Beige Book Report: Atlanta
November 30, 2016
Reports from Sixth District business contacts described economic conditions as modestly improving since the previous report. On balance, the outlook remains optimistic with the majority of contacts expecting growth to be sustained at or slightly above current rates for the remainder of the year and the early part of 2017.
In general, retail sales across the District were flat since the previous report and sales of vehicles softened from a year ago. Reports from the hospitality sector were positive in the parts of the District not impacted by Hurricane Matthew. Residential real estate contacts noted that existing home sales were flat to down, while new home sales were flat to up from a year ago. Home prices improved modestly from last year. Commercial real estate contacts continued to report that the pace of construction had picked up from a year ago. Manufacturers indicated that levels of new orders and production increased since the previous report. Bankers reported loan activity varied across the region. The District continued to experience a tightening labor market as firms continued to face difficulty finding workers. On balance, nonlabor input costs remained stable and wage growth was modest.
Consumer Spending and Tourism
District retail contacts reported relatively flat sales activity since the previous report. Contacts reported having little to no pricing power. However, the outlook among merchants remains optimistic for the upcoming holiday season. Contacts in the automotive industry reported softer sales in the month of October compared with the same time period last year.
Reports from tourism and hospitality contacts across the District were mixed. Mississippi casino gaming revenues increased year-over-year. Reports from areas in Florida and Georgia directly impacted by Hurricane Matthew indicated that room revenues were negatively impacted. However, other parts of the region benefitted from full occupancies as evacuees relocated. The outlook among most contacts for the remainder of the year remains optimistic.
Real Estate and Construction
Residential real estate contacts continued to report slow but steady growth. The majority of builders noted that construction activity was up from the year-ago level. Many brokers noted that home sales were flat to slightly down relative to the year-earlier level, while many builders indicated that home sales were flat to slightly up over the same period. Most builders noted that buyer traffic was equal to or higher than the previous year's level, while reports from brokers continued to be mixed. Brokers reported that inventory levels were flat to down from the previous year, while most builder reports on inventory levels varied. Builders and brokers continued to note modest gains in home prices. Home sales expectations continued to moderate, with mixed broker outlooks and many builders anticipating a leveling off over the next three months relative to year-earlier levels. Most builders anticipate construction activity will hold steady at the current pace or increase slightly over the next three months.
Most commercial real estate contacts noted improvements in demand resulting in rent growth and increased absorption, but cautioned that the rate of improvement varied by metropolitan area, submarket, and property type. The majority of commercial contractors indicated that the pace of nonresidential construction activity had picked up from one year ago, with many reporting backlogs greater than one year. Reports from contacts on the pace of multifamily construction varied, with roughly half indicating that the pace had increased from the year-earlier level and the rest suggesting that the pace had leveled off or slowed. Looking forward, most District commercial real estate contacts expect the pace of nonresidential construction activity to increase slightly over the next quarter, while many anticipate the pace of multifamily construction to continue to level off in the coming quarter.
Manufacturing and Transportation
Manufacturing contacts indicated that overall business activity increased from the last report. New orders and production levels were higher than the previous period, and supplier delivery times were taking longer. Purchasing managers also indicated that finished inventory levels decreased. Payroll levels for manufacturers increased moderately from the previous report and contacts reported a notable increase in commodity prices. Contacts were more optimistic about business activity going forward, as almost half indicated they expect an increase in production levels over the next six months, compared with only one-third in the previous report.
Transportation activity in the District was little changed since the previous report. Railroad firms cited a continuing slowdown in overall traffic. However, freight forwarders and logistics contacts reported continued strength in e-commerce shipments. At District ports, break bulk cargo, container, and automobile shipments strengthened, while trucking contacts noted declines in overall tonnage. Pricing power in the transportation industry remains weak across all modes due to overcapacity.
Banking and Finance
Credit remained readily available for most qualified borrowers. However, some small businesses reported difficulties obtaining credit. Loan demand remained strong for most types of loans in metropolitan areas but was not as robust in rural parts of the District. Banking contacts in metropolitan areas noted increased competition for deposits.
Employment and Prices
Reports from most business contacts suggested ongoing tightening in the labor market. Construction industry contacts continued to cite difficulties finding enough workers, often resulting in project delays. Additionally, contacts from the medical field noted accelerating nursing shortages. In response to the challenges finding workers, a number of firms continued to engage in partnerships with community colleges and workforce development organizations to develop customized training programs and internship opportunities, or to invest in automation to replace difficult-to-fill jobs.
Wage growth remains modest, with the exception of persistent wage pressures for some high-skilled positions and increased reports of rising wages in the construction industry. Nonlabor input costs were mostly stable with the exception of some construction material costs. Most contacts continued to report limited ability to increase prices. According to the Atlanta Fed's Business Inflation Expectations (BIE) survey, year-over-year unit costs were up 1.7 percent. Survey respondents also indicated they expect unit costs to rise 2.0 percent over the next twelve months.
Natural Resources and Agriculture
Liquefied natural gas projects were underway while other petrochemical projects that were previously on the books for 2016-2017 were delayed into 2018-2021. Energy industry contacts indicated that oil and gas producers will proceed with prudent capital investment plans. Renewable projects continued to expand in the region, particularly wind energy. Oversupply of crude oil and gasoline continued, which perpetuated high demand for inventory storage. Energy contacts reported that employment levels were flat for this period.
Agriculture conditions across the District were mixed. Drought conditions expanded and deepened throughout much of the District, with conditions ranging from abnormally dry to exceptional drought and contributed to many wildfires across the region. Due to damages and losses attributed to drought conditions, the USDA designated many counties in the District as natural disaster areas. Nevertheless, harvesting was ahead of the five-year average for soybeans in Louisiana, Mississippi, and Tennessee; peanuts in Alabama, Florida, and Georgia; corn in Tennessee; and the District's cotton crop. Florida's November orange forecast was up from last month, but remained below last season's production. Low agriculture prices continued to challenge District producers.