Southeast Housing Update: Exploring the Recent Slowdown
Following several months of somewhat disappointing reports on home sales and housing starts, we decided that it was time to ask the residential brokers and builders who participate in our monthly housing market poll to revisit the factors that may be contributing to slower-than-hoped-for growth.
When housing’s momentum began slowing in mid-2013, many contacts pointed to rising mortgage rates as the reason. Then in early 2014, many attributed the continued sluggishness to inclement weather. Although it seemed that weather did, in fact, play a role, our business contacts reported that less affordable buying conditions (for example, higher rates and prices) and limited inventory were greater culprits.
So what is the reason now? Our latest poll results suggest that contacts continue to believe that less affordable buying conditions and limited inventory—plus tight credit conditions—are the main factors behind the slowing activity (see the table).
Although the results of this special question help us as we think through what might be contributing to the weak growth, it is important to acknowledge that the incoming data (and upwardly revised data from the past few months) suggest that housing activity might not actually be slowing to the degree we previously thought. And in fact, a quick look at the latest poll results (without considering the special question) might also lead one to conclude that regional housing market conditions remain fairly positive. To explore the latest results in more detail, please view our Construction and Real Estate Survey results.
Note: The latest poll results reflect activity in July 2014 and are based on responses from 44 residential brokers and 16 homebuilders and were collected August 4–13. If you would like to participate in this poll, please consider signing up.
By Jessica Dill, senior economic research analyst in the Atlanta Fed's research department
Southeast Commercial Construction Update: Activity Up from Last Year
At the national level, total nonresidential construction spending fell 2.78 percent between May and June but increased 4.6 percent from the year-earlier level. Because nonresidential construction projects tend to take place over longer time horizons, it’s useful to aggregate the data by quarter to smooth out their short-term volatility. Doing so reveals that nonresidential spending increased slightly (just shy of 2 percent) between the first and second quarters of 2014 and that it increased by 6.7 percent from the second quarter in 2013.
Does the Southeast commercial construction picture align with the national one? The Atlanta Fed polls southeastern business contacts engaged in commercial construction each quarter to track and better understand regional trends in construction activity. The latest poll results appear to echo the national story, suggesting that a pickup in commercial construction activity was sustained through the second quarter of 2014.
Most respondents indicated that the pace of nonresidential construction activity in the Southeast was either ahead of the year-earlier level or remained unchanged from the year-earlier level. All contacts reported that the pace of multifamily construction had increased from year-earlier levels (see the charts).
Several comments from respondents help to illustrate these trends:
- “More projects to go after in all markets, but competition is still very intense.”
- “Multifamily supply continues to grow at a strong pace.”
- “For the first time in six years we are beginning to see much larger projects in the healthcare, commercial and industrial markets.”
- “Apartment construction remains at a high level and brings concerns that the market will become overbuilt. Each month it seems there are more announcements for new apartment projects.”
Half of all respondents reported that backlog was greater than the year-earlier level; the other half indicated that backlog was similar to the year-earlier level. Although this response represents a drop from the last two quarterly measures of 89 percent and 76 percent, it is still an indication that the pipeline of future activity remains fairly robust.
The number of respondents reporting that the amount of available credit met or exceeded demand continued to increase from earlier reports. Sixty-eight percent of contacts in the second quarter 2014 indicated that credit was sufficient, compared with 60 percent the previous quarter and 57 percent one year earlier (see the chart).
The majority of contacts reported that they plan to increase hiring during the next quarter. Seventy-five percent of contacts in the second quarter 2014 reported that they were planning to do modest to significant hiring, slightly down from 79 percent the previous quarter but up from 57 percent one year earlier (see the chart).
Compared with a year earlier, more contacts (roughly one out of three) indicated that they were having a difficult time filling positions (see the chart).
All contacts reported some degree of upward pressure on labor costs. Sixty percent of contacts indicated that their labor costs had increased more than 3 percent from year-earlier levels. A growing share reported labor cost increases of 6 percent or more (see the chart).
The next poll will open on October 6, 2014. If you are a commercial contractor and would like to participate in this poll, please let us know by sending a note to RealEstateCenter@atl.frb.org.
Note: Second quarter 2014 poll results were collected July 7–16, 2014 and are based on responses from 20 business contacts. Participants of this poll included general contractors, subcontractors, lenders, developers, and material fabricators with footprints of varying sizes across the Southeast.
By Jessica Dill, senior economic research analyst in the Atlanta Fed's research department
The View from South Florida
The Miami Branch of the Atlanta Fed is responsible for gathering economic information from Florida's 13 southern counties, plus the travel and tourism industry for the entire Sixth District. We gather this information from business executives, community leaders, the Miami Branch's board of directors, and the Travel and Tourism Advisory Council via the Regional Economic Information Network, all of which helps support the formulation and implementation of sound monetary policy.
Business contacts in South Florida have reported continuously improving business sentiment since January 2014, with the most upbeat reports coming in June and July.
General business conditions
During the last Federal Open Market Committee cycle, which ran from June 19 to July 30, contacts in the private sector reported robust demand in most industries, although government spending remained soft in South Florida. Several small business contacts discussed their capital expenditure projects that are under way to help meet increased consumer demand. Although these contacts acknowledged that the availability of credit has improved, they noted that the process of obtaining a loan from a traditional lender takes longer now than before the recession, partly the result of increased due diligence. As a result, according to our contacts, small businesses are using internal cash flow, nontraditional banks, or private investors to finance their growth.
The tourism sector continued to report increases in consumer spending, and retail contacts reported that lower-income consumers tend to avoid discretionary expenditures. Contacts in real estate sales and construction in South Florida report ongoing significant expansion.
Contacts indicated increases in mergers and acquisitions, facilitated in part by the low interest rate environment. However, the near-term implication of these mergers and acquisitions could be a reduction in available jobs since cost synergies are generally an important element of these transactions.
Employment and labor markets
Business contacts continue to report a concern with a skills gap between job seekers and available job opportunities. Some contacts report expanding their training and development offerings for employees. However, most are requiring applicants already to possess experience in their field. According to the attendees of a human resources roundtable, the skills gap is especially prominent in specialized fields (for example, mechanics, plumbers, and welders). Many specialists attribute the discrepancy to the social emphasis that every high school graduate should pursue a four-year degree. Also, business contacts continue to express concerns that immigration laws are hindering the relocation of talent from abroad.
Some wage pressures are being reported at various levels, and some employers are making small midyear adjustments. Most contacts report hiring highly skilled talent at higher salaries and also adjusting the wages of current highly skilled employees during their regular review cycle. Some contacts expressed concern that rising health care costs passed down to employees could suppress real wage growth.
Costs, prices, and wages
Business contacts in the manufacturing sector reported increases in input costs, and they expect that they will incur additional increases before the end of the year. Most have been able to pass the increases on to their customers. Tourism contacts continued to report price increases for hotel rates, food, and attractions, and these increases were passed on to customers with no impact on consumer demand.
Availability of credit and investment
Business contacts indicated that most of their contacts are investing in capacity expansion, anticipating improved demand, and some of them indicated that any capital expansion is the result of delayed investment. The requirements to qualify for a mortgage are much more stringent than before the recession, making the process for home buyers, particularly first-time home buyers, a challenge.
Banking contacts all report being well capitalized and having sufficient money to lend. Large banking contacts report that loan production has increased, although they are not afraid to turn down clients—their rejection rate is higher than prerecession levels. According to contacts, some small banks are taking on more risk by extending the duration of loans and becoming more aggressive on deals the larger banks are unwilling to finance. Alternative lenders are offering a "merchant cash advance" product, which is a high-priced commercial product geared primarily to small businesses for short-term financing.
Overall, as 2014 progresses, business contacts continue to report positive activity and demand with growing enthusiasm. Tourism throughout the region is thriving, with record-breaking reports from South Florida and a very optimistic outlook for the remainder of the year.
By Marycela Diaz-Unzalu, a Regional Economic Information Network analyst in the Atlanta Fed's Miami Branch
Taking Tennessee's Temperature
During the most recent cycle of the Federal Open Market Committee (which ran from June 19 to July 30), the Atlanta Fed's Regional Economic Information Network (REIN) team at the Nashville Branch met with business leaders, including branch directors, to discuss economic conditions.
General business conditions
Our REIN contacts in Middle and East Tennessee remain optimistic about the prospects for their businesses and the general economy. Most have a positive outlook and report solid growth in customer demand.
Our contacts also indicate that manufacturing is expanding robustly, with the sector running at nearly full capacity, especially the auto industry. A large building-materials manufacturer expects faster growth in the second half of 2014 as the construction industry recovers from the weather-related disruptions earlier in the year. In the Nashville area, both the commercial and residential real estate markets are doing well, benefiting from the low interest rate environment, strong net in-migration, and rising household incomes as the employment picture improves.
Employment and labor markets
Employment growth has accelerated in Tennessee during the past year, and growth momentum is strong across most major metropolitan areas in the state (see the chart).
Middle Tennessee State University's Business and Economic Research Center produces a heat map of Tennessee's employment growth by industry (based on U.S. Bureau of Labor Statistics data) that nicely illustrates what we've been hearing from our business contacts: namely, employment in construction, professional and business services, and leisure and hospitality has been outpacing growth in other industries.
As the labor market improves, businesses are increasingly sharing stories about the difficulties companies face in finding qualified workers across a broad skill spectrum. In addition, several companies have expressed concern that replacing skilled employees who are nearing retirement age will be challenging. Consequently, companies appear to be expanding internal training programs to deal with existing and potential skill shortages.
In addition to our meetings with business executives, we polled a number of mostly larger firms to find whether they experienced difficulty filling open positions. Out of 21 respondents, two-thirds said yes. Seventy percent of those respondents said that they have raised offer wages to attract new hires.
We also conducted a brief poll of 32 of our construction industry contacts. On the residential side, 75 percent indicated that it is now more or much more difficult to find skilled labor compared to the mid-2000s. Skilled labor availability is even tighter in commercial real estate—nearly 85 percent of respondents said finding skilled workers now is more difficult.
We have not heard of any pick-up in materials and other nonlabor input costs but, as mentioned above, the shortage of skilled applicants is putting upward pressure on offer wages. Several manufacturing contacts said that they increased their starting wages along with peer companies in their geographic area.
In the construction industry in particular, labor cost pressures on the residential side have increased compared to the mid-2000s for almost two-thirds of respondents to our poll. Moreover, labor cost pressures have intensified for more than three-fourths of the commercial builders we've polled.
Availability of credit and investments
In the same poll, two-thirds of the homebuilders and residential brokers said it is more or much more difficult to obtain financing for construction projects compared with the mid-2000s. And everyone on that panel said that it is more or much more difficult to obtain financing for land/lot development. Financing conditions are a bit easier for commercial builders (see the chart).
One national commercial construction firm said that financing conditions are actually easier for them now than 10 years ago. Notably, equity financing is becoming more prominent in a number of sectors as investors are looking for higher returns than they can get at financial institutions, and banks' lending standards remain rigorous.
All this said, the positive sentiment among our business contacts in Middle and East Tennessee could possibly also signal continued improvement in the health of the national economy, given that the structure of Tennessee's economy for the most part resembles that of the United States' as a whole. Be sure to check back here as we'll periodically update the Middle and East Tennessee economy.
By Galina Alexeenko, a Regional Economic Information Network director in the Atlanta Fed's Nashville Branch
Is Southeastern Manufacturing Leveling Off?
Manufacturing in the Southeast has been relatively strong in 2014. According to the Southeast Purchasing Managers Index (PMI), manufacturing activity expanded every month this year. The latest report, released on August 5, indicated that activity continued to expand in July. However, a couple of important indicators took a large step back from their recent highs.
The Atlanta Fed's research department uses the Southeast PMI to track regional manufacturing activity. The Econometric Center at Kennesaw State University produces the survey, which provides an analysis of current market conditions for the manufacturing sector in Alabama, Georgia, Florida, Louisiana, Mississippi, and Tennessee. The PMI is based on a survey of representatives from manufacturing companies in those states and analyzes trends concerning new orders, production, employment, supplier delivery times, and inventory levels. A reading above 50 indicates that manufacturing activity is expanding, and a reading below 50 indicates that activity is contracting.
The Southeast PMI fell 4.0 points in July compared with June, but the overall reading remained above the 50 threshold at 51.3 (see the chart below). July was the third consecutive month the overall index has declined. Some notable aspects from the survey:
- New orders: The new orders subindex and production subindex decreased significantly last month, declining 14.2 points. The large month-over-month decrease in new orders, while not ideal, is not entirely unusual. During the last three years, the subindex has experienced similar swings during the summer months. For instance, new orders fell 22.6 points during May and June 2012 and 11.7 points in July 2013. Still, the 24.3 point decrease over the last two months is significant.
- Production: The production subindex fell 8.5 points from June to July, and it historically has followed a similar pattern to new orders, experiencing notable falls during the summer. Meanwhile, factories appear to be increasing payrolls.
- Employment: The employment subindex rose 1.9 points compared with the previous month.
- Supply deliveries: The supplier deliveries subindex fell 3.8 points compared with June, suggesting that manufacturers are receiving their inputs slightly quicker.
- Finished inventory: The finished inventories subindex rose 4.7 points during July, indicating inventory levels are slightly higher.
- Commodity prices: Input prices fell 0.9 points in July to 57.5, suggesting that moderate price pressures continue.
Manufacturing contacts' optimism remained subdued during July. When asked for their production expectations, 40 percent of survey participants expect production to be higher in the next three to six months. That level is up from June's mark of 34 percent.
So is the stage set for another decrease in August? That's hard to say. During the last few years, manufacturing activity has tended to pull back this time of year. The national PMI, produced by the Institute of Supply Management, hit its highest level in more than three years during July. (I should note that the Southeast PMI is not a subset of the national one). That movement bodes well for the national picture and should help bolster activity in the South. It's always important to remember that although manufacturing activity may be leveling off, it is still expanding overall. So don't fret—enjoy what remains of the summer!
By Troy Balthrop, a senior Regional Economic Information Network analyst in the Atlanta Fed's Nashville Branch
Sunnier Times in the Sunshine State
During the most recent cycle of the Federal Open Market Committee (which ran from June 19 to July 30), the Atlanta Fed’s Regional Economic Information Network (REIN) team at the Jacksonville Branch talked with more than 30 Florida business leaders, including branch directors, about economic conditions. As one who has been involved with the REIN program since its inception in 2008, I can attest that, while “slow and steady” remains a theme in this economic recovery, the sentiment of our contacts over the past two months has been the most upbeat since before the recession.
General business conditions
Almost all firms reported increases in business activity. Two design/build firms indicated robust demand and reasonably strong pipelines, including a strengthening in industrial and office development. For the first time, we heard of some speculative building in the commercial sector from three different contacts. Housing continued its slow improvement, though several contacts used the word “bumpy” to describe activity. The appetite for auto purchases continued, as a recent SouthPoint post discussed, with lenders citing robust auto-lending activity. Some banks also reported that consumers are now slowly adding to outstanding credit card balances.
Employment and hiring
Labor markets tightened as the number and types of difficult-to-fill positions increased. In addition to highly skilled positions that are normally a challenge to fill (including information technology and engineering), contacts shared frustrations with filling midlevel positions such as analysts. In construction, finding subcontractors and skilled laborers was harder than normal. However, one contact saw a 20 percent annual increase in revenue as clients resumed a normal hiring pace.
Labor and input costs
Contacts reported seeing wage pressures in their organizations. For example, demand for truck drivers that one firm described as “significant” led to a 33 percent pay increase since the beginning of 2014. One retail contact reported wage increases for maintenance positions as the “construction boom in the area lures these workers away.” Most contacts previously noted merit programs of between 2–3 percent. However, for the first time, several contacts discussed plans for more aggressive increases of 4–5 percent. Regarding health care, most anticipate premiums to continue growing significantly, and many have self-insured to mitigate rising costs.
Most contacts described nonlabor input cost increases as benign. Although the cost of some construction-related materials was a cause for concern earlier this year, most of this volatility has dissipated. While most contacts do not claim much pricing power, some companies are seeing improved margins as they are able to push through increases in the form of higher sales prices.
Credit and investment
Contacts at medium and large companies noted that while credit is readily available, many are still risk-averse and avoiding taking on debt, relying instead on cash flow or internal reserves to fund projects. Companies that do borrow are undergoing “rigorous but rational underwriting.” One construction contact said that many of his larger clients are no longer just catching up from the recession but are now willing to take risk and invest in adding capacity. A bank also reported more risk-taking among customers, especially in commercial real estate and equipment leasing. At the consumer level, real estate agents and lenders referred to qualified mortgages as something of an impediment to mortgage loan activity, but they generally viewed the more rigorous process as worth the effort to reduce risk.
Since June, the consensus from REIN contacts at the Jacksonville Branch was largely positive. Overall demand conditions have improved, though some expressed concerns about regulatory impact. Some contacts specifically mentioned dissipating headwinds as a reason for increased investment, including one contact who sees enough improvement in the economic environment that the company has changed its strategy from diversification to more rapidly expanding its footprint with aggressive new revenue goals.
Does this jibe with what you, our readers, are seeing? As always, your thoughts are welcome.
By Sarah Arteaga, a Regional Economic Information Network director in the Atlanta Fed's Jacksonville Branch
Southeast Housing Update: Building on Recent Gains
To detect emerging real estate trends, the Atlanta Fed conducts a monthly poll of southeastern broker and builder business contacts. The latest poll results suggest that housing market conditions in the Southeast remain positive.
The majority of brokers (60 percent) and builders (63 percent) indicated that home sales had increased from the year-earlier level (see the chart):
The home sales outlook among contacts remained fairly upbeat. More than 80 percent of brokers and just under 50 percent of builders expect to see continued growth in home sales (see the chart):
More than half of the brokers and close to three-fourths of the builders reported that buyer traffic was up from the year-earlier level (see the chart):
Most brokers and builders reported that home inventory levels remained flat or were down from the year-earlier level (see the chart):
The majority of brokers and builders reported that home prices were up in June compared with year-ago levels (see the chart):
More than three-fourths of builders reported that construction activity had increased from the year-earlier level (see the chart):
To explore these results in more detail, please visit our Construction and Real Estate Survey page.
Note: The latest poll results are based on responses from 40 residential brokers and 19 homebuilders and were collected July 7–16, 2014. Please sign up if you would like to participate in this poll.
Auto Sales Accelerating
"My pappy said 'Son, you're gonna drive me to drinkin' if you don't stop drivin' that hot rod Lincoln.'"
—Charley Ryan, 1958
Automobiles have loomed large in the American experience since Henry Ford's Tin Lizzie—the fabled Model T—first rolled off the assembly line in 1908. Back in the 1940s and 1950s, a favorite pastime of American youth was hot-rodding (or so I've been told by my much, much older siblings). Cars have inspired countless songs, including Charley Ryan's "Hot Rod Lincoln" and "Beep, Beep," a tempo-changing ditty from 1958 about a Nash Rambler and a Cadillac. And in the 1973 movie American Graffiti, who can forget the iconic 1932 Deuce Coupe driven by John Milner or Toad's 1958 Impala? It was all about the cars!
And it appears consumers feel pretty much the same way. The one shining star throughout this recovery in the wake of the Great Recession has been the growth in unit sales of motor vehicles. I think it's safe to say that folks are buying new rides; it's just that simple. Although retail sales have been growing modestly, motor vehicle sales have been one of the driving forces (OK, yes—pun intended) behind the upward movement seen overall.
Light vehicle sales continued rising in June, reaching a postrecession high of 16.9 million units (the seasonally adjusted annual rate; see the chart).
This growth can also been seen when looking at consumer credit outstanding. Consumer credit is debt that a consumer enters into with the intent of making an immediate purchase. There are two types of consumer credit: revolving and nonrevolving. Let's look for a moment at nonrevolving credit, which is defined as an installment loan in which the amount borrowed (plus interest) is repaid at set intervals for the life of the loan. As the chart below shows, nonrevolving credit has been growing over roughly the same period as vehicle sales, which is not surprising when you consider that vehicle loans account for roughly 40 percent of this type of credit.
According to the U.S. Census Bureau, automobile sales declined 0.2 percent in June. However, a year-over-year comparison shows that vehicle sales increased 7.0 percent (see the chart). The consensus among our regional auto dealer contacts have indicated they've seen a steady increase in year-to-date sales and are expecting "sales for the remainder of the year to be fairly robust."
Historically, auto sales fluctuate quite a bit. But as you can see, the chart above supports the claim that vehicle sales have shown strong growth compared with total retail sales since the end of the recession. These data provide insight into consumer spending trends. Although this is just one data series in a long list of economic indicators we follow, I think it's fair to say this one gives a better understanding of consumer behavior.
So we'll keep our eye on this indicator. And remember, "Beep-beep, beep-beep. His horn went beep-beep-beep."
By Chris Viets, a REIN analyst in the Atlanta Fed's Jacksonville Branch
A Closer Look at Progress in Selected Southeastern Labor Markets
The U.S. Bureau of Labor Statistics compiles unemployment rates at the county level, which allows a glimpse of how local labor markets are performing. The interactive map of the Southeast below depicts the progress across the region since the second quarter of 2009, which the National Bureau of Economic Research defines as the end of the most recent recession.
Areas in southern Louisiana stand out as having had low unemployment even in 2009, thanks in large part to the strength of the energy sector and continued post-Katrina development. Fast-forward to 2014, and we also see considerable improvement in other areas. But some parts of the Southeast are still struggling with high unemployment.
Although the map shows improvement since the end of the recession, it doesn’t show whether we are back to normal, or even what “normal” looks like. Are local labor markets as strong as they were before the recession? Drilling down a bit more, we separated counties into two categories: those defined as a metropolitan statistical area (MSA) by the U.S. Census Bureau, and those not defined as an MSA. Those counties within an MSA are typically more urban and densely populated, and non-MSA counties tend to be more rural and less populated. In the chart below, we have calculated the unemployment rate for both MSA and non-MSA counties. The size of the bubble represents the size of the labor force, and the solid lines show the national average unemployment rate in each of the two time periods.
In 2007, non-MSA counties in Georgia, Tennessee, and Mississippi had unemployment rates above the 2007 average, whereas all but Mississippi had MSA unemployment rates below the national average. In 2014, unemployment in non-MSA counties in Alabama, Georgia, Tennessee, and Mississippi was above the national average, and all but Georgia had MSA unemployment below the national average. So, above-average unemployment is generally more prevalent in non-MSAs than in MSAs, seemingly a persistent problem. (Florida and Louisiana are the two exceptions in the region, with average or below-average MSA and non-MSA unemployment rates before and after the recession.)
Another way to gauge labor market strength is to measure job growth. Generally speaking, unemployment and job growth move in opposite directions, although declines in labor force participation can also cause the unemployment rate to decline even without strong job growth. In the chart below, to view how MSA and non-MSA counties fared across states, we have plotted year-over-year employment growth in 2007 (prior to the recession) against growth for the year ending with the first quarter of 2014. Once again, the size of the bubble represents the size of the labor force in 2014. We see that across the region, employment growth was weakest among non-MSA counties in both periods, but employment growth was generally stronger among MSA counties in both periods (although only MSA counties in Florida and Louisiana experienced above average employment growth in 2007 and 2014).
The unemployment map demonstrates that labor market conditions have improved in most parts of the Southeast since the end of the recession. However, many smaller rural communities continue to struggle with higher levels of unemployment and weaker employment growth than their big-city neighbors.
By John Robertson, a vice president and senior economist, and
Whitney Mancuso, a senior economic analyst, both of the Atlanta Fed's research department
Continued Expansion Highlighted in Latest Beige Book
Eight times a year, the Fed's Board of Governors publishes the Beige Book. The report provides a summary of the latest economic conditions collected by each of the 12 Federal Reserve Banks. Looking at the first sentence of each region's section allows a quick and easy way to gauge how the nation is doing. Below is a compilation of these opening sentences from the latest report:
Boston: Reports on recent business performance in the First District display considerable variation both across and within sectors, but point to slow economic growth overall.
New York: Economic growth in the Second District has continued at a moderate pace since the last report.
Philadelphia: Aggregate business activity in the Third District grew at a modest pace during this current Beige Book period, with few changes from the prior period.
Cleveland: The Fourth District's economy expanded at a modest pace during the past six weeks. New orders and production at District factories grew slowly.
Richmond: The Fifth District economy grew modestly since our last report. Manufacturing conditions improved on balance in recent weeks.
Atlanta: On balance, reports from Sixth District business contacts suggest that economic activity expanded modestly in June and early July.
Chicago: Growth in economic activity remained moderate in June and contacts maintained their optimistic outlook for the rest of the year.
St. Louis: Economic activity in the Eighth District has increased modestly since the previous report.
Minneapolis: The Ninth District economy grew moderately since the last report.
Kansas City: The Tenth District economy expanded modestly in late May and June, and most contacts anticipated stronger growth in the months ahead.
Dallas: The Eleventh District economy grew at a moderate pace over the past six weeks. Manufacturing activity continued to increase, although there were a few reports of weaker demand.
As you can see, the nation's economy expanded overall. And just like the last report showed, the pace of economic expansion continued to increase moderately in the Southeast. Below are some highlights from the Atlanta Fed's section:
Employment and prices
Payrolls across the District continued to expand in June and early July, but at a slow pace. Wage growth remained in the 2-3 percent range, with the exception of some high-skill, low-supply fields. According to the Atlanta Fed's survey on business inflation expectations (BIE), firms' unit costs were up 1.9 percent on a year-over-year basis in June. (It's important to note that this figure was recently updated with new data. In the July BIE survey, firms' unit costs were up 1.8 percent year-over-year.)
Consumer spending and tourism
Since the last report, the consensus among District retailers was that sales growth picked up slightly, with several merchants indicating that customers spent more money per visit to their establishments than earlier in the year. District reports on tourism and business travel remained positive. Hospitality industry contacts expressed concerns that a rise in gas prices may adversely affect summer tourist activity.
Manufacturing and transportation
Manufacturers indicated that activity sustained the solid pace of growth noted in the previous report. New orders and production continued to increase, supplier delivery times slowed as demand for inputs rose, and commodity prices were elevated.
Real estate and construction
Fewer District brokers cited growth this period than in the previous report. Just over half of brokers indicated that home sales had increased from the year-earlier level, down from nearly two-thirds in June's report. On the other hand, reports from District builders remained fairly positive. Most contacts felt that recent activity either met or exceeded their plan for the period. The majority of builders indicated that construction and new home sales were ahead of the year-earlier level. Demand for commercial real estate continued to improve across most of the region. The outlook among District commercial real estate contacts remained positive, with most expecting activity to grow steadily through the summer months.
Banking and finance
Bankers continued to report increased competition and aggressive rates and loan structures. Contacts noted loan growth was strong over the last couple of months, with some of that growth coming from increased credit line usage. Banks continued to compete aggressively for quality borrowers, especially in small business lending. Mortgage demand in general was lower than last year.
Natural resources and agriculture
Gulf Coast refineries continued to run at near record levels, as they have for much of 2014. Refineries continued to invest in storage capacity to accommodate increased crude oil inventories flowing to the Gulf Coast from the Cushing, Oklahoma, hub.
While much of Tennessee, southwest Louisiana, and the southernmost tip of Florida continued to experience abnormally dry conditions, most of the District was not experiencing drought. Regional producers benefited from higher prices for many of their agricultural products, lower costs for feed and fertilizer, and a leveling off of fuel costs.
The Board will publish the next Beige Book on September 3.
By Sadat Karim, strategic information research analyst in the public affairs department of the Atlanta Fed