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 reported that economic activity continued to advance at a modest pace from mid-February through March. Reports across sectors were generally positive and expectations for the coming months remained optimistic.
Retail reports were mixed with some retailers citing improved sales and others feeling the pinch from a constrained consumer. Hospitality contacts reported healthy activity in both leisure and business travel. Homebuilders and brokers experienced further improvements in sales and prices of new and existing homes, and inventories continued to decline on a year-over-year basis. Commercial contractors noted a strong year to date as construction levels improved from late last year. Overall, manufacturing activity remained positive as new orders and production increased. Loan demand remained steady according to bankers. Payrolls continued to grow at a tepid pace as firms remained reluctant in hiring due to uncertainty over fiscal policy and healthcare reform. Prices remained stable and most firms continued to report having relatively little pricing power.
Consumer Spending and Tourism. District merchants reported mixed results from mid-February through March. Several contacts indicated improvements in profit margins and sales over the last three months, while others noted that they experienced the result of consumers taking a hit with the expiration of the payroll tax cut, increased fuel prices, a delay in income tax refunds, and increased health insurance premiums. Yet, even with these challenges, most retailers remained reasonably upbeat. District automotive contacts cited favorable sales for the same time period.
Travel and tourism activity remained robust and continued to exceed expectations, especially in the leisure segment. Although government and business bookings decreased due to location restrictions and/or budgetary constraints, overall demand remained healthy. Concerns that gas prices could dampen summer travel continued; however, hospitality contacts anticipate activity to still exceed 2012 levels. International visitation for leisure and convention travel continued to be a strong contributor to growth despite the strength of the dollar.
Real Estate and Construction. According to District brokers, housing markets across the region continued to improve. Recent sales growth was described as strong on a year-over-year basis. Existing home inventories continued to contract and brokers noted that this was restraining sales. Furthermore, many reported receiving multiple offers on properties, particularly at the low-end of the market. Most indicated that home prices rose modestly compared with a year earlier. Appreciation was strongest among Florida contacts. Overall, the outlook for existing home sales growth over the next several months remained positive.
Similar to our last report, homebuilders reported that recent new home sales were ahead of year earlier levels, and they noted improving levels of buyer traffic across the region. Just over half said that new home inventories were below the year-ago level. The portion of builders characterizing home prices as up relative to a year ago also rose compared to our previous report. Reports also cited that new home construction was ahead of last year’s level. Contacts remarked that access to construction financing had improved somewhat from late last year, but the majority continued to report that the number of actual loans made was still short of demand. The outlook for construction activity and new home sales over the next several months remained positive with most anticipating levels to be slightly ahead on a year-over-year basis.
District commercial real estate contacts indicated that the first quarter of this year had started off solid compared with the end of last year. Commercial brokers reported that net absorption was positive. Contacts also noted growing optimism as businesses in the office and industrial sector began to position themselves for growth over the next 12 to 18 months. However, the demand for retail space remained soft across most of the region. Contacts remarked that investor interest had spread to secondary and tertiary markets, particularly in the apartment sector where demand had been especially strong. Commercial contractors cited that construction improved from late last year and backlogs were up as well. Activity was dominated by build- to-suit projects. Most contacts expect District commercial real estate markets to improve further this year.
Manufacturing and Transportation. Regional manufacturers reported that activity expanded for the third consecutive month in March. Increases in new orders, production, employment, and finished inventory contributed to the highest level of manufacturing activity since May 2012. Contacts noted profit margins slightly improved from mid-February through March. However, they do not expect production to be as high in the coming months as they had in our previous report.
District trucking contacts reported a slowdown in volume, citing reduced imports of retail goods from west coast ports, along with poor weather conditions. Still, volumes were ahead of year earlier levels. Strong movement of housing-related materials was cited as the housing recovery continued. Railroad companies described activity as flat to slightly down. Chemicals and oil and gas showed the strongest growth, while coal reflected some softening, particularly in export of thermal coal. Intermodal growth remained solid and the movement of forest products also improved. Domestic air freight traffic was up slightly, and international tonnage grew compared to the same period last year, marked by increases in Asian volumes and exports to Europe and Latin America, specifically Brazil.
Banking and Finance. Driven by historically low rates, consumers continued refinancing mortgage loans and businesses continued restructuring debt. Competition remained intense for high quality loan applicants and community bankers noted that large regional and national banking organizations were more willing to offer lower fixed-rate, longer-termed loans to attract these customers. Many community banking contacts indicated that their institution had exited the mortgage lending business altogether because of increased regulations. Some stated that commercial real estate loan demand had increased, particularly for branded hotel construction, healthcare, and multi-family projects. Banks also cited more willingness to lend to small businesses; however, the overall demand for loans and credit line usage continued to remain low. Credit spreads remained tight and some bankers reported downward pressure on loan pricing.
Employment and Prices. Since our last report, payroll growth continued to increase at a lackluster pace across the District, though contacts continued to report that uncertainty over fiscal policy and healthcare reform were contributing to reluctance in hiring. In Florida and Georgia, the two states in the District with the largest concentrations of employment, unemployment rates declined slightly since the previous report, while unemployment rates have fluctuated in the four other states due to changes in the size of those states’ labor force.
Input costs remained mostly stable. Increases in prices for fuel and construction materials were viewed by most firms as transitory. Year-ahead unit cost expectations were 1.9 percent in February and March, roughly unchanged since the beginning of the year, according to the Atlanta Fed’s Business Inflation Expectations Survey. Most businesses noted very little pricing power. Exceptions were transportation contacts who were able to successfully cover cost increases using fuel surcharges, and retailers, whose profit margins improved as sales levels ticked up somewhat over the reporting period.
Natural Resources and Agriculture. The energy industry remained an especially bright spot in the region. In particular, projects to increase the Gulf Coast’s liquefied natural gas (LNG) export capacity--through investment in new LNG export facilities at ports and new transportation infrastructure, like pipeline and LNG tanks--were strong drivers of capital and labor demand.
Drought conditions improved significantly in Georgia, southeastern Alabama, and the Florida panhandle. Since the last report, monthly soybean and corn prices rose moderately, while broiler prices reached record highs. Cotton prices continued to be below year-ago levels, but rose modestly since the last report. Driven by increasing global demand and low interest rates, contacts reported continued investment in new, more efficient equipment reducing both labor and fuel costs.
SOURCE: Federal Reserve Board