U.S. Federal Reserve Beige Book: Atlanta District (Text)undefined
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 at a modest pace in June and early July. The outlook for the rest of the year remains optimistic for most firms.
Retailers noted mixed sales results and vehicle sales grew at a robust pace. The hospitality sector continued to experience strong demand. Most brokers and homebuilders reported increases in sales and prices, and declining home inventories. Commercial contractors cited improvement in overall demand and a slight increase in construction. Manufacturing firms indicated that activity grew, albeit at a slower rate than in our previous report. Loan demand remained stable for residential real estate, while loans for autos outside of the dealership remained constrained by competitive offers from auto manufacturers. Employment growth for the District was modest. Firms remarked that stable input prices have helped improve profit margins slightly.
Consumer Spending and Tourism. Reports from District retailers were mixed. While most merchants experienced modest growth, growth was lower than expected in some cases. Some attributed lackluster sales to weather conditions. Auto dealers continued to experience strong growth.
Travel and tourism activity continued to exceed expectations. Contacts throughout the District reported that key indicators of demand (visitation, hotel occupancy, average daily rate, and revenue per available room) and profitability were positive and steadily rising. In spite of increases in accommodation rates, demand remained strong with advanced bookings for the next three to six months increasing to levels above those from a year ago. With strong convention and group meeting activity planned for the remainder of 2013 and positive lead volume for 2014, District hospitality contacts anticipate the positive momentum of 2013 to continue in 2014.
Real Estate and Construction. District brokers continued to report that existing home sales remained ahead of last year’s level were mostly ahead of expectations. However, brokers still report that inventories remain at low levels, and thereby restraining sales. Shortages were also said to be putting upward pressure on home prices. Existing home prices continued to rise on a year-over-year basis. The outlook for sales growth remained positive, with the majority of brokers anticipating sales gains over the next several months.
District homebuilders reported that new home sales and construction were ahead of year earlier levels. Recent activity was mostly in line with expectations and buyer traffic remained strong. However, builders noted that access to financing and a shortage of developed lots continued to constrain construction activity. Most contacts reported that new home inventories were below the year earlier level and prices rose modestly. The outlook for construction and new home sales remained positive, but the outlook for growth moderated somewhat compared with our last report.
District commercial real estate contacts indicated that demand continued to improve from earlier in the year. Construction activity was described as flat to slightly up from earlier this year and was dominated by build-to-suit projects and renovations of existing space. While a wider variety of projects seems to be in the works compared with a year ago, activity was still concentrated in medical office space, certain types of retail, and apartments. Commercial brokers indicated that demand for space improved at a modest pace. 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 this year.
Manufacturing and Transportation. Regional manufacturers reported expanding activity; however, the rate of growth slowed as a result of a decrease in new orders, production, and finished inventory. Contacts reported a slight decline in commodities prices and some expressed that inventories may build in some sectors as manufacturers take advantage of favorable prices. Less than half of purchasing managers expect production to be higher in the next three to six months, slightly lower than our previous report.
District port contacts cited notable year-over-year growth in container trade, autos and machinery, and bulk cargoes, including a significant increase in the exporting of natural gas. Trucking companies cited a rise in shipments of building construction materials, as well as chemicals; however, capacity remained constrained due to driver shortages. Total year-to-date railroad volumes were reported to be flat through June, but significant activity was noted for petroleum-related products and other chemicals, forest, lumber and wood products, and metallurgical coal.
Banking and Finance. Some institutions reported a pickup in mortgage loan demand attributed to improved housing markets and increasing interest rates. They also indicated that while mortgage refinancing had slowed, new purchase loan demand had increased. Demand for automobile loans declined as banks and credit unions noted they could not compete with zero percent deals from auto manufacturers.
Some bankers indicated vigorous competition for loans has led them to change loan features, such as relaxing guarantee requirements or covering a substantial chunk of closing costs. Local community bank contacts had eased up on covenants and guarantees and were willing to take more risks, particularly when a loan fit a category in which they were interested. Some businesses were courted with offers to refinance debt with eased covenants and restrictions, while others indicated financing was still a major impediment to new construction projects and securing funding remained difficult.
Employment and Prices. Since the last report, District payrolls grew at a modest pace. Tennessee experienced moderate payroll gains in retail, trade and transportation, professional and business services, and manufacturing. Alabama continued to see hiring in hospitality services, most notably in accommodation and food services. Louisiana added jobs in construction, and education and healthcare. All District states saw payroll contractions in their government sectors, with the exception of Mississippi, which showed a mild gain at the state government level.
In general, most input costs remained relatively stable, helping to support slightly stronger profit margins in the face of improving, but still below pre-recession sales levels. Some notable exceptions were costs related to construction materials such as lumber, concrete, and drywall, which increased for a number of contacts. The Atlanta Fed’s Business Inflation Expectations survey showed year-ahead unit cost expectations ticking down from 2 to 1.8 percent in June, marking the lowest reading since January.
Natural Resources and Agriculture. Regional oil and gas activity remained robust. Significant capital investment continued in liquefied natural gas (LNG) facilities along the Gulf Coast. Expansion projects on existing refineries were noted as moving along, marking the first time such investments have been made in twenty years. There were some comments that high costs to transport oil and gas by rail, barge, and truck were exerting upward pressure on prices for refined products. Contacts also indicated that capacity for oil and natural gas products remained abundant and that domestic demand for energy products was beginning to rise for the season.
Since our last report, soil throughout much of the District improved to more favorable, drier conditions. Pasture conditions improved as well. Monthly prices paid to farmers were up for cotton, soybeans, corn for grain, rice, citrus, hogs, and broilers. During this same period, beef prices were down slightly, but still moderately higher than this time last year.
SOURCE: Federal Reserve Board