new orders and production compared with the previous reporting period. Bankers reported mixed results regarding financing conditions as they remain cautious about residential lending but competitive in their commercial lending. Businesses indicated modest increases in hiring across much of the District over the reporting period. Firms cited relatively stable wage growth, while input cost pressures were described as benign.
Consumer Spending and Tourism
According to District merchants, retail sales weakened slightly since the last report, though they remained above their year-earlier level. Retailers indicated that margins remained tight. Back-to-school sales got off to an early start but have been dominated by heavy promotional activity and discounting. Once again, several contacts reported that a strong housing market in their area had boosted retail sales. The outlook among District retailers is a bit more guarded than in our last report but most businesses anticipate sales will improve through year end. District auto dealers noted that sales were ahead of their year-earlier level; as in the broader retail sector, promotional activity was strong.
Reports from travel and tourism contacts were positive. Hospitality contacts in Georgia, Florida, and Louisiana saw increased occupancy and daily room rates in July compared with the same period last year. Reports indicated that theme park attendance and ticket sales early in the summer were softer than expected as family vacations were delayed because of the addition of winter makeup days at the end of the school year. However, activity picked up to anticipated levels as the summer progressed. Mississippi casino gaming revenues increased compared with a year ago. Industry contacts expect business and leisure travel to exceed forecasts for the remainder of 2014.
Real Estate and Construction
Many District brokers reported that home sales had increased from their year-earlier level. The majority of brokers indicated that inventory levels remained flat or declined on a year-over-year basis. Contacts continued to note that home prices were ahead of their year-earlier level. However, the outlook among brokers worsened somewhat from previous reports as most expect home sales to remain flat or decline slightly over the next three months.
Reports from District builders remained fairly positive. Most indicated that recent activity either met or exceeded their plan for the period. The majority of builders noted that construction activity and new home sales were ahead of year-ago levels. Half of builders reported that inventories of unsold homes were down from a year earlier. The majority of contacts continued to see modest home price appreciation. The outlook for new home sales and construction activity remains positive.
Demand for commercial real estate continued to improve since the last reporting period. Contacts indicated that absorption and rent growth across property types remained positive. Contractors noted that apartment construction remained fairly strong and that the level of construction activity across other property types had picked up modestly. Half of contacts reported no change in backlogs from their year-earlier level, while the remaining half indicated their backlog had increased relative to a year ago. The outlook among District commercial real estate firms also remains positive.
Manufacturing and Transportation
District manufacturers indicated that the pace of growth had slowed over the reporting period. Contacts cited declines in new orders and production compared with the previous reporting period. Purchasing agents noted longer wait times for materials ordered from their suppliers. Finished inventory levels were reported to have increased somewhat. The outlook among manufacturers for higher production improved slightly from the previous reporting period.
Reports from district transportation firms were mixed. Trucking companies noted strong freight volumes; however, driver shortages and tight trucking capacity continued to negatively affect the industry. Air cargo experienced slight increases in tonnage led by a rise in international freight. District rail contacts cited double-digit increases in domestic coal volumes as export coal volumes declined, and shipments of petroleum products nearly doubled from their year-earlier levels. Increased capital expenditures on rail infrastructure and rail car capacity were also noted.
Banking and Finance
Bankers reported that they were well capitalized and had plenty of money to lend. However, banks continued to be cautious with regards to residential lending. Availability of credit to homebuyers, particularly first-time homebuyers, remained limited as rigorous underwriting standards continued to slow down the approval process. Contacts reported a decrease in mortgage loan production due to difficulties associated with the Qualified Mortgage Rule. Lender competition for commercial loans continued to be fierce. Consumer credit availability improved since the previous report. Auto loan demand remained very strong over the reporting period.
Employment and Prices
Employment levels picked up modestly across most of the region; however, businesses still mentioned difficulties in finding qualified workers, which seem to be both intensifying and broadening across skills and occupations. In addition to trucking, engineering, construction, and information technology positions, contacts increasingly reported difficulty filling mid-level positions such as analysts and clinicians.
Most contacts continued to cite relatively stable annual wage growth in the 2 percent to 3 percent range. However, there were some reports of rising offer wages and ongoing upward wage pressure for some high-skill, low-supply positions. Overall, however, businesses continued to report relatively benign input-cost pressures. Only a few companies noted plans to increase prices over the remainder of the year and expressed confidence that any increases would stick. According to the Atlanta Fed's survey on business inflation expectations, unit costs are expected to increase 2.0 percent over the next 12 months.
Natural Resources and Agriculture
Gulf Coast refineries have experienced record-high utilization rates over the summer as a result of refining, refitting and capacity expansions, increases in both domestic and foreign demand, and access to lower-cost crude oil. Energy firms expect sustained growth in the coming months, yet continue to monitor volatile global events because of their potential to affect crude oil supply and energy prices.
Parts of Georgia, Florida, and Alabama experienced abnormally dry to moderate drought conditions over the reporting period, while the rest of the District ended the period drought free. The USDA designated several counties in the Florida Panhandle as primary natural disaster areas due to damages and losses caused by excessive rain earlier this year. Lower corn prices benefited livestock and poultry producers that rely on corn for feed. Pulp exports were robust as a result of increased demand for low-end paper products from emerging markets.