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

Sixth District business contacts described economic activity as expanding slowly in September. The outlook among firms remains optimistic as most expect near-term growth to be sustained at or slightly above current levels.

Most retailers cited slightly improved levels of spending and auto dealers continued to experience solid results. Hospitality reports remained largely positive. Residential brokers and builders continued to witness improvements in many parts of the District as sales and prices of new and existing homes increased compared with a year ago. Commercial development picked up slightly, led by multifamily construction. Manufacturers indicated that new orders and production had increased since the last report. Bankers saw increased volumes for both commercial and consumer loans. Payrolls across the region expanded, albeit at a slower pace than the previous report. Firms noted input costs remained stable.

Consumer Spending and Tourism

District retailers continued to report modest spending as consumers remained focused on finding deals. Back-to-school retailers and fast-food establishments cited that sales were slightly lower than a year ago; however, District auto dealers reported continued gains in light vehicle sales. On average, merchants indicated that sales and store traffic were slightly up for the year and are expecting this trend to carry on for the remainder of the year.

The travel and tourism sector continued to cite healthy demand in leisure travel as hotel bookings, revenue per available room, and attendance at conventions and attractions all increased. Contacts confirmed a slight increase in hiring, as well as a healthy supply of qualified applicants. However, government cut backs and softening demand from Europe and China were sources of concern for many hospitality firms. Overall, the industry is anticipating the same pace of growth for the rest of the year and into the beginning of 2014 based on reports of advanced bookings.

Real Estate and Construction

Overall, District brokers indicated that existing home sales remained ahead of last year’s level. In particular, home sales growth continued to improve among Florida brokers while brokers outside of Florida noticed that sales growth remained positive but slowed notably on a year-over-year basis. Brokers also noted a larger than usual seasonal slowdown in buyer traffic. By most accounts, inventory levels continued to decline on a year-over-year basis and home prices continued to rise. The outlook for sales remains slightly positive with half of brokers anticipating sales gains over the next several months.

District homebuilders said that new home sales and construction were ahead of year earlier levels. However, reports indicated new home sales softened in recent months. Most builders saw modest home price appreciation since the last report. The outlook for new home sales and construction was positive, but the outlook for growth moderated from earlier in the year.

District commercial brokers noted that demand for space improved at a modest pace towards the end of the summer. Construction activity was described as flat to slightly up on a year-over-year basis with apartment development dominating activity. Contractors noted that government related construction slowed while light manufacturing related construction picked up. Brokers indicated that most markets still favored tenants; however, rental rate increases continued to be noted in select submarkets. The outlook among District commercial real estate contacts remained positive with further improvements expected for the rest of the year.

Manufacturing and Transportation

Most District manufacturers reported that the pace of growth remained flat or rose slightly in September. New orders, production, finished inventories, commodity prices, and hiring all increased since the previous period while supply delivery times experienced a modest decrease. Auto manufacturers in particular continued to describe solid demand for their products. When asked about their outlook, one-third of regional purchasing managers expect higher production over the next three to six months.

Regional trucking contacts reported recent increases in tonnage, primarily because of shipments related to housing, autos, and energy. However, truckload and less-than-truckload volumes were described as mostly flat for the year. District ports continued to cite increased activity in the movement of energy products and steel imports, along with an uptick in exports of forestry products, such as wood pellets and resins. Containerized freight growth was seen as mostly even for the year. Regional railroad firms reported significant year-to-date declines in the shipment of agricultural products and military equipment; however, substantial increases in the movement of chemicals and nonferrous scrap metals have offset those declines.

Banking and Finance

Bankers voiced concern over interest rate risk as they noticed that their competitors were more willing to extend credit and in some cases were aggressively seeking qualified borrowers. According to some contacts, banks seemed to be luring loan business mostly away from each other, rather than creating new opportunities.

District bankers reported increased activity in owner-occupied commercial real estate, commercial and industrial, manufacturing, small business, and healthcare lending. Consumer loan volume, including purchase/construction mortgages, second mortgages, auto loans, and even credit cards, was strong in some regions. However, mortgage lending overall had slowed as interest rates increased and the refinancing boom subsided. Some contacts mentioned residential real estate lending was now about evenly split between refinancing and new mortgages.

Employment and Prices

Since the last report, the District’s overall pace of payroll growth slowed somewhat. In July, Georgia and Florida saw payroll gains greater than the District’s monthly average for the year, but August’s sizeable contractions in payrolls in those states brought the pace closer to the monthly average. Louisiana saw strong gains in leisure and hospitality employment, particularly in accommodation and food services. The District’s rate of unemployment remained unchanged and slightly higher than the national average. Employers continued to report hiring hesitancy related to changes in healthcare regulation and fiscal policy uncertainty.

Input costs remained largely stable, according to business contacts. The few input costs that were cited as rising were doing so very slowly. According to our September Business Inflation Expectations survey, increases in unit costs remained in the range of 1.3 to 1.7 percent over the past year. Looking forward, businesses expect unit costs to rise by 1.9 percent, on average, over the next 12-months. There were few reports of pricing power and margins remained tight. Wages remained in a range that met expectations of most firms, but some noted upward wage pressures for certain high-skilled workers.

Natural Resources and Agriculture

Energy refiners across the region have been in the throes of expansion as new projects and investments continue to be announced. Contacts reported that demand and inventories of oil and natural gas remained steady. Additionally, transportation of these natural resources to the Gulf Coast for refinement and processing was increasingly occurring via barges and trucks rather than pipeline and rail since those networks are under construction. Contacts indicated that this method of transportation was driving up costs.

As a result of this year’s excessive rain and flooding, which heavily damaged some crops, the USDA declared most counties in Alabama and many in Georgia, Florida, and Tennessee as natural disaster areas. Since the last report, average monthly prices paid to farmers for corn, cotton, soybeans, hogs, and broilers were down but were up for rice, citrus, beef, and milk. Lower corn prices benefitted livestock producers that rely on corn for feed. Compared to August, cotton estimates for September indicated reduced production in Florida, Mississippi, and Tennessee; higher production in Alabama and Louisiana; and unchanged production in Georgia.

SOURCE: Federal Reserve Board

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