Jan. 15 (Bloomberg) -- The following is the text of the Federal Reserve Board’s Sixth District-- Atlanta.
Business contacts indicated that from late November through December overall economic conditions improved moderately in the Sixth District. The outlook among contacts was optimistic with most expecting modest growth for early 2014.
District merchants noted positive year-over-year holiday sales growth with on-line sales outpacing traditional store sales. The hospitality sector continued to experience the same solid pace of activity that it had all year long. Similar to the previous report, residential housing brokers noted that existing home sales growth continued to slow, while homebuilders experienced modest growth in new home sales. Commercial contractors described construction activity as improving, especially in the multifamily segment of the market. Manufacturers indicated that overall activity strengthened since the previous report. Banking contacts noted that applications for mortgage loans were down. Employment levels across the District grew at a mild pace, while cost pressures remained stable.
Consumer Spending and Tourism.
Prior to the start of the holiday season, retailers expressed concerns about the fewer number of shopping days as compared to 2012 due to the timing of Thanksgiving. However, many merchants indicated that by offering deeply discounted merchandise and extended hours of operation, their stores experienced positive sales growth over the reporting period. Reports also indicated on-line retailers fared better than the traditional brick-and-mortar stores. Automotive dealers continued to cite solid vehicle sales.
Hospitality contacts noted that occupancy rates, revenue per available room, and room rates for the holiday season exceeded year-ago levels. Hoteliers anticipate that this winter season will outperform last year based on advanced bookings. In the coming months, some District cities are expecting an increase in visitors from the addition of new direct international flights as well as new area attractions.
Real Estate and Construction.
District brokers indicated that growth in existing home sales slowed in recent months. The majority of brokers said sales were flat to slightly up compared with a year earlier but below their plan for the period. By most accounts, inventory levels were flat to slightly down on a year-over-year basis. Most contacts reported that home prices remained ahead of the year earlier level but that price gains have slowed on a month-over-month basis. The outlook among brokers has improved since our last report with more contacts anticipating that sales will be slightly up on a year-over-year basis over the next several months.
Reports from District builders were more positive than broker reports. Most contacts agreed that recent activity was in line with their plan for the period. The majority of builders noted that construction activity and new home sales were ahead of the year earlier level. Reports indicated that unsold inventory levels were flat to slightly down. The majority of builders reported modest home price appreciation. The outlook for new home sales and construction activity remained positive among most contacts.
District brokers noted that demand for commercial real estate continued to improve, though they cautioned that the rate of improvement varied by metropolitan area, submarket, and property type. Construction activity continued to increase at a modest pace from earlier in the year; contacts noted that apartment construction was still much more robust than construction in the other sectors. New build-to-suit projects continued to break ground across the region and landlords continued to update and reconfigure existing space to make it ready for tenants. The outlook among District commercial real estate contacts remained positive with further improvements expected early in 2014.
Manufacturing and Transportation.
Manufacturing activity strengthened slightly during the reporting period. Contacts reported gains in new orders and production. Manufacturers also noted that commodity prices were relatively flat and employment modestly increased. Finished inventories decreased as businesses looked to reduce inventory levels, and purchasing agents experienced longer wait times for materials ordered from their suppliers. Optimism regarding future production continued as auto manufacturers experienced strong sales in November. Nearly half of contacts expect production levels to increase over the next three to six months.
Logistics contacts noted year-to-date increases in the movement of industrial and healthcare-oriented goods. Delays in holiday shipments to consumers were reportedly due to the shortened shopping season, higher than expected on-line sales, adverse weather conditions, and lower inventory levels at distribution centers. Rail contacts cited year-over-year increases in intermodal traffic supported primarily by significant increases in the movement of petroleum products. Trucking contacts anticipate that tonnage will increase substantially over the previous year buoyed by growing sectors of the economy that generate heavier freight loads, such as residential construction and energy production.
Banking and Finance.
Community bank contacts expressed continued concern about the implementation of qualified mortgage requirements in 2014 and the possible negative effect on mortgage lending, particularly as some mortgage lenders exit the mortgage lending business altogether or change their business models because of the added risks. Some lenders indicated they were shifting their focus from residential mortgages to small business and commercial real estate loans. Overall, applications for mortgage loans were down as refinancing activity slowed.
Competition for qualified borrowers continued to increase and individual bankers attributed much of their increased market share of lending to luring loans away from other banks. Non-revolving credit continued to increase mostly due to robust vehicle sales.
Employment and Prices.
Businesses did not indicate a significant pickup in hiring, nor did they report any staff reductions. Businesses continued to employ technology and utilized overtime and contract labor as an alternative to increasing permanent staff. Contacts in manufacturing, construction, professional, and energy sectors report persistent difficulty in finding qualified workers. On balance, many firms expressed continued hesitancy caused by concerns about healthcare reform in terms of their overall hiring plans.
Cost pressures remained mostly stable, according to business contacts. Healthcare was the most cited exception, with reports of larger cost and price increases than usual. Merit increases remained in the 1 to 3 percent range. However, skilled and professional positions in energy, construction, information technology, and logistics continued to see above-average wage increases and higher starting pay. Year-ahead unit costs expectations were 1.9 percent in December, unchanged for the fourth consecutive month, according to the Atlanta Fed’s survey on business inflation expectations.
Natural Resources and Agriculture.
Capacity utilization in the energy industry remained near historic highs, according to contacts. Deep water oil exploration in the Gulf of Mexico picked up, bolstered by the completion of recent pipeline infrastructure projects. Contacts noted that costs to transport domestic crude oil to refineries along the Gulf Coast via land or barge continued to rise. However, the outlook for demand, pricing, and productivity for the industry was optimistic on the whole for the coming year.
Recent rains improved soil conditions in some areas of the District, while parts of Georgia, Alabama, Louisiana, and Florida experienced dry conditions. Monthly prices paid to farmers for rice and soybeans were up; prices for beef and broilers remained unchanged; and prices for corn, cotton, and hogs were down. The most recent domestic crop production projections for soybeans, corn, and rice were unchanged. Cotton and orange projections were down, although cotton was only down slightly. Similarly, projections for domestic beef and pork production rose, while broiler production remained unchanged.
SOURCE: Federal Reserve Board