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. Reports from Sixth District business contacts indicated that economic activity expanded moderately in late November and December, with most expecting continued modest growth in early 2013.
District merchants cited mildly positive holiday sales, while tourism contacts noted continued strength in both business and leisure travel. Residential real estate contacts experienced ongoing modest sales growth for both new and existing homes on a year-over-year basis, while commercial contacts described demand conditions as improving, especially in the multifamily segment of the market. Manufacturers, on the other hand, noted a decline in orders and production. Reports from bankers indicated that loan demand had strengthened, driven in large part by an increase in mortgage lending. Employment levels across the District expanded at a modest pace, while pricing pressures remained subdued.
Consumer Spending and Tourism. District contacts reported cautious optimism following a robust start to the holiday season. While sales were better than expected over the Thanksgiving weekend, reports covering the entire holiday season showed that total sales, although above year-ago results, did not appear to meet expectations. Deep discounting was prevalent throughout the holiday season. Auto sales remained robust and truck sales were somewhat positive with sales of replacement vehicles driving the growth for that segment.
Travel and tourism contacts continued to report strong activity. Hospitality contacts noted increases in visitation and spending in the final quarter of 2012. Lower gasoline prices boosted leisure travel. Business travel and attendance at major conventions also increased. International visitors continued to lift tourism activity and advance reservations of international travel have exceeded expectations. The outlook for 2013 remained positive with hospitality contacts projecting increases in occupancy rates and revenue per available room.
Real Estate and Construction. The majority of District residential brokers reported that recent existing home sales were ahead of year earlier levels. Sales growth was strongest in Florida. Most brokers in the region again noted declining inventories and rising home prices. Buyer traffic remained ahead of the year-ago level by most accounts. For 2013, most anticipate home sales growth will continue to improve slowly.
Reports from District homebuilders were a bit more positive than in our last report. Builders reported that recent new home sales and construction activity were slightly ahead of year-earlier levels. The majority of builders continued to report that new home inventories were below the year-ago level and prices were up slightly. Buyer interest remained strong but several builders continued to note difficulty securing development and construction financing. Despite the challenges, the outlook for construction activity remained positive and builders anticipate new home sales in 2013 to exceed 2012 levels across many parts of the District.
Reports from District commercial contractors indicated that the pace of construction activity improved modestly from the third to fourth quarter and was ahead of the previous year’s performance. Apartment development was particularly strong. The pipeline for commercial construction at the end of the fourth quarter was greater than the year-ago level by most accounts. Most said that commercial construction development financing remained scarce. However, the outlook for 2013 remained positive as most contacts expect commercial construction activity to be slightly ahead of 2012 levels. Commercial brokers indicated that most office, industrial, and retail markets in the District experienced modestly positive absorption rates. Overall, contacts continued to anticipate steady, but slow improvements in District commercial real estate markets during 2013.
Manufacturing and Transportation. Manufacturing contacts in the region reported that new orders and production contracted in December. Finished inventory levels also declined from the previous month. However, nearly half of manufacturing contacts expect production to be higher than current levels over the next three-to-six months, up from just under one-third in November.
Trucking contacts reported a notable increase in tonnage in November, representing the first gain since July 2012, and offsetting a drop in October’s readings. Reports suggested that Hurricane Sandy affected both months’ readings. A large truck dealer reported it is expanding sales to include flatbed trailers in response to anticipated increased movement of construction materials as a result of improvements in the housing sector. Railroad contacts reported an increase in total carloads in November over year-ago levels with the largest increases occurring in chemicals and agricultural products while declines were noted in coal, metallic ores, and metals. Concerns grew over low river levels that have led to delays in Mississippi River barge traffic.
Banking and Finance. Many banking contacts indicated loan demand had increased and they’ve added lending specialists to deal with current and anticipated demand. Competition for quality borrowers remained fierce and there was some indication that banks were more willing to increase their tolerance for risk. Auto lending remained active and some depository institutions noted more loan growth in November and December. Low rates encouraged mortgage activity, and purchases accounted for a larger share of mortgage loans than in the recent past. Community banks reported spending a larger portion of their income on compliance and remained concerned about increasing regulatory pressures.
Employment and Prices. Since the last report, payroll growth increased mildly across the District, though contacts said that uncertainty over fiscal policy and healthcare costs tempered hiring decisions. Aggregate gains in job growth across the District were fueled largely by strong job growth in Florida and Louisiana. Contacts in Florida’s leisure and hospitality industry reported moderately improved hiring expectations, while the construction, retail, and energy sectors in Louisiana saw relatively healthy increases in employment in November and December.
Pricing pressures remained subdued, according to results from our December Business Inflation Expectations survey which indicated that unit costs were up 1.5 percent over the past 12 months, which is down from 1.7 percent in November. Margins improved somewhat in December, especially for retail contacts who reported being able to pass on slightly higher markups compared to the holiday season in 2011. Looking forward, year-ahead unit cost expectations of businesses were 1.9 percent in December, moderating from 2.1 percent the month before. Businesses continued to cite costs relating to tax policy, regulation, and healthcare as sources of uncertainty going into 2013.
Natural Resources and Agriculture. Planned investments, ranging from reserve development to increased refining and petrochemical operations to new pipeline infrastructure, continued to take place in the energy sector. For example, preparation for development of a large gas-to-liquids (GTL) and ethane cracker complex in Louisiana was announced, which is expected to increase the region’s production capacity for GTL diesel and ethylene. Separately, industry contacts maintained that higher margins for natural gas liquids and other associated products continued to warrant ongoing drilling in natural gas wells, despite low prices for natural gas. In the midst of an apparent surge in investment activity in the energy industry, District contacts continued to cite a shortage of specialized skilled labor as a significant hurdle facing expansion plans going forward.
Prices for corn, soybeans, beef, and poultry remained above year-ago levels, while the price for cotton was lower than this time last year. Dry conditions persisted in much of the District, although late December rains helped many areas in the region.
SOURCE: Federal Reserve Board