U.S. Federal Reserve Beige Book: Atlanta District (Text)

The following is the text of the Federal Reserve Board’s Sixth District-- Atlanta.

SIXTH DISTRICT - ATLANTA

Summary. Most businesses across the Sixth District described economic activity as increasing marginally in October, and most contacts expect little change in the near term.

Retailers cited mild sales growth, while automobile dealers continued to experience strong results. Overall, tourism activity remained robust. Residential brokers indicated an increase in existing home sales and prices, while homebuilders signaled sales were flat to slightly up. Multifamily development continued to dominate the commercial real estate market. Manufacturing activity softened as new orders, production, and employment levels decelerated. Bankers noted that overall loan demand had picked up slightly. On net, payrolls continued to expand at a modest pace, and price pressures remained in check for most businesses in the region.

Consumer Spending and Tourism. District contacts indicated demand and sales were up slightly in October compared with September. Most retailers felt that consumer confidence is improving as they head into the holiday season, which led to expectations that sales would improve over last year’s results. Retailers anticipate a healthy holiday season and most shared plans to hire the same amount of seasonal staff compared with last year, although there were some contacts that anticipate hiring a bit more help over the holidays than they did in 2011. Automobile dealers continued to report strong sales growth, albeit a bit less robust than earlier in the year. Low interest rates, aging vehicles, available credit, and the popularity of new fuel-efficient models were factors cited as driving growth.

Travel and tourism activity remained strong for all sectors except cruise lines, which continued to underperform against projections made earlier in the year. Hotel occupancy and room rates were up in most areas, resulting in increased revenue per available room. International visitors continued to bolster activity in Florida. Convention bookings were also up over year- ago levels in most major District cities. The general consensus among hospitality contacts is that the sector is performing well, and that trend is expected to continue into 2013.

Real Estate and Construction. District residential brokers indicated that recent existing home sales were up slightly compared with year-earlier levels. Brokers reported that current home owners accounted for the largest share of home buyers in the District, while investors and first-time home buyers both were about a quarter of the market, respectively. Reports cited that investors were more active in Florida compared with other parts of the District. Most brokers again noted declining inventories and rising home prices. The outlook for sales among brokers remained positive. Most expect sales growth to be flat to slightly positive on a year-over-year basis in the short term.

Reports from District homebuilders remained positive as well. While recent new home sales were only flat to slightly up from a year earlier, the majority of builders reported that new home inventories were below the year-earlier level and prices were slightly up compared with a year earlier. In addition, contacts reported robust buyer traffic in October. In spite of reports of challenges to obtaining development and construction financing, the outlook for construction activity remained strong and most builders were looking forward to additional increases in new home sales in 2013.

Apartment development continued to dominate the District’s commercial real estate market. Multifamily rent growth remained positive but had slowed somewhat in recent months in many parts of the region. Contacts indicated that most office, industrial, and retail markets in the District experienced modest positive absorption of space during the third quarter. Contractors continued to expect modest gains in commercial construction activity in 2013.

Manufacturing and Transportation. Manufacturing activity in the Southeast softened in October. Contacts in the region reported that new orders, production, and employment levels decelerated. Finished inventory levels were flat. Auto and auto parts producers experienced slightly softer orders, resulting in somewhat lower output after several months of very strong demand. Other durable goods contacts experienced modest growth, especially those tied to the improving housing market. Energy- related manufacturers continued to report robust activity.

Rail contacts reported that domestic coal shipments were down because of softening global demand for metallurgical coal and less demand for coal to fire domestic utility plants as electricity producers shifted to natural gas. However, there have been increased movements of crude oil via rail. Ports experienced weaker container volumes, but slight increases in the level of break-bulk volumes. Truck freight activity was described as similar to year-ago levels. Increased fuel costs remained a significant concern for ocean carriers, but most other industries have been able to pass along increases. Reports indicated that there appears to have been a shift in the holiday shipping timeframe, representing a “just-in-time” approach to ordering as retailers maintain tight inventories as the shopping season approaches.

Banking and Finance. Small business loan demand increased slightly in some areas, but many firms remained hesitant to borrow, citing economic and political uncertainty as a drawback. Competition for high quality borrowers remained fierce among banks. Banks experienced some residential loan growth from refinancing activity. Some contacts in the District reported an increase in demand for construction loans and noted a slight increase in lending levels compared with last year. Regulatory compliance was cited as adding an additional burden by many community bankers, which hampered their ability to originate loans. Some contacts reported underwriting standards had become more restrictive and burdensome for borrowers since the last report, in terms of both credit scores and information requests.

Employment and Prices. Employment conditions across the District continued to improve, albeit at a modest pace, in October. Auto- and energy-related firms reported additional hiring, as did some firms tied to residential construction. On the services side, accounting, and healthcare firms were the most positive. Employment agencies reported a pickup in orders for temporary help. Along those lines, some large employers announced plans to move towards hiring more part-time versus full-time employees. Firms also reported that they continued to receive a large number of applications for most newly-posted positions, causing wages to remain flat. That said, we continued to hear reports of some higher skilled positions going unfilled because of a lack of qualified applicants.

Controlling costs remained a central theme for businesses in the District as they were challenged by higher energy and crop- related input prices along with rising healthcare costs. However, most firms throughout the region noted that the pressure from overall input prices had eased over the last several months. Contacts also noted that the relative weakness in natural gas prices had helped to keep costs in check, particularly for more electricity-intensive firms. Results from our October Business Inflation Expectations survey indicated that unit costs were up 1.4 percent over the past 12 months-- with manufacturers experiencing a bit more cost pressures over the last year than service-providing companies. Looking forward, business expectations for unit cost increases over the next year have been stable, varying between 1.7 and 1.9 percent over the past six months.

Natural Resources and Agriculture. Hurricane Sandy’s damage to refineries and infrastructure in the Northeast caused southeastern regional refiners to increase production and transportation of oil products to affected areas. Natural gas prices and rig counts decreased switching focus to higher priced oil commodities. Contacts noted inexpensive domestic natural gas prompted downstream manufacturers to relocate foreign operations to the United States, prioritizing locations near refining operations.

Much of Georgia continued to experience varying degrees of drought conditions, while the rest of the region enjoyed normal conditions. Some agriculture contacts reported labor shortages. Compared with last year, prices paid to farmers for grain corn, rice, soybeans, beef, and broilers were up while cotton prices were down.

SOURCE: Federal Reserve Board

Press spacebar to pause and continue. Press esc to stop.

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.