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

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

Summary.

On balance, Sixth District business conditions improved modestly in April and May. The outlook for most sectors remained positive as contacts anticipate further improvement in activity for the remainder of the year.

Most retailers noted an increase in sales activity since our previous report. The hospitality sector continued to be a bright spot for the District as occupancy and room rates and revenues remained solid. District real estate activity continued to strengthen from positive but uneven sales growth, rising home prices, and declining home inventories. Commercial real estate contacts have seen improvements in construction since the beginning of the year. Manufacturers cited growth in new orders and production. Bankers asserted that the demand for new loans remained weak. Hiring activity was positive, but muted. Prices continued to remain stable and most firms indicated having little pricing power.

Consumer Spending and Tourism.

District retail contacts noted an improvement in consumer spending but were cautiously optimistic regarding their outlook. Reports indicated that consumers remained focused on deals and discounts but high-end luxury stores continued to perform well. Relatively stable gasoline prices along with improvements in the housing market were cited as contributing positively to consumer behavior. Automobile sales remained steady at high levels.

Hospitality contacts reported that the sequestration has not significantly deterred travel bookings. Leisure and international travel continued to experience healthy demand, with several contacts reporting that activity exceeded expectations. Hotel occupancy, average daily rates, and revenue per room showed strong increases across the District from the same period last year. Contacts also noted uncertainty regarding the impact of gasoline prices on summer travel but their outlook remained positive, with expectations that activity would be robust through the end of the year.

Real Estate and Construction.

Similar to our last report, District brokers reported that existing home sales remained ahead of last year’s level. Sales growth still remained the strongest among Florida contacts. Brokers continued to report that low home inventories were restraining sales. Homes were also noted as appraising below market price which was either slowing sales or in some cases halting sales altogether. Existing home prices continued to rise on a year-over-year basis and brokers indicated that price growth was a bit stronger than in our last report. The outlook for sales growth remained positive, with the majority of brokers anticipating sales gains over the next several months.

District homebuilders reported that new home sales and construction activity were stronger than in our last report and from a year ago. Buyer traffic continued to increase, as well. However, despite improved sales, access to financing and a shortage of developed lots continued to constrain construction activity. Most contacts reported that new home inventories were below the year earlier level and prices have risen slightly. Once again, the outlook for construction activity and new home sales remained positive with most anticipating levels to be slightly ahead on a year-over-year basis.

District commercial real estate contacts indicated that demand continued to improve from earlier in the year. Construction activity rose modestly again. Activity remained dominated by build-to-suit projects. Commercial brokers reported that demand for space, particularly office and industrial, increased from earlier in the year while retail continued to lag. Brokers cautioned that most markets still favor tenants but that concessions had eased somewhat and increases in rental rates were noted in select submarkets. Apartment development continued to grow at a strong pace across the region and absorption remained positive. The outlook among District commercial real estate contacts continued to be positive and further improvements were expected this year.

Manufacturing and Transportation.

District manufacturers continued to report expanding activity in April and May. Growth was driven by increases in new orders, production, and employment. Much of this expansion was attributed to the region’s large auto and energy manufacturing presence. Nearly half of the region’s purchasing managers expect production to be higher in the near term.

District railway contacts reported increased intermodal traffic; however, total volume was flat to slightly down compared with a year ago. Movement of petroleum products was up significantly on a year-over-year basis, as were volumes of primary forest products, lumber and wood products, and metallurgical coal. Volumes of grain products, metallic ores, military machinery, and transportation equipment decreased notably. Orders for heavy duty trucks increased considerably from a year ago; however, this pickup in demand reflected equipment replacement rather than additions to overall trucking capacity. District ports reported solid growth in containerized traffic and general cargo, especially imported steel, export chemicals, and petrochemical products.

Banking and Finance.

Overall demand for new loans remained weak as banks faced significant pressure to improve net interest margins and increased competition from non-bank providers of capital, such as private equity groups. Bankers noted that businesses were taking on

debt where necessary to maintain and refurbish equipment to meet current demand rather than making capital investment aimed at future growth.

Employment and Prices.

District payrolls grew at a mild pace since our last report. The bulk of jobs added were concentrated in Florida and Georgia. Hiring in professional and business services was especially strong in these states; in addition, employment in retail and real estate was notably strong in Florida. Hiring in leisure and hospitality services, particularly accommodation and food services, increased in Alabama, Georgia, Louisiana, and Tennessee. Government employment decreased in every District state except for Georgia, where gains were meager.

Most firms continued to experience fairly stable input costs. The Atlanta Fed’s Business Inflation Expectations survey showed input cost expectations hovering around 2 percent in April and May, roughly unchanged since the beginning of the year. Though most firms continued to report having little pricing power, retailers indicated that profit margins continued to improve since the beginning of the year as they have been able to successfully contain costs.

Natural Resources and Agriculture.

Low natural gas prices continued to provide cost savings for industrial contacts in the region. Refiners along the Gulf of Mexico completed the seasonal process of switching from winter to summer gasoline blends and were ramping up production to meet higher demand from the summer driving season. Although the total number of rigs operating in the Gulf was roughly constant over the reporting period, drilling activity continued to shift from gas to oil, in part as a response to the ongoing price disparity between the two natural resources. In line with historical seasonal patterns, inventories of crude oil in the region rose considerably, supported by rising national oil production and soft demand.

Additional rains continued to improve drought conditions in Georgia and Florida. However, prolonged rainy periods and cool temperatures delayed planting of some crops. Since our last report, monthly prices paid to farmers for beef, broilers, corn for grain, and soybeans decreased while cotton prices increased slightly. Contacts continued to voice concern about citrus greening and its effect on Florida citrus crops while cotton producers reported China’s large cotton stocks were becoming a growing risk factor for domestic cotton production. Agricultural producers also reported that they are turning more and more to technology and other capital investments to improve production and reduce the need for labor.

SOURCE: Federal Reserve Board

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