Beige Book Report: Atlanta
September 6, 2017
Summary of Economic Activity
According to reports from businesses across the Sixth District, economic activity expanded at a modest pace from July through mid-August. The outlook among contacts remains optimistic as most expect slow and steady growth over the remainder of the year. Businesses reported continued tightness in the labor market, though wage growth remained flat for most types of jobs. Firms cited that non-labor input costs remained steady. Reports from most retailers indicated that sales increased slightly while auto dealers noted soft sales activity. The hospitality sector continued to experience weakening activity. Residential brokers and builders cited that sales of existing and new homes were flat to slightly up from a year ago and home prices continued to rise modestly. Commercial real estate firms reported that demand continued to improve and construction increased from a year ago. Manufacturers noted that activity pulled back slightly since the previous report. Bankers indicated that credit continued to be available.
Employment and Wages
Broadly, business contacts expressed that labor demand continued to outweigh supply in fields such as information technology, construction, and healthcare. Construction industry contacts reported that the lack of available labor was still so severe that companies were turning down business opportunities. The leisure and hospitality industry experienced notable net gains in payrolls across the region; however, contacts continued to describe challenges filling positions during the summer. Some employers who rely on immigrant labor--either directly or indirectly--continued to express concerns that efforts to tighten immigration were having a tangible drag on the supply of labor. Turnover was mixed across the region; however, any time turnover occurred, firms pursued opportunities to increase operational efficiencies by evaluating whether to fold one job into another, replace position(s) with technology, and/or shift the salary towards training and development of other employees.
Firms continued to implement various methods to attract and retain top talent, often in lieu of wage increases. Contacts shared that in addition to offering flexible work hours and locations, more vacation time, and training and education opportunities, they were increasingly focused on social responsibility initiatives and support systems to encourage work-life harmony. Some contacts indicated that these non-wage compensation mechanisms were losing their effectiveness, thus broad wage increases were expected in the near term. Some firms noted increased offerings of early retirement packages in an attempt to lower overall compensation costs (replace higher-paid, tenured workers with technology or lower-paid, entry to mid-level workers). Businesses continued to report increases in starting wages to attract new hires for high-skill positions, but most contacts indicated that these increases remained in the two to three percent range.
Prices
Non-labor input costs were stable and businesses reported that pricing power remained constrained. According to the Atlanta Fed's Business Inflation Expectations survey, respondents indicated that year-over-year unit costs were up 1.7 percent in August and they expect unit costs to rise 1.9 percent over the next twelve months.
Consumer Spending and Tourism
District retail contacts reported that sales levels were higher than expected in July. Retailers noted that back to school shopping and online sales helped boost overall sales levels this period. Automotive dealers continued to report a slowdown in the momentum of auto sales from a year ago.
In general, tourism and hospitality contacts in the District reported that activity over the summer season was softer than expected, which they attributed to significant rainfall throughout the region. In most markets, hotel occupancy achieved expectations; however, average daily rates remained subdued. Many contacts noted that the outlook for the remainder of the year should be in line or slightly below forecasts made earlier in the year.
Construction and Real Estate
Reports from District residential real estate contacts in July signaled modest but continued growth. Builder reports on construction activity were mixed. Brokers and builders continued to report that home sales were flat to slightly up relative to one year earlier. The majority of contacts noted that buyer traffic was flat to slightly up and inventory levels were down from the year-ago level. Both builders and brokers continued to report modest gains in home prices. Home sales expectations remained positive in July, with most brokers and builders anticipating that sales would hold steady or increase slightly over the next three months compared to the year-earlier level. Most builders continued to expect that construction activity would match or exceed the current pace over the next three months.
Many District commercial real estate contacts reported improvements in demand that resulted in rent growth, but they 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 increased from one year ago, but a growing share noted that activity was down slightly. Most contacts reported healthy backlogs. While several reports indicated that the pace of multifamily construction matched or exceeded the year-ago level, some continued to report that activity was down from one year earlier. Looking forward, District commercial construction contacts' expectations for the pace of nonresidential construction over the third quarter was mixed, while their outlook for the pace of multifamily construction continued to level off.
Manufacturing
District manufacturers indicated that overall activity expanded, but at a slower pace since the last reporting period. While overall manufacturing activity expanded, contacts reported slower growth in new orders amid modest gains in production and more tepid job gains. Supply delivery times were reported to be getting shorter, while finished inventory levels decreased. Contacts' outlook for production was relatively unchanged from the previous report, with about half expecting higher production levels over the next six months.
Transportation
Reports from District transportation contacts were little changed since the previous report. Ports continued to indicate strong growth in containerized, bulk, and breakbulk cargo. Total rail traffic remained flat. The declines in shipments of grain, petroleum and petroleum products, and metallic ores, were mostly offset by increases in nonmetallic minerals, crushed stone, sand and gravel, and coal. Year-to-date intermodal traffic, however, was up modestly. Logistics and freight forwarding contacts cited further growth in e-commerce shipments.
Banking and Finance
Credit remained readily available for most qualified borrowers. Some contacts reported mortgage activity slowed due to a limited supply of homes for sale and a decline in auto lending due to decreasing demand. Commercial loan activity was brisk and small businesses used loan proceeds to refinance or expand their business.
Energy
Contacts indicated that liquefied natural gas exports, on average, continued to increase from the Gulf Coast. Reports from energy contacts noted that completion of pipeline projects continued to add growth in capacity to the Gulf Coast. Utility contacts indicated residential usage continued to decline while overall commercial and industrial usage increased slightly.
Agriculture
Agriculture conditions across the District were mixed. Significant rainfall throughout much of the District eliminated drought conditions but resulted in many areas experiencing abnormally moist to excessively wet conditions. These heavy or frequent rains caused some crop damage and delayed planting and harvesting in parts of the District. Forecasts still indicate that the District will exceed last year's production in cotton, soybeans, and peanuts, but lower rice and corn production is expected. With harvesting completed for the current season, Florida's orange production forecast was significantly lower than last year's production. On a year-over-year basis, prices paid to farmers in June were up for cotton, beef, broilers, and eggs but were down for corn, rice, and soybeans.
For more information about District economic conditions visit: www.frbatlanta.org/economy-matters/regional-economics