Southeast economy expands slowly, little near-term change expected
A report from the Federal Reserve Board found that economic activity in the Southeast expanded slowly in September and said little change is expected in the near term.
The report, commonly known as the Beige Book, is issued eight times a year. It covers 12 districts, and its Atlanta district comprises Florida, Georgia, Alabama and parts of Louisiana, Mississippi and Tennessee. The most recent report was based on information collected on or before Sept. 28.
Each Federal Reserve Bank gathers anecdotal information on current economic conditions in its district through reports from bank and branch directors and interviews with business contacts, economists, market experts and other sources.
The report summarizes this information by district and sector. There is an overall summary of the 12 district reports.
The latest report for the Atlanta district said:
• Most retailers cited slow sales growth but auto dealers continued to experience strong results.
• Hospitality reports remained largely positive, with the exception of cruise lines.
• Residential brokers and builders reported that housing conditions continued to improve in many parts of the district. Sales and prices of new and existing homes slightly increased compared with a year ago.
• Commercial development continued to improve, led by multifamily construction.
• Manufacturers indicated that new orders had softened and production levels increased mildly.
• Bankers saw improvements in demand for overall loans, particularly those for housing purchases and refinances.
• Payrolls expanded modestly while wages remained relatively unchanged.
Here is more detail about the Atlanta district.
Consumer spending and tourism
Most merchants contacted in the district reported sales growth remained slow in September. Discount retail operations outperformed traditional department stores.
Most retailers said they project soft growth in sales through the end of the year.
However, contacts in the auto industry reported strong sales levels were maintained in September.
Leisure and business travel contacts continued to report strong activity and were optimistic about the remainder of the year. Occupancy and room rates as well as convention bookings were solid.
A drop in traffic from Europe was largely offset by strong visitor numbers from Canada and Latin America. Cruiseline bookings and onboard spending remained below expectations, but the industry anticipates some improvement next year.
Real estate and construction
Residential brokers indicated recent sales of existing homes were up slightly from a year earlier. Buyer traffic also remained ahead of year-ago levels.
Brokers again noted declining inventories, which continued to put upward pressure on home prices in many markets. Contacts anticipate modest gains in home prices over the next year; although neighborhoods strongly affected by foreclosures will continue to experience a weakness in home prices.
The short-term outlook for home sales remained positive overall. The majority of contacts anticipated modest gains.
Reports from homebuilders remained positive, as well. Builders indicated that recent new-home sales and construction activity were up slightly and new-home inventories remained below year-earlier levels.
However, construction remained mostly limited to more desirable locations, such as those in highly regarded school districts. Southeastern builders also reported that finished lot inventories varied across the region, but most anticipate a decline in those inventories over the next six months.
New-home prices were up slightly from a year before. Homebuilders also saw stronger buyer traffic. The outlook for construction activity and new-home sales remained positive.
Commercial contractors indicated the pace of construction continued to expand and backlogs were slightly up from earlier in the year. Apartment development continued to dominate the district’s commercial real estate market. Multifamily rent growth remained positive but slowed somewhat.
Contacts indicated office and industrial markets continued to make small improvements, while the retail sector was described as sluggish. Many contractors reported that clients remain hesitant to move ahead on new projects.
However, most anticipate construction activity will be flat to slightly up in 2013 compared with 2012.
Manufacturing and transportation
While noting that new orders continued to slow, manufacturing contacts reported mild increases in production, employment and finished inventory levels in September.
Regional auto and auto parts producers, as well as firms that supply materials to the energy exploration and extraction sector, continued to report strong levels of production, but most other durables manufacturers noted a slight deceleration in production. The production of nondurables remained soft, except for food and chemicals.
A Southeast port contact reported record-setting cargo volumes in fiscal 2012, with increases across all categories. Despite the underlying increase in demand tied to replacement of aging truck fleets and the benefits of increased fuel-efficiency, new orders for heavy-duty trucks have stalled recently.
Rail contacts reported lumber shipments have increased. Air-cargo companies saw an increase in cargo volume tied to the launch of smartphones and tablets, which favor shipment by air over other forms.
Banking and finance
Banking contacts reported an increase in demand for mortgage loans for both purchases and refinances, although some noted fewer than half of the applications were approved.
The improvement in demand was driven by activity in entry-level homes. Demand for auto loans remained strong. Business lending increased slightly, although most of the increase primarily was from customers switching from other lenders or credit cards.
Employment and prices
Regional employment growth picked up slightly in September, but remained muted.
Reports indicated that sectors related to energy, autos and housing added the most jobs.
Reports also cited deepening ties between private employers, education representatives and government officials to address training deficiencies for high-demand positions.
The majority of contacts reported stagnant demand is the major reason for the sluggish employment trends, although uncertainty related to fiscal policy continued to weigh on some hiring plans.
Surveyed firms reported that sales levels were 7.6 percent below “normal” times, although small and medium-sized businesses reported about twice as much slack as their larger counterparts.
Natural resources and agriculture
After brief, precautionary shutdowns related to Hurricane Isaac, regional refiners fully restored operations with very little damage from the storm. Energy industry contacts continued to report that Gulf Coast refineries were undertaking investments to increase production capacity following refinery closures elsewhere in the country.
Natural gas prices continued to experience downward price pressures. Contacts continued to note that inexpensive natural gas had prompted downstream manufacturers to relocate overseas operations to the U.S., prioritizing locations near refining operations.
Agriculture contacts said that the rise in some crop prices, resulting from the drought in the Midwest, had led to increased crop production in the Southeast where soil conditions were more favorable, but the overall rise in feed prices was putting pressure on livestock producers.
Compared with the same time last year, prices paid to farmers for corn, rice, soybeans, beef and broilers were up, while cotton prices were down.
The next report is scheduled for Nov. 28. It will be the last one for the year.