July 13, 2016
On balance, reports from Sixth District business contacts indicated that economic activity expanded slightly from mid-May through June. However, the outlook among businesses remains positive as most anticipate higher growth in the near term.District merchants noted mixed sales activity over the reporting period. Vehicle sales continued to grow, albeit at a slow pace. The tourism sector experienced a slight weakening in some parts of the District. Reports from residential brokers and builders indicated home sales increased from year earlier levels. Real estate contacts also noted that home prices modestly appreciated since the previous report. Commercial real estate contacts continued to cite improved demand for most property types and construction increased from a year ago. Manufacturing activity slowed since the previous report. Bankers noted credit continued to be available for qualified borrowers. District firms continued to report difficulties filling high demand, high-skilled positions. Businesses reported modest non-labor input cost pressures and wage growth.
Consumer Spending and Tourism
District retail contacts reported mixed sales activity from mid-May through June. Retailers continued to report soft sales from international visitors while sales from domestic shoppers strengthened since the last report. Automotive dealers reported some slowing in the pace of auto sales in May. Merchants expect sales to remain relatively flat over the next few months.
Some District tourism and hospitality contacts reported softer activity since the previous report and expect the trend to continue through the summer. Average daily rates at hotels continued to trend upward while the lengths of stay were compressed. Georgia reported a decrease in convention bookings, year over year. Central Florida tourism contacts indicated that traffic for both domestic and international travel was up, year over year, while South Florida noted international inbound travel was below expectations.
Real Estate and Construction
Residential real estate contacts across the District continued to report slow but steady growth. Most builders indicated that construction activity was up from the year-ago level. The majority of builders and brokers said home sales were up slightly compared with one year earlier. Most indicated that buyer traffic was equal to or higher than the previous year's level. Builder reports on inventory levels were mixed, while the majority of brokers reported that inventory levels were down from the year earlier level. Builders and brokers continued to note modest gains in home prices. As the summer season approaches, the majority of builders and brokers anticipate sales over the next three months to be comparable or slightly higher than the year-ago level. The majority of builders expect construction activity to increase slightly over the next three months.
Commercial real estate contacts continued to report improvement in demand resulting in increased rents and increased absorption across property types, but cautioned that the rate of improvement varied by metropolitan area, submarket, and property type. Most commercial contractors indicated that the pace of nonresidential construction activity increased from one year ago, with many reporting backlogs of one to two years. Amid ongoing concern about the overbuilding of apartments, District multifamily contacts indicated a slight deceleration in the pace of rent growth as well as a pullback in the availability of credit for new development. Half of District contacts indicated that the pace of multifamily construction continued to increase from the year earlier level, while the other half indicated that the pace of activity was flat to down. Looking forward, most District commercial real estate contacts expect the pace of nonresidential construction activity to increase slightly over the next quarter. Expectations for the pace of multifamily construction are mixed, with roughly half of contacts citing that the pace over the next quarter will be flat to down and the other half noting that the pace will continue to increase.
Manufacturing and Transportation
Manufacturing contacts reported that overall business activity slowed from the previous reporting period. Contacts indicated that new orders and production levels were markedly lower. Finished inventory levels fell for most District manufacturers with the exception of auto contacts, whose inventory levels were elevated due to high production and the decline in auto sales. Manufacturers' expectations for production fell considerably, with only a third of firms anticipating an increase in production levels, down from half in the previous report.
District transportation firms reported mixed results from mid-May through June. Air cargo was down slightly compared with year earlier levels. Overall railroad traffic declined further due to continued weakness in shipments of energy-related products and farm products, and intermodal activity was down slightly. However, rail contacts cited year-over-year increases in the movement of waste and nonferrous scrap metals, and motor vehicles and parts. Port contacts reported increases in container traffic, bulk cargo, automotive goods, and machinery since the previous report.
Banking and Finance
Credit remained readily available for qualified borrowers outside of areas dependent on the energy sector, yet consumers and businesses continued to pay down debt. Deposit levels increased at District banks. Contacts at financial institutions indicated credit quality was improving and delinquencies and bankruptcies were down. Banking contacts noted small businesses were conservative with borrowing, and many commercial transactions were still heavily cash based. Compliance requirements continued to increase costs for financial institutions.
Employment and Prices
There were pockets of hiring across the District, though many firms remained cautious about adding staff. Contacts continued to cite increasing turnover as well as challenges finding workers in certain high-demand fields, such as information technology, transportation, healthcare, compliance, and construction. Regions and industries tied to oil and gas (O&G) continued to experience layoffs, while business contacts from other sectors continued to report that these layoffs had loosened some local labor markets.
Businesses reported modest non-labor input cost pressures but little to no pricing power. Wage growth continued to be evident in select geographic locations and particular occupations. According to the Atlanta Fed's survey of business inflation expectations, year-over-year unit costs were up 1.4 percent. The survey respondents indicated they expect unit costs to rise 1.8 percent over the next 12 months.
Natural Resources and Agriculture
Budget cuts, layoffs, loan restructuring, contract renegotiations, and stock buybacks continued to impact the District's oil and gas sectors. Refineries and other petrochemical manufacturers continued to increase investment in plant expansions and new facilities, however, business contacts shared that some project timelines were protracted as a result of the energy sector slowdown. Gulf Coast crude oil storage capacity grew as storage tank and transport infrastructure development projects continued in response to rising crude supply. Natural gas supply remained at elevated levels as well, however, some signs of tightening were noted. Industrial electricity sales remained a bright spot in the refining and chemical segments.
Agriculture conditions across the District were mixed. Drought conditions spread through much of the region, ranging from abnormally dry to severe drought. Nonetheless, by mid-June, District cotton, soybean, and peanut planting were close to their five-year averages and nearing completion. On a year-over-year basis, prices paid to farmers for corn, cotton, rice, soybeans, beef, broilers, and eggs declined, although on a month-over-month basis, prices increased for corn, cotton, soybeans, and broilers.