U.S. Federal Reserve Beige Book: Atlanta District (Text)
The following is the text of the Federal Reserve Board’s Sixth District-- Atlanta.
Summary. On balance, Sixth District business conditions appear to have improved modestly in January and early February and the outlook among most contacts remained generally optimistic across sectors.
Overall, retailers cited mild sales growth at the beginning of the year. The District’s tourism industry remained a bright spot with both domestic and international visitors contributing to its growth. Homebuilders and brokers noted home sales and prices were above year-ago levels for new and existing homes, while commercial real estate markets continued to witness slow but steady improvements in overall activity. Manufacturers reported increases in new orders and production. Reports from bankers suggested that loan demand remained constant, largely because of refinance activity. Hiring in District labor markets expanded at a modest pace and prices generally remained flat compared with late last year.
Consumer Spending and Tourism. District merchants noted a slight negative effect on consumer spending from the resumption of the full Social Security tax. Reports also indicated that expectations of higher healthcare costs and gasoline prices have contributed to a modest decline in consumer confidence. However, reports showed that sales were up on a year-over-year basis at chain stores. Discounts continued to bolster consumer activity, and auto dealers continued to cite strong sales growth. Hospitality contacts characterized travel and tourism activity as strong in January and early February. Hotel occupancy rates exceeded expectations and advanced bookings were above the year-earlier pace. International visitors provided a boost to the industry, with European visitors setting record-level activity in recent months. Domestic travel and tourism also remained healthy, despite concerns about rising gas prices. Occupancy rates have been projected to continue increasing with expectations of little cost pressure. Contacts remain optimistic and anticipate persistent growth for the next three to six months. Real Estate and Construction. According to District brokers, sales growth moderated somewhat on a year-over-year basis but the majority reported that sales were ahead of year earlier levels. Existing home inventories continued to contract and several brokers reported that this was constraining sales. Many noted that properties were receiving multiple offers, particularly at the low-end of the market. Home prices were reported to be ahead of the year earlier level and spring home sales are expected to exceed the year earlier level, as well.
The optimism District homebuilders expressed in our last report continued. Builders reported that recent new home sales and construction activity were ahead of year earlier levels. The majority of builders continued to note that new home inventories were below the year-ago level. More builders than in our last report indicated that new home prices were above the year earlier level. Access to construction financing remained mostly tight but several brokers and builders stated that they were successful in obtaining financing. The outlook for construction activity and new home sales over the next several months was positive.
Contacts cited improvements in District commercial real estate markets but the recovery continued to unfold slowly. Multifamily projects dominated reports, although it was also noted that manufacturers were expanding their facilities. Commercial contractors reported that construction improved modestly from late last year. Commercial brokers indicated that demand improved as well. Rents stabilized by most accounts and tenants were seeking longer lease deals. Investors still have a strong interest in core markets, though there has been some indication that some have started to turn to secondary markets in the region.
Manufacturing and Transportation. Reports from businesses indicated that manufacturing in the region improved in January and early February. Contacts cited the highest activity level since last September. All components of the Southeast Purchasing Managers’ Index experienced increases with new orders, production, and employment reflecting particular strength. The number of purchasing managers that expect production to be higher in the next three to six months increased compared with the end of last year.
District rail companies reported lower total carloads from a year earlier, but slight increases in intermodal traffic. Petroleum products and metallic ores were cited as strong, while grain, farm products, and iron and steel scrap were down notably. A District port contact noted strong increases in overall tonnage as well as auto and machinery units compared with a year earlier. This volume was boosted in part by growth in bulk and wheeled cargo, and year-over-year increases in container traffic were described as notable. Several District port contacts continued to report significant investment in infrastructure and equipment improvements.
Banking and Finance. Bankers reported that mortgage loan demand was good, but continued to be largely driven by refinancing. However, some bankers expect the refinance market to ease up by mid-year as regulatory changes related to reselling mortgages on the secondary market becomes more stringent. Many indicated the willingness to lend, but some noted that competitors were offering loans at terms perceived as risky in the long run. Institutions were noted as having the capacity to handle increased loan volumes, but some continued to be conservative. Auto loan activity remained strong.
Employment and Prices. Since the last report, employment growth for the District has been moderate. High-end retailers reported increased sales that have translated into mild increases in staffing levels. Real estate contacts said they have yet to experience gains that would warrant increasing their staffing levels significantly. Similarly, community bankers noted increased optimism on the real estate front, but are restricting employment levels because of uncertainty related to upcoming regulatory change. On balance, firms providing accounting and consulting services to healthcare providers reported much-increased demand because of regulatory changes, resulting in shortages of compliance specialists.
Inflation expectations among business contacts have been little changed over the past six months. However, costs relating to tax policy, regulation, and healthcare remained sources of uncertainty going into 2013. Firms responding to our Business Inflation Expectations survey reported that unit costs were up 1.7 percent in February over the past year, roughly unchanged from their assessment late last year. Looking forward, business expectations for inflation have been relatively stable. On average, firms expected unit costs to rise 1.9 percent over the next 12 months. Compared with the end of last year, service industry contacts noted that stronger sales were likely to put upward pressure on prices over the next year. Manufacturers indicated that they expect to improve margins in 2013, as sales improve and materials costs moderate somewhat.
Natural Resources and Agriculture. As domestically produced oil has become increasingly available, Gulf Coast refiners reported declining dependence on imported crude for processing, and more refined product being exported. There was some concern that oil and petroleum product export capacity at Gulf of Mexico ports was becoming strained; however, contacts noted that planned investments at these ports were likely to increase export capacity going forward.
Recent rains improved drought conditions in Alabama and Georgia, while Florida saw dry conditions expand over most of the state. Prices for corn, soybeans, beef, broilers, and eggs were higher than year-ago levels while the price for cotton was down. Contacts continued to report that groups with no agriculture experience were looking to buy farmland as they seek better investment returns.
SOURCE: Federal Reserve Board