Beige Book: Warming Economy Accompanies Spring’s Thaw
Eight times a year, each of the 12 Reserve Banks gathers anecdotal information on current economic conditions in its district through reports from Bank and branch directors and interviews with key business contacts, economists, market experts, and other sources. Their findings are reported in the Summary of Economic Conditions, also known as the Beige Book. The report is published on the Federal Reserve Board of Governors' website about two weeks prior to each Federal Open Market Committee meeting.
The first sentences of the national summary and each Bank's report often receive much attention because the lead sentence tends to summarize economic conditions in that region.
Here is a compilation of the first sentence of the national summary and each Reserve Bank’s report:
- National: Reports from the twelve Federal Reserve Districts suggest economic activity increased in most regions of the country since the previous report. (A previous SouthPoint post also mentioned the weather’s effect on overall economic conditions.)
- Boston: The First District economy continues to expand moderately, according to business contacts, although growth rates vary across sectors and firms.
- New York: Economic activity in the Second District rebounded since the last report, as the harsh winter weather abated.
- Philadelphia: Aggregate business activity in the Third District grew at a moderate pace during this current Beige Book period.
- Cleveland: On balance, economic activity in the Fourth District declined slightly in the past six weeks.
- Richmond: The Fifth District economy expanded moderately since our last report.
- Atlanta: On balance, the Sixth District economy expanded at a modest pace from mid-February through March.
- Chicago: Growth in economic activity in the Seventh District picked up in March, and contacts generally maintained their optimistic outlook for 2014.
- St. Louis: Business activity in the Eighth District has declined slightly since our previous report.
- Minneapolis: The Ninth District economy continued to grow at a moderate pace since the last report.
- Kansas City: The Tenth District economy grew moderately in March, and most contacts were optimistic about future activity.
- Dallas: The Eleventh District economy grew at a moderate pace over the last six weeks.
- San Francisco: Economic activity in the Twelfth District continued to improve moderately during the reporting period of mid-February through early April.
As you can see, almost all districts are experiencing the same level of economic activity.
Here are some notable highlights from the Atlanta Fed's contribution to the Beige Book:
Consumer spending and tourism
- District merchants reported an uptick in activity from mid-February through March following sluggish sales in January, which were widely attributed to the severe winter weather. Light motor vehicle sales grew modestly during the time period.
- Hospitality contacts in areas negatively affected by the adverse winter weather saw improvements in activity.
Real estate and construction
- Brokers reported home sales were mixed. Inventory levels continued to fall on a year-over-year basis, and the majority of contacts reported that home prices remained ahead of the year-earlier level.
- The majority of builders reported that construction activity and new home sales were ahead of the year-earlier level. The majority of contacts continued to report modest home price appreciation.
- District brokers noted that demand for commercial real estate continued to improve. Construction activity continued to increase at a modest pace from last year.
- Manufacturers reported increased activity across the region from mid-February through March. Significant improvements were cited in production and new orders.
Banking and finance
- Bankers noted an increase in loan demand.
- District payroll growth remained constrained from mid-February through March.
Prices and wages
- Nonlabor input costs increased very slowly, with a few noted exceptions, including rising costs for developed land, construction materials, and food. Profit margins remained tight across most industries as contacts continued to report very little pricing power.
- Contacts continued to indicate little wage pressure outside of some high-skilled positions.
The next Beige Book will be published June 4.
By Shalini Patel, an economic policy analysis specialist in the Atlanta Fed's research department
April 16, 2014 in Construction, Economic conditions, Economic Indicators, Employment, Housing, Jobs, Labor Markets, Manufacturing, Prices, Purchasing, Real Estate, Unemployment, Weather | Permalink | Comments (0) | TrackBack (0)
Our Bread and Butter
It’s spring, which means warming weather, getting out the gardening tools, and convening the semiannual meeting of the Atlanta Fed’s Agriculture Advisory Council, which represents diverse agriculture and agribusiness interests across the Southeast.
Prices are always a topic of conversation at council meetings. This meeting was no exception, and here are some examples of what we heard:
- Fertilizer prices are up.
- Feed prices are down from last year’s highs.
- Fuel costs have been stable over the last year.
- Equipment and seed costs are up.
- Beef prices are up, and some producers are considering increasing herd size because of favorable prices and lower feed costs.
- The value on the very best farmland is holding up, but farmland prices may see some corrections, with the biggest changes expected on marginally productive land.
Citrus greening is reducing the supply of Florida oranges, and growers continue to seek ways to mitigate the effects of the disease. Even though costs for products that help fight the disease are up, growers are saying, “If you think it works, you do it.” Growers hope that new research funding included in the recently approved farm bill will help find a solution, but concern also exists that as production declines, processing infrastructure will be lost, which may make it challenging to expand in the future.
Foreign markets have also affected growers. For example, cotton prices are in flux as a result of China’s pricing policy, while dairy prices are enjoying an uptick because of China’s increased purchases. Poultry producers expect this year to be a good one. The poultry industry is setting export records, and producers are saying exports represent future growth.
Finding labor remains difficult for most producers, and the problem is no longer just finding the numbers they need but increasingly finding those with the necessary technical skills as well. Producers are encouraging local junior colleges to offer technical programs for farm workers: “We need fewer but better-educated laborers,” one source said. There is also a growing need for data-management skills. Many growers will outsource data management/analysis to big companies specializing in that area.
Council members agreed that the outcome of the newly signed farm bill remains uncertain as the details are worked out, but they anticipate large farm producers will have to significantly restructure their businesses.
Another challenge is coming from the consumer side, as buyers require unprecedented amounts of information about health and wellness and sustainability processes from agriculture producers. Advisory council members acknowledge that technology makes it possible to supply this information, but the group recognized the need for agriculture producers to have a seat at the table when discussing new requirements.
As the meeting drew to a close, we went around the table one last time, and these comments are among what we heard:
- “We will get more efficient.”
- “There will not be a lot of inflation in agriculture in the next year or two.”
- “Agriculture will go through another cycle of de-peopling,” but “…as the labor required to produce is decreasing, value and next-step processing is not shrinking.”
As I reflect on all I heard that day, I know technology will continue to play a big role in agriculture production, and its use is expanding every day. I also know from talking with our council members that good old-fashioned tenacity, know-how, and the love of farming shine through. The continued marriage of these disciplines will literally be our bread and butter for years to come.
By Teri Gafford, a Regional Economic Information Network director in the Atlanta Fed’s Birmingham Branch
Southeastern Manufacturing...a Lion or a Lamb?
Remember the saying, “March comes in like a lion and goes out like a lamb?” Its origin is believed to be related to the position of the constellations Leo (the lion) and Aries (the lamb) during the month of March. Some observers suggest that it’s simply an indication that the weather is changing, with the end of winter at the first of the month and the beginning of spring at the end of the month.
I’m not sure which is true, but the weather wreaked havoc on the manufacturing industry the last few months. January and February were particularly tumultuous. Manufacturing contacts in the Southeast reported difficulties receiving supplies, shipping orders, and operating production lines at full capacity because some employees were unable to report to work during those two months. The Atlanta Fed has been monitoring the effects of extreme winter weather on the manufacturing industry. The March Southeast Purchasing Managers Index (PMI) suggests that manufacturing has come back roaring, but we should watch out for a bit of bleating (see the chart).
The Southeast PMI is produced by the Econometric Center at Kennesaw State University. A reading on the index above 50 represents an expansion in the manufacturing sector, and a reading below 50 indicates a contraction. The survey provides an analysis of manufacturing conditions in Alabama, Georgia, Florida, Louisiana, Mississippi, and Tennessee. Representatives from various manufacturing companies are surveyed regarding trends and activities in new orders, production, employment, supplier delivery time, and finished inventories.
The March Southeastern PMI report came in quite strong. The overall reading of 61.5 was its highest since April 2012. There are a couple of different ways to interpret the strong report. With option one, the report is a result of businesses making up for lost production and order backlogs during the previous months, therefore pushing up production and new orders during March. Under option two, underlying demand is improving and will be robust going forward, and March is just the beginning of a strong year. Let’s take a look at the numbers.
The overall March PMI increased 5.5 points over February. The new orders subindex soared 11.2 points to 70.2 and the production subindex vaulted 10.4 points to 65.4. Going back to January, the new orders subindex has increased 21.2 points and the production subindex has risen 17.5 points. No doubt about it, these are solid increases. The employment subindex increased 6.7 points from February’s 52. The supplier delivery times subindex fell 0.3 point from 57 in February, indicating that purchasing agents are getting their supplies slightly faster than the previous month. The finished inventories subindex also fell 0.3 point compared to February. Optimism among purchasing agents increased during March. Fifty-eight percent of survey participants expect production to be higher over the next three to six months.
Whether option one or option two applies remains to be seen. It could be a combination of both. It will be interesting to see the national Institute for Supply Management report in April. Will the rest of the nation experience a similar rise in manufacturing activity? Let’s hope so. We’d like to see the sharp rise in new orders and production in the Southeast resulting from a sustained improvement in demand rather than just a snap-back effect of improving weather. Either way, we will be keeping our eyes and ears open for the lion and the lamb.
By Troy Balthrop, a Regional Economic Information Network analyst in the Atlanta Fed’s Nashville branch
The Graying of the Sunshine State’s Labor Force
Business contacts throughout the region have expressed, through the Atlanta Fed’s Regional Economic Information Network (REIN), a growing concern with an aging population and a shortage of qualified and interested younger candidates to fill positions vacated by retirees. A recent presentation spotlighted this trend in Florida. The report “Florida’s Economic Future & the Impact of Aging” by Florida’s Office of Economic and Demographic Research (EDR) notes that “population growth is the state’s primary engine of economic growth, fueling both employment and income growth.” The presentation reports two main concerns for the state: one is an aging population and a shrinking pool of workers, and the other is a growing need for services, natural resources, and infrastructure as the state’s overall population increases.
Florida’s population has grown from 15.9 million in 2000 to 18.8 million in 2010, a nearly 18 percent increase, and it is forecast to grow to 23.6 million by 2030. The population growth adds concerns for not only current older Floridians but also for future older residents, who will help further the demographic trend of an aging population and a labor force whose growth is slowing.
In 2010, Florida was one of seven states whose median age was over 40; at 17.3 percent, it is the state with the largest percentage of population age 65 or older. Of the nation’s top ten cities with the highest percentage of population age 65 or older, four are in Florida: Clearwater at 19.8 percent, Hialeah at 19.1 percent, Cape Coral at 17.0 percent, and Miami at 16.0 percent. Two years later, in 2012, the median age in Florida rose to 41, with six counties reporting a median age of 50 and older. Demographers expect Florida’s older population to nearly double between 2010 and 2040 (see the chart).
Supporting concerns expressed by REIN contacts, the EDR research reports that as approximately 4.8 million baby boomers are set to retire between 2011 and 2029, the share of workers to retirees will shrink. The chart below depicts the growth in population in the group ages 45 to 64 years (roughly speaking, the baby boomer cohort) since 2000, but it also shows a decline in residents ages 44 and younger, one reason for a declining potential labor force. This change in the composition of the population will cause the current ratio of three taxpaying workers to each retiree to decline to two to one by 2030.
The EDR also expects additional ramifications including weaker economic growth rates, potential upward pressure on wages to attract and retain skilled workers, and a growing retirement-age population, which could lead to a decline in consumer spending and changes in investment patterns. The EDR is also concerned about problems filling labor-intensive jobs such as firefighters, police officers, and construction workers. In addition, jobs will likely require increasingly specialized skill sets as technology advances.
By Marycela Diaz-Unzalu, an economic and financial education specialist in the Miami Branch of the Atlanta Fed
Regional Payroll Growth Rebounds in February
According to last week's regional and state employment report from the U.S. Bureau of Labor Statistics (BLS), Sixth District states added 34,000 payrolls on net, and the unemployment rate declined to 6.4 percent in February. These data follow a much bleaker January report, which indicated that the District shed payrolls for the first time in about a year and a half, losing 20,700 jobs. The new February data are definitely a step in the right direction and perhaps signal that the region's labor markets are getting back on their feet after a few months of slower job growth, a pattern not uncommon over the last few years. Not surprisingly, we've seen a similar pattern during the last few months in the national data as well (see the chart).
However, despite the more positive aggregate Sixth District payroll figure for February, Florida was the primary driver of payroll growth, while Georgia and Mississippi continued to shed jobs.
Florida added 33,400 payrolls on its own over the month. In fact, Florida saw the third-largest gain of any state in the nation in February, following only California and Texas. Payroll growth in Florida was driven by the construction sector (up 7,200 new payrolls over the month), retail (up 7,000), education and health sectors (up 5,300), and leisure and hospitality (up 3,900).
As for other District states, Tennessee experienced a modest gain in payrolls in February, adding 6,900 jobs. Tennessee's payroll growth over the month was primarily concentrated in professional and business services (up 5,100). Louisiana and Alabama respectively added 1,900 and 200 jobs, while Mississippi (down 2,200 payrolls) and Georgia (down 5,800) continued to shed payrolls (see the chart).
The aggregate unemployment rate for the Sixth District declined from 6.5 percent to 6.4 percent in February. Four out of the six District states experienced declines in their unemployment rates and Florida's rate remained unchanged, despite Florida seeing the second-largest one-month increase in that state's labor force on record (up 58,400). The only District state that saw an increase in its unemployment rate in February was Alabama, where the rate of unemployment increased from 6.1 percent to 6.4 percent during the month. This increase comes as Alabama saw the largest-ever one-month increase in its labor force, excluding the temporary hiring boost from the 2010 census. Of the roughly 12,600 additional labor force participants in Alabama from January to February, about 6,800 were unemployed. Of Florida's 58,400 new labor force participants, only about 4,500 were unemployed (see the table).
Want to find out how many jobs it would take to lower the unemployment rate in any of the 50 states? Check out the Atlanta Fed's State Jobs Calculator.
The next regional and state employment report from the BLS reflecting March data will be released April 18.
By Mark Carter, a senior economic analyst in the Atlanta Fed's research department
An Economic Perspective from North and Central Florida
Over the course of the six weeks between the January and March Federal Open Market Committee meetings, my colleague Chris Oakley, the regional executive of the Atlanta Fed's Jacksonville Branch, and I met with 17 business leaders from across north and central Florida, as well as with members of our branch board of directors, to gain a broad perspective on current economic conditions.
Overall, most contacts indicated that that the stronger pace of activity experienced in the latter part of last year either has been sustained or should resume as the weather improves. (Unlike the rest of the country, Florida has been relatively untouched by the adverse winter weather. However, our contacts with a national footprint or those who experienced delayed parts deliveries, like manufacturing, construction, and food services, have noted disruptions in activity as a result of bad weather in certain markets.)
Designers and builders of both large and small enterprises noted a pick-up, especially in manufacturing, health care, and financial services, with one firm reporting a record backlog of projects due to organic growth and acquisitions. Other areas of strength for the state included tourism, housing construction, port activity, and an increasing number of retirees choosing Florida as their new home. On the flip side, banker contacts continued to be disappointed with a lack of loan demand among small business clients, but "tire kicking" appeared to have increased along with expectations for a higher level of activity this year. Restaurant contacts indicated worries about middle- and low-income consumers, whose disposable incomes are challenged with low wage growth and adjusting to increased health care premiums.
Florida has experienced a stronger rebound in new home permits than the nation since the beginning of 2014 (see the chart). Conversations with business contacts reflect this trend. Some residential home builders indicated that they are building spec homes with confidence that the properties will sell; one custom builder reported that his spec homes have been selling at 98 percent of the asking price. Banker contacts noted price increases as a result of both reduced real estate owned inventories on their books and a shortage of developed lots for new home construction. On the credit side, bankers reported that available credit now appears to have achieved some equilibrium with real estate demand. It was also noted that demand for rental property remains robust as some previous homeowners who lost their homes during the downturn have indicated no interest in owning another home and will continue to rent, at least in the near term.
Feedback regarding the labor market was mixed. We heard several stories about the inability to fill construction jobs, especially high-skilled positions. One contact speculated that this lack of talent could eventually result in a greater proportion of construction taking place in factory-like settings with only assembly occurring in the field, allowing for the use of greater automation in manufacturing components. Staffing contacts noted postrecession high levels of openings, and those workers with unique skills (often I.T. or accounting-related) were in the driver's seat and were able to dictate working conditions and have some leverage in compensation negotiations. A large manufacturer found success in partnering with Florida's universities and military veteran placement services to ensure an adequate supply of engineers and other high-skilled workers.
A good amount of discussion about increased labor costs focused on health care benefits, with sources sharing anecdotes about annual increases as high as 20 percent. A majority of contacts indicated they are passing along or sharing premium increases with employees. We also heard stories of companies reducing or discontinuing benefits for family members who might otherwise qualify for benefits elsewhere. Further, it was emphasized, especially among lower-wage, service-oriented companies, that the individual mandate of the Affordable Care Act is resulting in a larger number of eligible employees electing coverage, which is also driving up costs for the employer. A large design-build firm noted increased labor costs among its subcontractors, and a real estate rental firm indicated a "fair amount of wage pressure" for higher-level employees, such as property managers. In the government sector, both at the county and municipal levels, contacts commented on a resumption of wage increases among their constituents, the first for most since the recession.
With regard to nonlabor costs, developed land and construction material costs were both noted as concerns among construction contractors. Restaurant contacts expect food costs to rise about 4 percent this year, consistent with what they experienced in 2013, with increasing meat prices driving the rise. Banker contacts continued to point to rising regulatory and compliance costs. Overall, there appears to be more of an appetite for attempting to push through input cost increases through pricing, though the consensus is that any increase would be conservative.
So, overall, the takeaway from all of these anecdotes is that it's more of the same. While uncertainties are fewer and farther between than in the past couple of years, the outlook in the northern half of Florida appears a little less cloudy and even laced with cautious optimism. For a wider viewpoint on the economy across the Southeast, see the Atlanta Fed's latest Southeastern Insights.
By Sarah Arteaga, a Regional Economic Information Network director in the Atlanta Fed's Jacksonville Branch
Southeast Housing Update: Whether It’s the Weather
Since the beginning of the year, housing indicators have been less robust than expected. Existing home sales, as reported by the National Association of Realtors, have declined on a year-over-year and month-over month basis for the past few months. Housing starts, as reported by the U.S. Census Bureau, have declined from a year ago for the last two months. The big question seems to be why. A popular explanation is that the weather is responsible for all the recent ills in housing. Let’s turn to the Atlanta Fed’s monthly poll of Southeast broker and builder business contacts to see whether factors besides the weather are being overlooked.
Our contacts’ responses indicate they have picked up on the slowing pace of growth in home sales, buyer traffic, and construction activity. The majority of contacts continued to indicate an increase in sales on a month-over-month and year-over-year basis, although fewer Southeast builder and broker contacts reported an increase in home sales relative to the prior month.
Reports on buyer traffic were mixed. The diffusion index of responses is near zero, which means roughly the same number of contacts reported increased activity as reported decreased activity. Though most comments indicated that winter weather conditions slowed buyer traffic, a few comments noted that web inquiries during the same period increased. Steady web activity is consistent with buyer interest remaining constant and waiting out the weather to look at properties in person.
Overall, builders continued to report an increase in construction activity in February, but fewer builders reported an increase this month than in the past few months. To better understand what was behind this weakness, we added several special questions to our most recent poll.
We asked contacts if the recent spurts of severe winter weather had an impact on their business. More than three-fourths of our builder contacts and just shy of three-fourths of our broker contacts indicated that, indeed, the gusts of severe winter weather had in fact had a slight to significant impact on their business (see the chart). Brokers and builders explained that the severe weather events slowed home sales (for example, delayed closings), buyer traffic, and the delivery of new homes to the market.
We also asked our contacts several questions about investor buying activity, since investors have been a driving force for improvements in many housing markets, and their exit from the market could account for some of the slowing in housing markets. It appears investor participation has waned somewhat based on our poll results (see the chart).
Digging a little deeper to better understand the variation across markets, we learned that more than half of brokers indicated that sales to investors were flat or had increased on a year-over-year basis; only 46 percent indicated a decline. So, while investor participation may have fallen at a regional level, investors are still very present in certain markets across the Southeast (see the chart).
Given the results to our inquiries, you might conclude that weather and waning investor interest account for much of the weakness in recent housing data. However, our contacts reported that this was not necessarily the case. While the weather events and pullback of investor buying in some markets may be contributing to the slowdown, contacts indicated that higher home prices, higher mortgage rates, and limited inventory were the most significant factors contributing to the weakness in recent housing data (a recent Real Estate Research post discusses changes in affordability). Perhaps more importantly, the majority of broker and builder contacts indicated that they do not expect the recent weakness in housing to persist (see the table).
So, to what extent were the official numbers affected by the harsh weather? The answer is still up in the air. Based on our latest survey results, it appears that a confluence of factors contributed to the recent weakness but that these headwinds will not be strong enough to derail the continuing recovery in housing.
Note: February poll results are based on responses from 42 residential brokers and 23 homebuilders and were collected March 3–12, 2014. The housing poll's diffusion indexes are calculated as the percentage of total respondents reporting increases minus the percentage reporting declines. Positive values in the index indicate increased activity, and negative values indicate decreased activity.
If you are a real estate broker or homebuilder and would like to participate in this poll, please let us know by sending a note to [email protected].
By Jessica Dill, senior economic research analyst, and
Carl Hudson, director of the Center for Real Estate Analytics, both in the Atlanta Fed's research department
Half Empty or Half Full?
The U.S. Bureau of Labor Statistics (BLS) uses two monthly surveys to gauge the health of the labor market, both nationally and at the state level. For the Sixth Federal Reserve District, which survey you focus on in January might say a lot about your own preference for optimism or pessimism. Payrolls contracted in every Sixth District state in the state establishment survey; however,every Sixth District state’s unemployment rate declined in the state current population survey, with the exception of Alabama’s, which remained unchanged at a rate safely below the district and national rates of unemployment.
The bad news first
January was not a banner month for Sixth District payroll growth; in fact, the District kicked off the year with some relatively lousy labor market figures, according to new data out this week from the BLS. Last year, the Sixth District averaged about 33,600 new payroll jobs per month, but during the month of January alone, Sixth District states lost an aggregate 24,400 payrolls. On net, the Sixth District has not had a negative monthly payroll figure since July 2012, when the District lost about 3,900 payrolls, and to see a one-month loss the size of January’s, you’d have to look back to September 2010, when the Sixth District was still brushing itself off in the aftermath of the recession. (For reference, the largest one-month decline for the Sixth District as a whole was in May 2009, when 126,900 payrolls were cut across Sixth District states.)
However, to keep January’s payroll data in perspective, these one-month blips have not been unheard of throughout the recovery, and state and regional data from the BLS tend to be much noisier than the headline national figures that come out on the first Friday of every month. In fact, each year since 2010, we’ve seen incoming regional data grow a bit softer early on in the year, a phenomenon referred to previously by SouthPoint, various other media outlets, and on a few occasions by Atlanta Fed President Dennis Lockhart as a “spring swoon.” (Previously, these “swoons” have come a bit later in the year; maybe it’s seasonal adjustment procedures at the BLS, and maybe it’s because of other reasons.) Though one month of negative payroll data is not in itself a trend by any means, the last four months of data from the BLS do seem to show a pattern (see the table).
Where and to what degree?
All six states in the Sixth District shed payrolls in January. Alabama had the largest decline in payrolls among Sixth District states in January, losing 8,200 payrolls during the month. Louisiana had the second-largest decline, dropping 6,900 payrolls. Mississippi payrolls dropped by 4,000, and payrolls in Florida (down 2,600) and Tennessee (down 2,100) fell by similar amounts. Georgia shed the fewest number of payrolls in January, giving up 600 payrolls, on net.
A couple of patterns seemed to emerge across state lines in January. Most notable are very large declines in retail industry payrolls (see the table). Employment in health care and social assistance also appeared to suffer in January.
Retail me not
A decline of 10,900 payrolls in one sector, in one state, in one month (as the table above shows Florida experienced) warranted a call to our friends at the BLS. I was told that January is typically a weak month for hires, and the retail sector is particularly sensitive to seasonality. Retailers are usually coming off the much busier holiday season and are beginning to wind down staffing levels. Though the BLS strives to account for this in its seasonal-adjustment procedures, it’s virtually impossible to correct for all of it, especially in such a volatile economic and meteorological environment. (Even Florida had a colder winter than usual. While we were digging ourselves out of the epic—for us—snow storms in Atlanta, a friend in Miami reported temperatures “down into the upper 60s” and needing a light jacket in January.)
To get a greater level of detail on which kinds of retailers in Florida were letting go of the most jobs, we have to use data that are not seasonally adjusted. On a nonseasonally adjusted basis, the scary-looking payroll figure (a decline of 10,900) seen above becomes a jaw-dropping 34,000 decline, though much of this drop is the result of standard holiday employees leaving temporary positions (see the table).
But unemployment rates are headed in the right direction…
Despite a decline in payrolls from every state across the District in January, state unemployment rates continued their slow downward crawl in all District states, with the exception of Alabama, which remained unchanged for the month at 6.1 percent (see the chart). It’s not uncommon for the two surveys to appear to be at odds with one another. The payroll survey is of employers—or “establishments”—and the household survey is (more intuitively) a survey of households; that is, of individuals. Both surveys attempt to measure employment. However, since it is necessary to speak to actual people (as opposed to speaking to a “business”) to determine the rate of unemployment for a given area, the unemployment rate is derived from the household survey. But since these are both surveys that are only able to capture responses from a small sample of people, disagreements between the two occur. (Unemployment rates can also decline while payroll growth is weak or negative because of a declining labor force, but that wasn’t the case this month. Four out of six District states actually saw increases in their labor force—Louisiana and Mississippi were the exceptions, and their labor forces only shrank by 2,000 and 300 people, respectively.)
Of Sixth District states, Louisiana had the lowest unemployment rate in January. There, the unemployment rate fell a half percentage point to reach 4.9 percent. Alabama’s rate of unemployment remained at 6.1 percent over the month, and Florida’s dropped 0.2 percentage point to reach 6.1 percent.
Three states still have unemployment rates higher than the Sixth District aggregate rate of unemployment, which fell to 6.5 percent in January. Tennessee tied with Louisiana in January for the largest drop in its unemployment rate, falling a half of a percentage point to reach 7.2 percent. Georgia’s unemployment rate ticked down slightly to reach 7.3 percent, while Mississippi continued to have the highest unemployment rate in the Sixth District, despite its rate falling 0.3 percentage point to reach 7.5 percent in January.
The next regional and state employment and unemployment report, reflecting data for February, is scheduled to be released next Friday, March 28, at 10:00 a.m. The next national employment report is scheduled the following Friday, April 4, at 8:30 a.m.
If you want to stay abreast of the latest Federal Reserve research and publications surrounding regional and national labor markets, as well as a host of other topics, you can check out the Atlanta Fed’s newly searchable Human Capital Compendium, which puts you at the forefront of developments related to labor markets and workforce development across all 12 Reserve Banks.
By Mark Carter, a senior economic analyst in the Atlanta Fed’s research department
Has Regional Manufacturing Weathered the Storm?
The weather has been a sore topic among manufacturing contacts across the nation this year, and the Southeast is no different. Inclement winter weather has been extreme and widespread in 2014, but hopefully it is close to being over. Production has been slowed across much of the nation as employees were unable to travel to work and supply deliveries to manufacturing facilities were delayed. The Institute for Supply Management (ISM) specifically identified the weather as having an adverse impact on manufacturing activity in January and February. However, the latest Southeast purchasing managers index (PMI) suggests that maybe the South has weathered the storm.
The Southeast PMI is produced by the Econometric Center at Kennesaw State University. A reading on the index above 50 represents an expansion in the manufacturing sector, and a reading below 50 indicates a contraction. The survey provides an analysis of manufacturing conditions for the region in Alabama, Georgia, Florida, Louisiana, Mississippi, and Tennessee. The survey asks representatives from various manufacturing companies about trends and activities in new orders, production, employment, supplier delivery time, and finished inventories.
The February PMI increased 5.4 points over January and represents a healthy overall increase, considering the harsh weather conditions (see the chart). The new orders subindex rebounded strongly in February with an increase of 10.0 points to 59 points. The production subindex also had a solid increase of 7.1 points to 55.0. New orders and production had both been contracting in late 2013 and early 2014, so the increases last month were a welcome development. The employment subindex decreased 3.2 points from January’s 55.2. The supplier delivery times subindex and finished inventories subindex both increased during the month, and the prices subindex fell 7.6 points compared with January.
Looking ahead, manufacturing contacts are not as optimistic as they had been in recent months. When asked for their production expectations, only 46 percent of survey participants expect production to be higher in the next three to six months. That expectation is in stark contrast to January when 62 percent of survey respondents expected higher production over the same timeframe.
Hopefully the weather was only a temporary headwind for manufacturing activity. As the mercury begis rising and snow stops falling on the roadways, maybe manufacturing activity will strengthen in March. Then Old Man Winter can go on a nice, long, sunny vacation.
By Troy Balthrop, a Regional Economic Information Network analyst in the Atlanta Fed’s Nashville Branch
Beige Book: Did Weather Cool the Nation's Economic Growth?
Eight times a year, the 12 Reserve Banks gather anecdotal information on current economic conditions in their districts through reports from Bank and branch directors as well as interviews with key business contacts, economists, market experts, and other sources. These findings are reported in the Beige Book. Then, one of the Reserve Banks is randomly selected to write the national summary, a digest of all 12 Banks' reports. This time, my Atlanta Fed colleagues and I wrote the most recent national summary.
Similar to recent incoming economic data citing possible weather-related effects on consumer spending, manufacturing, and transportation (to mention a few), the national summary of the Beige Book cites the weather as also having an impact on activity in several sectors. Here are some Beige Book excerpts that mention weather-related economic effects (emphasis mine):
Consumer spending and tourism:
Retail sales growth weakened since the previous report for most Districts, as severe winter weather limited activity. Weather was also cited as a contributing factor to softer auto sales in many Districts, with the exception of Cleveland, which saw strong gains.
Recent winter weather conditions benefited many ski resorts in Kansas City, Richmond, and Minneapolis. Atlanta and Boston also indicated that hotels fared well from the >weather, but that restaurants, museums, and other attractions were negatively impacted. Airline contacts from Dallas indicated solid to slightly stronger demand, with some temporary disruptions due to severe winter weather across the nation.
Nonfinancial services and transportation:
Both New York and Philadelphia reported that severe winter weather reduced demand for services in their region.
Severe weather reportedly disrupted supply chains and delayed shipments in several Districts. In Dallas, railroad cargo volumes fell slightly below year earlier levels, with winter weather conditions across the country largely to blame. Manufacturing sales and production in several Districts were negatively impacted by severe winter weather; however, modest improvements were noted in Boston, Atlanta, Minneapolis, and Dallas.
Real estate and construction:
Residential real estate markets continued to improve in several areas, albeit modestly. Most of the Districts indicating otherwise attributed the slowing pace of improvement to unusually severe winter weather conditions.
Philadelphia noted that there was very little activity to report in construction or leasing due to severe winter weather.
Agriculture and natural resources:
Severe winter weather affected several Districts with some crop damage being reported by Richmond and Atlanta, while Chicago noted disruptions in the flow of agricultural products. Both Kansas City and Dallas cited dry conditions adversely affecting wheat crops, while San Francisco reported concerns about water shortages and water costs.
Employment and prices:
Since the previous report, the pace of hiring had reportedly softened in Boston, Richmond, and Chicago, with those Districts attributing at least part of the recent slowdown to unusually bad winter weather.
Chicago, Minneapolis, and Dallas noted that unseasonably cold weather had pushed up costs for some energy products.
Although it seems that the weather has had a negative effect on economic growth so far this year, we won't know the full impact until a little more time has passed and Mother Nature decides to bring on the sunshine.
Here are some notable highlights from the Atlanta Fed's portion of the Beige Book:
Employment: Since the last report, job growth remained muted across the District. Contacts in construction, manufacturing, energy, hospitality, and real estate noted modest growth in employment.
Prices: Most contacts reported modest and relatively stable labor and material cost pressures. Construction industry contacts remained a notable exception, indicating strong upward pressure on labor costs and some material prices.
Consumer spending and tourism: Merchants reported a slow start to the year with sales growth declining. Many contacts noted that the drop in sales growth was partially attributed to the unusual winter weather experienced in parts of the region. Hospitality contacts reported an increase in business and convention bookings.
Real estate and construction: Most brokers said sales were slightly up compared with a year earlier, and more contacts noted that sales activity was in line with their plan for the period. By most accounts, inventory levels had fallen on a year-over-year basis. The majority of contacts reported that home prices remained ahead of the year-earlier level but that price gains have slowed on a month-over-month basis.
The majority of builders reported that construction activity and new home sales were ahead of the year-earlier level, although most reports indicated that unsold inventory levels had remained unchanged from a year ago. The majority of contacts also reported modest home price appreciation.
District brokers noted that demand for commercial real estate continued to improve. Construction activity continued to increase at a modest pace from last year. Most contacts reported that their backlog was ahead of year-earlier levels.
Manufacturing: Manufacturing contacts in the region cited expanding activity from January through mid-February, but the pace of growth was moderate. Contacts reported improvements in new orders and production. However, a number of contacts stated that the unusual winter weather affected production in late January, and output was lower than planned for that month.
Banking and finance: A number of lenders reported increases in purchase mortgages, but not enough to offset the declines in refinances.
The next Beige Book will be published April 16.
By Shalini Patel, an economic policy analysis specialist in the Atlanta Fed's research department.