U.S. Federal Reserve Beige Book: Atlanta District (Text)

The following is the text of the Federal Reserve Board’s Sixth District-- Atlanta.



Businesses across the Sixth District described economic activity as moderately increasing from October to mid-November. Most contacts expect the economy to expand at a slow, steady pace for the remainder of the year but remain positive as they anticipate improving conditions for next year.

While auto sales remained stable, reports on other components of consumer spending were mixed. The travel and tourism industry was a bright spot for the District as overall activity continued to expand. Residential real estate brokers indicated that growth of existing home sales had slowed, while homebuilders saw sales growth increase over a year ago. Commercial contractors noted that activity increased, albeit at a modest pace. Manufacturers reported mild gains in new orders and production. On balance, bankers noted better loan demand. Wages and input prices continued to increase at a slow and steady pace.

Consumer Spending and Tourism

Retailers cited mixed results from October to mid-November. District retail contacts indicated that economic uncertainty was having an impact on consumer confidence and behavior. Although merchants reported plans to offer robust discounting, beginning even earlier than the traditional Black Friday, retailers’ expectations for the upcoming holiday season are only mildly optimistic. Sales of light vehicles were steady.

Hospitality firms continued to cite expanding levels of activity in both leisure and business travel. Industry contacts expect a robust holiday season and continue to anticipate strong performance for the first half of 2014. Overall, the industry is forecasting continued growth in business and leisure travel and a healthy influx of international visitors based on reports of advanced bookings.

Real Estate and Construction

District brokers indicated that growth of existing home sales have slowed notably in recent months. The majority of brokers said sales were flat to slightly up compared with a year earlier but were below their plan for the period. Most brokers indicated that the government shutdown had an impact on their business, including confusion about the availability of government insured mortgages, delays in processing loans, and reduced consumer confidence. By most accounts, inventory levels continued to decline on a year-over-year basis. Home prices remained ahead of the year earlier level but price gains seemed to be slowing. The outlook among brokers has waned since our last report. Most anticipate that sales will be flat to slightly up on a year-over-year basis over the next several months.

District builders indicated that recent activity was in line with their plan for the period. The majority of builders noted that new home sales and construction were ahead of the year earlier level. However, similar to broker reports, homebuilders noted that the government shutdown impacted their business, as well. Reports on unsold inventory were mixed while modest home price appreciation continued to be noted. The outlook for new home sales and construction remained slightly positive.

District commercial brokers noted that demand for space continued to improve modestly. Construction activity slightly increased as well, from earlier in the year. Most contractors said that activity in the third-quarter was ahead of the year-ago level. New build-to-suit projects continued to break ground across the region while landlords also updated space to make it attractive for tenants to rent. Once again, brokers indicated that most markets still favored tenants; however, rental rate increases continued to be noted in select submarkets. The outlook among District commercial real estate contacts remained positive with further improvements expected early next year.

Manufacturing and Transportation

District manufacturers reported gains in new orders, production, and employment in October compared with the previous month. An increasing number of contacts cited higher than desired finished inventory levels and that commodity prices continued to rise, albeit at a modest rate. Manufacturers also noted a mild decrease in supplier delivery times. Although overall production increased, expectations for production have fallen with approximately one-quarter of manufacturing contacts expecting production to increase over the next three-to-six months, compared with one-third from our previous report.

Railroad contacts continued to cite significant increases in shipments of petroleum products and nonferrous scrap metals, as well as metallurgical coal; however, rail traffic year-to-date is up only slightly. District port contacts reported record levels of container shipments, bulk cargos, and truck and intermodal freight. Trucking tonnage continued to increase year-over-year from heavier freight loads of energy products, housing construction materials, and autos. Contacts cited significant investment in the production of Liquefied Natural Gas (LNG) for use in the transportation sector. A majority of regional transportation contacts indicated that their customers’ do not expect to meet their holiday season volume expectations, although some logistics firms have forecast record volumes due to online sales.

Banking and Finance

Banking contacts reported better overall lending activity, relative to our previous report, although loan demand in rural areas remained low. Commercial real estate lending increased as property values rose; commercial and industrial and auto lending was strong. Mortgage lending and refinancing activity slowed as mortgage interest rates increased. Deposit levels were high at most institutions and banks continued to competitively seek out quality-loan customers. Some banks loosened underwriting standards and reduced margins to attract new loan business.

Employment and Prices

On balance, contacts across the private sector reported that the government shutdown had little-to-no direct impact on employment, but has negatively affected business confidence, which could translate into delayed hiring decisions in the present or near term. Contacts continued to cite that companies looking to hire expressed concern that their inability to find qualified labor is inhibiting business expansion. Overall, firms experiencing any growth in demand for their products expressed no plans to hire in the near term.

Contacts continued to report stable pricing with no major concerns about inflation. Isolated reports of cost increases, for example in fast food, grocery stores, and construction, were generally passed through successfully to customers. Year-ahead unit cost expectations were unchanged at 1.9 percent, according to the Atlanta Fed’s survey on business inflation expectations. Overall, profit margins were tight across most industries. Aside from scattered reports of upward pressure on wages for high-skilled workers, increases remained stable (mostly in the 2-3 percent range) across most industries.

Natural Resources and Agriculture

Energy contacts continued to cite infrastructure expansion and high-capacity utilization. Rail investment has provided much needed relief to the liquids transportation bottleneck issues that arose with the increasing production from shale resources. Overall, contacts remain largely optimistic about future demand, productivity, and pricing for the industry.

Drought conditions in Mississippi and Louisiana eased while other areas in the District continued to experience abnormally dry conditions. Since the previous cycle, monthly prices paid to farmers for cotton, rice, and oranges increased while prices for corn, soybeans, beef, hogs, and poultry decreased. The most recent crop production projections for corn and soybeans were up from last year while cotton, rice, and orange projections were down. Contacts reported making investments in irrigation equipment, storage augmentation, and replacing smaller equipment with larger, more modern units as ways to improve production and/or contain costs.

SOURCE: Federal Reserve Board

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