U.S. Federal Reserve Beige Book: Atlanta District (Text)
The following is the text of the Federal Reserve Board’s Sixth District -- Atlanta.
Reports from Sixth District business contacts indicated that economic activity rose modestly in October through mid-November. Retailers noted some increase in traffic and sales, and expectations for holiday sales were generally positive. Tourism related spending improved largely as a result of an uptick in international visitors and business travel. Realtors and homebuilders cited ongoing weakness in sales and construction. The District’s office and industrial real estate markets softened as construction levels declined and vacancy rates rose. However, several contacts indicated that modest improvements were noted in leasing activity. Manufacturers reported continued increases in new orders and production. Credit conditions remained constrained and weakness in loan demand persisted. District labor markets continued to recover slowly, but businesses expressed cautiousness regarding adding full-time employees. Labor and material prices rose slightly, but most firms noted that they had little ability to pass costs through to customers.
Overall, most business owners suggested that the lack of robust sales growth was the major factor holding back their hiring plans and their demand for credit, although several also cited ongoing tax and regulatory policy uncertainty as additional constraining factors. Limited capital spending was focused primarily on required maintenance and efforts to increase efficiencies.
Consumer Spending and Tourism
Most retail stores and auto dealers reported that traffic and sales increased in October through mid-November. The outlook among retailers was positive and expectations for the holiday season were cautiously optimistic. Retailers noted that customers remain quite value conscious and responsive to price changes.
Tourism activity improved relative to a year earlier and the outlook was generally positive for the holiday season. Hotel occupancy rates rose in several of the District’s major markets compared to last year and cruise bookings were strong. However, discretionary spending at both hotels and cruise ships was relatively soft. International visitors remained a major source of tourism growth in the District. Contacts also reported solid increases in business travel and group travel bookings.
Real Estate and Construction
Reports from residential brokers indicated existing home sales weakened in October through mid-November on a year-over-year basis. Many brokers, most notably in Florida, reported that the moratorium on distressed sales led to a stall in activity. District homebuilders indicated that new home sales growth and construction activity weakened further. Home prices remained below the year-earlier level, but declines moderated somewhat. Contacts noted downward pressure on prices across much of the region from distressed property sales. Despite weak buyer traffic, the outlook for sales growth over the next several months improved somewhat.
Nonresidential construction activity softened across the District. Contractors noted that the pace of commercial development was below the year-earlier level and backlogs remained low. Vacancy rates remained elevated across much of the region, although modest improvements were noted in leasing activity. Most contacts expect the commercial real estate market to remain weak over the next year.
Manufacturing and Transportation
District manufacturers indicated that the pace of new order growth moderated slightly, while production growth remained flat compared to the previous report. Several respondents noted plans to increase production in the short-term, however. District transportation companies continued to report improved freight volumes from year-earlier levels, although the pace of growth has moderated from earlier this year. Regional rail companies noted strong growth for metal and chemical goods, while shipments of motor vehicles and parts softened. The outlook among transportation firms was optimistic as rail companies noted benefits from rising international shipments of coal and farm products.
Banking and Finance
Banks continued to report little loan demand. Troubled real estate loans continued to increase, negatively affecting bank profitability. Overall, access to credit among small businesses slightly improved, although several noted ongoing difficulty obtaining credit on favorable terms. Reports indicated that credit standards for smaller firms eased more at community and regional banks than at large national banks. However, many small businesses indicated that although banks were willing to lend, the terms were unacceptable to the borrower. Firms related to construction and real estate experienced the most difficulty obtaining credit.
Employment and Prices
District labor markets continued to slowly recover in October through mid- November. Business contacts reported that they were waiting for clearer signals of improved business prospects before adding significantly to payrolls. Businesses that were hiring were doing so cautiously, and many noted that they were being selective in choosing the most productive and versatile applicants. The majority of businesses cited a strong preference for using part-time or temporary staff in response to an increase in sales, allowing for more efficiency and flexibility.
Business contacts expressed considerable uncertainty about cost pressures over the coming year. Most felt that any pressure from higher labor and materials costs would be largely absorbed by reductions in profit margins. Overall, businesses remained reluctant to pass higher input costs through to customers given the relative softness in sales and orders. However, some transportation and food service firms indicated they plan to raise some of their prices because of cost increases.
Natural Resources and Agriculture
Regional oil production remained above earlier levels as production from existing offshore platforms came online. Although drilling activity remains well below pre-oil spill levels, the number of rigs operating in the Gulf of Mexico has crept up since hurricane season ended. Contacts have noted some concern that the pace of drilling permit issuance continues to lag, which could weigh on future energy output in the Gulf.
Most District areas benefitted from improved weather conditions in late October and early November. The outlook for the region’s key agricultural products was brightened by favorable market conditions. Strong global demand and tight supplies have particularly boosted soybean and cotton prices, recently reaching historic highs.