December 3, 2014
Reports from Sixth District business contacts remained largely positive with most noting that economic conditions were improving at a steady pace over the reporting period. Most contacts are optimistic about the near-term outlook with nearly all contacts either expecting growth to be the same or higher than the most recent reporting period.
Retail sales were up slightly from the previous report while auto sales across the District were stable at a high level. Reports from the hospitality sector remained positive as the sector experienced increased activity from both domestic and international travelers. Residential real estate contacts noted that existing and new home sales were flat to slightly down from a month ago. Home prices improved modestly and inventory levels were relatively flat for both brokers and builders. Commercial real estate contacts reported increased activity, particularly in apartment construction. Manufacturers indicated that new orders and production increased since the previous report. Bankers indicated that loan activity was flat to slightly up for the reporting period. The District continued to experience modest job growth. On balance, input cost and wage pressures remained subdued.
Consumer Spending and Tourism
Since the previous report, District retail contacts indicated that sales were up slightly. Some noted that the recent decline in gasoline prices allowed consumers to shift some of their spending towards discretionary items. Light vehicle sales continued at a relatively strong pace. Looking ahead, District retailers are optimistic about the upcoming holiday season.
Reports on leisure and business travel remained positive since the previous reporting period. Hospitality contacts reported high occupancy rates at hotels and resorts, and the number of domestic and international visitors to the District increased from a year ago. Tourism contacts anticipate a robust holiday season and a solid start to 2015 with strong advance bookings in the hotel and conference segments for the first two quarters of next year.
Real Estate and Construction
District brokers indicated that growth in home sales has slowed since the previous report. A growing share of contacts reported that home sales fell short of their plan in October, and most contacts noted that home sales were flat or down slightly compared with a month ago. Brokers continued to report modest home price appreciation. The majority of brokers indicated that inventory levels remained flat from the prior month's level and noted that buyer traffic was flat to down. Brokers indicated that they expect home sales to remain flat or decline slightly over the next three months.
Reports from District builders have been a bit less positive, on net since the previous report. A majority indicated that construction activity met their plan in October, but that new home sales had fallen short of their plan. Many builders characterized construction activity and new home sales as flat to slightly down from the previous report, while the inventory of unsold homes was flat to slightly up. They continued to report modest home price appreciation. Their outlook for new home sales and construction activity over the next three months was mixed.
District commercial real estate brokers continued to report improving demand, though they cautioned that the rate of improvement varied by metropolitan area, submarket, and property type. Commercial contractors noted continued strength in apartment construction and indicated that the level of nonresidential construction activity continued to increase modestly. The outlook among District commercial real estate contacts remained fairly optimistic.
Manufacturing and Transportation
District manufacturers reported increased activity in October. Solid gains were seen in new orders and production levels were notably higher compared with the previous reporting period. Employment levels increased modestly, and raw materials prices rose slightly for some manufacturers. However, the outlook among manufacturers is less optimistic than the previous report with less than a quarter of contacts expecting production levels to increase over the next three to six months.
Transportation activity in the District continued to expand from the previous reporting period. Trucking contacts reported increased shipments of construction materials such as drywall and bulk cement. Rail shipments of agricultural products were up and volumes of chemical products, such as crude oil, liquefied natural gas, and sand for hydraulic fracturing, posted double-digit increases from a year ago. Logistics and delivery contacts indicated that recent growth was driven mostly by e-commerce. The majority of District transportation contacts expect even faster growth in the coming months, over and above the usual seasonal increase.
Banking and Finance
Reports on lending activity were mixed and varied by geographic area. In some areas, residential real estate lending was flat but commercial lending picked up, while in other parts of the District, mortgage lending consisted of a mix of new construction, refinancing, and home improvement loans. Regulatory requirements continued to be a concern for community bankers competing with larger banks for loans. Competition for qualified borrowers was characterized as "fierce," as low pricing and relaxed terms were being offered by some institutions to attract clients. Business contacts reported that credit availability was little changed from the previous report, with large businesses having easy access to credit and small businesses having more-restricted access. Some contacts expect modest improvements in lending activity through the end of the year.
Employment and Prices
Nearly all states in the District experienced job growth, with 39,900 jobs added on net in September. Sectors with payroll additions varied by state, though leisure and hospitality gains were relatively widespread and sizeable across District states. The unemployment rate declined 0.1 percentage point from 6.9 percent to 6.8 percent during the same period. However, contacts continued to report challenges filling certain positions, namely construction and skilled trade jobs, drivers, and information technology positions. Some businesses also indicated that they were finding it increasingly difficult to fill low-skill positions.
Input cost pressures remained muted across most sectors, with some easing of the pressure that had been reported earlier in the year. Firms' pricing power remained limited, According to results from the Atlanta Fed's October Business Inflation Expectations survey, expectations for the coming year continued to hover around 2 percent. There was little evidence of broad-based acceleration in wages outside of trucking, construction, banking, and information technology. However, there were nascent signs of some mounting wage pressures for lower-skill jobs--many of whose nominal wage rates have been flat for several years.
Natural Resources and Agriculture
Industry contacts reported that the recent drop in oil prices led regional exploration and production firms to evaluate operational flexibility, cost- management strategies, and extraction technologies, although steady production is anticipated in both deepwater and onshore drilling. Contacts also shared that the supply of natural gas continued to grow faster than demand even after adjusting for seasonal factors.
Large parts of Alabama and Georgia--and to a lesser extent, parts of the Florida panhandle, Louisiana, and Mississippi--experienced varying degrees of drought ranging from abnormally dry conditions to a few isolated areas of severe drought. Although heavy rain in early October delayed peanut harvesting in some parts of the District, harvests in Alabama, Florida, Georgia, and Mississippi were ahead of their 5-year average. Alabama and Georgia cotton crop harvests were ahead of their 5-year averages while recent rain in parts of Tennessee delayed some of their cotton harvesting activities.