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

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


According to reports from Sixth District contacts, economic conditions modestly improved from July to mid-August. Most businesses noted a positive outlook for the remainder of the year.

Merchants indicated a slight pickup in retail sales and automobile sales were strong. The travel and tourism sector remained a bright spot across much of the District. Residential real estate continued to recover at a solid pace as sales and prices stayed ahead of last year’s level. However, low housing inventories were still restraining sales growth. Commercial real estate contacts reported slight improvements in demand and construction activity. Manufacturers cited a decrease in new orders and production. Bankers noticed very little pickup in loan activity, overall. District payrolls improved slightly. Input cost increases were described as being relatively subdued by most firms.

Consumer Spending and Tourism

District retailers indicated that sales rose slightly from July to late-August. Reports described consumers as remaining cost conscious. Automotive dealers noted that year-end projections are being revised up as truck sales strengthen mostly from contractors purchasing vehicles again.

Hospitality contacts continued to witness strong travel and tourism activity this summer. Overall demand in the sector remained on the rise resulting in a pickup in hiring of both full-time and part-time workers, although the cruise industry reported a decrease in both domestic and international demand as a result of the recession in Europe and a slowing economy in China. With the exception of cutbacks in travel in the government sector, the industry is forecasting steady growth for the remainder of the year.

Real Estate and Construction

District brokers continued to report that existing home sales and prices remained ahead of last year’s level. When polled about rising mortgage rates, some said business had improved as buyers moved to lock-in rates. However, nearly half of respondents also said that rising rates were having a negative impact on their business by slowing buyer traffic, disqualifying some buyers, and forcing some to shift to lower price points. Inventory shortages persisted and were seen as a major factor restraining sales. Low inventory levels continued to put upward pressure on home prices in many submarkets across the District. Even so, the outlook for sales growth remained slightly positive, with the majority of brokers anticipating sales gains over the next several months.

District homebuilders cited that new home sales and construction were ahead of year earlier levels. The majority of builders said that rising rates were not having an impact on their business. Most builders reported that the availability of development and construction financing remained below demand, new home inventories were below the year earlier level, and prices rose modestly. The outlook for new home sales and construction was positive, but the outlook for growth continued to moderate from earlier in the year.

District commercial brokers noted that demand for space improved at a modest pace during the summer. Construction activity was described as flat to slightly up from earlier this year with apartment development dominating activity. Brokers reported that most markets still favored tenants; however, 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

While the majority of the region’s manufacturers cited expanding activity, the pace of growth decreased from July to mid-August. New orders and production experienced modest decreases which contributed to the slowing of activity. However, a number of firms, especially those in the auto sector, continued to report 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 railroad companies noted that total year-over-year volumes remained flat; however, growth was seen in shipments of petroleum-related products, forest products, nonferrous scrap metals, and metallurgical coal. District ports cited robust activity in the movement of energy products as well as rubber and steel used in automobile production. Reports were mixed for containerized cargo volumes. Air cargo contacts stated that year-to-date air freight tonnage rose slightly from a year ago with notable increases in imports, while declines in exports were attributed to the recession in Europe and a slowing economy in China. District trucking companies reported a slowdown in year-over-year volumes. The recent implementation of the “Hours of Service” regulation, which restricts driving hours, and a short supply of new drivers were mentioned as limiting growth opportunities.

Banking and Finance

Banking contacts did not witness any noticeable increase in overall lending as most borrowers had already taken advantage of lower rates. However, the recent uptick in rates did motivate many businesses to move to lock-in rates through refinancing. Some bankers also reported a pickup in loan volume for lending products such as second mortgages, credit cards, auto lending, and commercial lending. A surge in second mortgage requests was caused by increasing home values. Qualifying new business loans remained fairly scarce with many banks competing over the same few loans.

Employment and Prices

Since the last report, the region’s pace of payroll growth improved modestly. Gains were seen in Georgia and Florida, as those states saw slight payroll increases in retail, leisure and hospitality, and professional and business services. On balance, firms were hesitant in hiring new staff due to various uncertainties, with healthcare reform mentioned most frequently. Similarly, in recent polls, contacts expressed a clear preference for investing in capital expenditures to improve efficiencies and reduce costs rather than hiring additional labor.

Growth in input costs was muted for most businesses as price inflation for crude and intermediate materials remained relatively subdued. According to our August Business Inflation Expectations survey, costs were up 1.7 percent from the previous 12 months and were expected to rise to 2.0 percent in the year ahead. Businesses continued to note tight margins and very little pricing power. Wage pressures were largely subdued, except for industries where workers are in short supply, such as information technology and specialized construction. Wage increases in the 2 to 3 percent range remained standard, with the distribution of increases weighted toward workers whose skills are in highest demand.

Natural Resources and Agriculture

Energy refiners reported a pickup in activity, with more oil flowing into the region from the central U.S. and Canada. Rail transport capacity expanded for crude oil and liquid feedstocks, with large off-loading and increased storage capacity occurring along the coast. Contacts expect deep-water drilling in the Gulf of Mexico to continue to expand.

Since the last report, most of the District received ample or, in some cases, excessive rain. These rains have resulted in problems with pesticide efficacy, delayed planting, and damage or reduced yield for some crops. On a year-over-year basis, prices paid to farmers were elevated for meat protein (beef, hogs, and broilers), corn for grain and cotton saw price reductions, and soybean prices remained unchanged.

SOURCE: Federal Reserve Board

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