Beige Book Report: Atlanta
October 20, 2021
Summary of Economic Activity
Economic activity in the Sixth District expanded at a moderate pace from mid-August through September. Demand for labor was strong, and worker supply remained extremely tight. Reports of wage increases, along with signing and retention bonuses, were widespread. Some nonlabor costs continued to rise, and pricing power improved. Retail sales activity strengthened, but the pace of new car sales slowed due to supply chain constraints. Domestic leisure travel activity remained strong. Demand for housing was robust, inventories declined, and home prices rose. Commercial real estate conditions were mixed. Manufacturing activity was robust, but production slowed as labor shortages caused more idle time. Conditions at financial institutions were stable, and consumer and residential loan demand improved.
Employment and Wages
District contacts continued to report strong demand for labor and the supply of available workers remained extremely tight. Turnover increased as staff left jobs for higher wages, greater flexibility, and better work environments. At the same time, the number of retirements increased. A few firms noted that recent surges in COVID-19 cases caused higher rates of absenteeism than in previous waves. Several employers said they have been forced to make daily evaluations on which operations can be supported based on the number of employees who came to work. The most severe shortages were among hospital nurses who were noted as migrating to other practices where they can have a stable schedule, or to traveling positions where they can earn multiples of their prior hourly rate. Most employers shared that they would like to implement COVID-19 vaccine mandates but were concerned about losing employees. Worries about employee mental health, burnout, safety, and vaccine mandates impacting company culture were mentioned.
Upward pressure on wages intensified over the reporting period and reports were relatively widespread. Several contacts mentioned that escalating living expenses have become a part of wage negotiations. Wage increases continued to be noted along with signing and retention bonuses. Employers were offering greater flexibility to retain and attract workers when possible and several noted new hires negotiating for more paid time off.
Prices
District contacts reported persistent increases in some nonlabor costs. In particular, steel and freight costs rose markedly. The volatility of these and other input costs, exacerbated by supply chain constraints, delayed construction projects across sectors, with uncertainty around expected completion timelines. Food prices also rose. Contacts continued to note an ability to pass through input cost increases. The Atlanta Fed's Business Inflation Expectations survey showed year-over-year unit costs were relatively unchanged in September at 3.2 percent, from 3.3 percent in August. Year-ahead expectations also remained generally stable at 3.1 percent in September, compared to 3 percent in August.
Consumer Spending and Tourism
District retailers reported strong demand since the previous report. However, several cited missed sales opportunities due to of a lack of inventory and persistent labor shortages that resulted in reduced hours of operation. The pace of new vehicle sales continued to slow due to supply chain constraints.
Domestic leisure travel continued to drive tourism activity for much of the District, though occupancy at limited-services hotel properties declined due to a rise in COVID-19 cases and the start of school. In New Orleans, tourism plummeted following Hurricane Ida; however, the city has since opened, and contacts expect activity will improve over the balance of the year. Some contacts indicated further deterioration in business travel and convention bookings due to rising COVID-19 cases and expressed uncertainty over the next three months.
Construction and Real Estate
Demand for housing throughout the District remained strong, though activity moderated slightly from record highs. Real estate contacts noted multiple offers on properties for sale. On a year-over-year basis, inventory levels declined, and home prices rose by double digits in most markets. Declining home ownership affordability was a growing concern for some buyers, resulting in more moderate growth in sales and declining homebuyer sentiment. The decline in affordability was widespread, with markets in Central and South Florida experiencing the sharpest decline in the District.
Commercial real estate activity was mixed. Conditions in the multifamily sector improved notably from last year, though there was growing uncertainty regarding future effects from the end of the eviction moratorium. Activity in the retail segment continued to improve. The office sector remained challenged as employers expressed uncertainty about future space needs. Negative rates of absorption and new deliveries pushed office vacancies upward. Contacts report that competition is accelerating among CRE lenders. Smaller banks and non-bank lenders have been identified by market contacts as some of the more aggressive CRE lenders.
Manufacturing
District manufacturers reported robust demand over the reporting period. However, materials shortages and longer supply delivery times continued to slow production, and some firms experienced increased down time due to higher absenteeism caused by COVID-19 illnesses. Several manufacturers anticipate further strengthening in demand but expressed uncertainty about future production levels.
Transportation
Activity in the transportation sector strengthened, on balance, since the previous report. Logistics contacts reported robust demand as the peak shipping season commenced. East coast ports saw record container volumes. However, growing numbers of container ships idled off the coast, as short supplies of chassis, trucks, and labor slowed throughput. Operations resumed for Gulf coast ports after Hurricane Ida caused shutdowns due to damaged facilities and power outages. Air cargo contacts reported a resumption of cargo-only flights to capitalize on bottlenecks at ports. Contacts expect gridlocks at ports and other supply chain disruptions to continue into 2022.
Banking and Finance
Conditions at District financial institutions remained stable. Margin pressures persisted as a result of the low interest rate environment, weak loan growth, and elevated liquidity. Loan balances declined for multiple loan portfolios, including commercial and industrial loans. Banks reported improvements in consumer and residential loan demand. Deposit levels remained high but growth moderated, causing some institutions to increase short-term borrowings. Asset quality remained healthy without notable increases to nonperforming loans or charge-offs.
Energy
Energy industry contacts reported damage to infrastructure servicing production in the Gulf of Mexico as a result of Hurricane Ida. However, some indicated that resiliency efforts made since Hurricane Katrina in 2005, including the hardening of energy infrastructure and investments in diesel-driven power generation, accelerated the recovery. Reduced oil and gas output was primarily attributed to challenges in redeploying workers since reentry into some communities was difficult or impossible after the storm. However, collaboration with private entities and state government helped alleviate immediate post-hurricane labor tightness. Some contacts expressed concern about short-term natural gas supply and pricing pressures resulting from reduced output. Further, reduced investment in oil and gas exploration and production in recent months is anticipated to result in long-term cutbacks in supply. Utilities contacts continued to cite strengthening residential, commercial, and industrial sales, as well as significant investment in renewables, particularly wind and solar power.
Agriculture
Agricultural conditions remained mixed. Widespread rain kept the District free of drought, but left parts of the District in abnormally moist to excessively wet conditions. Producers continued to assess damages from Hurricane Ida; initial estimates indicated damage to row and vegetable crops, sugarcane, timber, livestock, and infrastructure. On a year-over-year basis, production forecasts for corn, soybean, peanut, and cotton crops were up while rice and sugarcane forecasts were down. The USDA reported year-over-year prices paid to farmers in August were up for corn, cotton, soybeans, cattle, broilers, and eggs, but down for rice and milk. On a month-over-month basis, prices were up for corn, rice, cattle, broilers, and eggs but down for cotton, soybeans, and milk.
For more information about District economic conditions visit: www.frbatlanta.org/economy‐matters/regional‐economics