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
A Southern Slowdown in Manufacturing?
Manufacturing in the Southeast had been thriving in recent months. According to the Southeast Purchasing Managers Index (PMI) report, new orders, production, and employment at regional manufacturers had been strong since March. The latest PMI report, released on July 7, suggests that activity may be slowing down a little bit.
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. Representatives from various manufacturing companies are surveyed regarding trends and activities in new orders, production, employment, supplier delivery time, and finished inventories.
The June PMI decreased 4.5 points compared with May. Although still boasting an overall reading of 55.3 points (which is not bad), the new orders and production subindex readings dropped. The new orders subindex fell 10.1 points from May to 59.4, and the production subindex fell 10.8 points to 56.6 compared with the previous period (see the chart). The readings are still firmly in expansion territory, but they don’t have the excitement of the high readings from previous months. The employment subindex also decreased 4.6 points from May’s 55.2. Manufacturing payrolls are still increasing, according to the PMI survey, but fewer companies may be adding employees.
The supplier delivery times subindex increased 1.8 points during the month, suggesting that it is taking a little longer to receive inputs at manufacturing plants. The commodity prices subindex fell 10.0 points compared with May, which could be a sign that price pressures for materials may be easing.
Looking ahead, manufacturing contacts’ optimism concerning future production remains lackluster. When asked for their production expectations, only thirty-four percent of survey participants expect production to be higher in the next three to six months. The percentage of contacts expecting higher production has been falling in recent months.
So, is manufacturing activity slowing? It’s difficult to draw that conclusion over one month’s data. However, the sharp drop in new orders and production is hard to ignore. It’s important to remember that the overall PMI reading is still positive and is in line with June’s national index reading of 55.3 from the Institute for Supply Management. The Southeast PMI indicated that manufacturing activity had been sprinting down the track in recent months. Maybe it needed a breather, or maybe it pulled a hamstring. We’ll have to wait and see.
By Troy Balthrop, a Regional Economic Information Network analyst in the Atlanta Fed’s Nashville Branch
Southeastern States Mind the (Skills) Gap
During the past few years, we have heard from a significant number of regional business contacts about the challenges they experience filling certain positions and concerns about a skills gap facing the Southeast. We heard this from various industries, most often about engineering, construction, and IT jobs. The most recent Southeastern Insights mentions this widespread issue.
This skills shortage situation is not unique to the Southeast. The U.S. Chamber of Commerce Foundation published a state-by-state analysis last month measuring performance in a number of areas that contribute to economic prosperity. Their key conclusion reiterates our contacts’ concerns: that mounting skilled-labor shortages are on the horizon to such an extent that they may soon hinder economic growth. According to the study, the current skills gap dilemma is expected to grow substantially as baby boomers retire.
Fortunately, there’s a bright side: many states have recognized this situation and have taken steps to address the ostensibly approaching workforce crisis. Many of our contacts from both private and public sectors pointed to joint initiatives created by states and businesses designed to confront and abate the situation; which the U.S. Chamber of Commerce Foundation study says is essential to closing the gaps. Below is a sample, extracted from the study, of some of the efforts Sixth District states have taken:
- In 2013, the state launched a College and Career Ready Task Force charged with identifying ways to better prepare students for the workforce by training them in the skills demanded by growing industries across the state.
- New and expanding businesses can get workforce development services through the Alabama Industrial Development Training program, which offers services to businesses in need of skilled workers, including preemployment selection and training, leadership development courses, and third-party process improvement assessments.
- The Alabama Technology Network provides skills training for the manufacturing and high technology workforce. The network connects businesses to the portfolio of training resources and programs provided by the state’s colleges and universities, offering services through regional centers.
- The Go Build Alabama initiative works to attract talented workers to construction and skilled trades.
- Quick Response Training enables new and expanding businesses in need of training to partner with community colleges and other educational institutions in the state to develop and deliver workforce training programs.
- The Incumbent Worker Training program supports training the existing workforce to enhance and maintain competitiveness.
- The Career and Professional Education Act guides Florida’s efforts to diversify its economy and develop a more skilled workforce by encouraging collaboration among education, industry, workforce, and economic development stakeholders from across the state.
- In early 2014, the state approved a $44.7 million Science Learning Center on the University of Georgia’s South Campus, providing state-of-the-art facilities aimed at expanding the pipeline for students in science, technology, engineering, and math (often referred to collectively as STEM).
- Groundbreaking also took place for the Georgia BioScience Training Center, which will support training for companies that choose to locate within the state. Georgia Quick Start, the state’s job training program, will build and operate the state-of-the-art biotech training center.
- Via the Small Business Employee Training Program, employers can receive up to $3,000 to defray the costs of off-the-shelf training programs for an existing employee.
- The Louisiana Workforce Commission established Workforce Partners to recognize businesses that have committed to building a “job ready” workforce in the state through support and training.
- The Strategies to Empower People program provides access to job training, job readiness support, vocational education programs, and a variety of other skills-development services for those receiving government assistance.
- The Workforce Investment Network consists of more than 60 training and employment centers around the state where employers and job seekers can access services like training, job postings, on-the-job training programs, employment screening services, and job placement assistance.
- The Mississippi Development Authority also maintains a team of workforce specialists who work with colleges, businesses, workforce development professionals, and other stakeholders to identify resources useful to a particular business. The authority also builds partnerships to pursue needed training services.
- The University of Mississippi maintains a Professional and Workforce Development program, offering online enrichment courses, certification programs, and outreach services, bringing tailored training programs directly to the employer.
- The Tennessee Job Skills grant program offers support to technology companies that create “high-skill, high-wage” jobs, reimbursing eligible costs incurred in training development implementation.
- Entrepreneurs in need of quick turnaround in receiving support for training costs can make use of the state’s Job Based Training Reimbursement program, which provides support within the first 90 days after a new job is created and training starts.
- The FastTrack Job Training Assistance Program offers employers state support to cover costs for classroom instruction, on-the-job training, training-related travel, training vendors, and development of training materials and programming.
Sixth District states appear to be on a solid track to address skills gap challenges, combining investment in training, education, and business assistance as a long-term workforce development strategy. Time will tell if the investment pays off (we should know sooner rather than later, as boomers are expected to start retiring in droves).
To learn more about states’ efforts, as well as their rankings across five policy areas—talent pipeline, exports and international trade, technology and entrepreneurship, business climate, and infrastructure—check out the U.S. Chamber of Commerce Foundation’s study. There’s also a nifty interactive map you can use to view state rankings and data easily.
By Rebekah Durham, economic policy analysis specialist in the Atlanta Fed's New Orleans Branch
To Buy or Not to Buy, That Is the Question (for Millennials)
In the last month, the South Florida Business Journal reported on the announcement of at least three new apartment projects:
- June 18: Developers plan 300 apartments in Midtown Miami
- June 19: Lennar plans 229 apartments in Boca Raton after $7.5M purchase
- June 23: Broward commissioners to vote on 400-apartment project
Data from the real estate analytics firm REIS indicate that 2,425 new apartment units were completed in Miami in 2013. Not only is this noteworthy because this represents the most units delivered per year since 1991 but also because nearly all of the units were absorbed. More than 600 units have been delivered so far in 2014, and close to 3,000 units remain under construction. Despite this comeback in Miami apartment construction, the apartment vacancy rate ended the first quarter at 3.8 percent and is expected to remain at this low level for an extended period. Is apartment construction heating up in South Florida as a result of a change in fundamental beliefs of the rising generation?
According to an article featured in the latest issue of the Atlanta Fed's EconSouth, the generation known as the millennials is showing signs of veering from established patterns, particularly when it comes to milestones like moving out of the parents' house, getting married, and buying a home. Many experts, including Atlanta Fed economist Tim Dunne (who has written extensively on the topic, including this article), acknowledge that economic conditions are partly to blame for these delayed decisions.
But are these decisions only being delayed, or have preferences changed? Reports from some Atlanta Fed business contacts suggest that attitudes and preferences may in fact be changing. Some business contacts report that, unlike previous generations, millennial employees are often unwilling to commit long term to one organization, preferring instead nonmonetary perks such as flex time over higher pay, and they place great value on work-life balance. Moreover, real estate business contacts in South Florida have noted that millennials prefer the "experience" that often comes with high-end apartments, such as amenities including dining and shopping, rather than a traditional home in a suburban setting.
More than shifting preferences may be at work, though. According to Fannie Mae’s national housing survey, conducted in May 2014, potential first-time homebuyers are facing several challenges that inhibit their ability to purchase a home. Although the survey does confirm that the number of renters has increased on a national basis, and the number of homeowners has declined, since the financial crisis, the survey's findings indicate that potential homebuyers are not renting by choice but rather by necessity. Higher credit standards and increasing home prices have hindered potential homebuyers. The survey results suggest that younger renters aspire to own but feel pessimistic about their ability to get a mortgage, perceiving down payment and credit score requirements as obstacles. The survey also reported that young renters aspire to own for financial and lifestyle reasons, although a smaller share of respondents (versus last year) reported that their primary reason for renting is to prepare them for homeownership.
For the rental market, the question remains whether that segment's growth is a permanent shift by millennials or merely a bridge until this generation is better prepared to become homeowners.
By Marycela Diaz-Unzalu, a Regional Economic Information Network analyst in the Atlanta Fed's Miami Branch
Separating Out Job Groups in the Sixth District
There’s been a lot of discussion about the decline of jobs considered to be “mid-skilled” during the last several years. A recent Regional Economic Press Briefing prepared by our friends at the New York Fed took another look at this important issue. They aggregate occupations into three skill categories: higher-skill, middle-skill, and lower-skill professions. The specific occupations of each category are outlined in the following chart:
Using data from the U.S. Bureau of Labor Statistics’ Occupational Employment Statistics dataset, we were able to decompose the Sixth District states’ labor markets using the same skill categories that the New York Fed used.
Both the higher-skill and lower-skill categories grew from 2007 to 2013, and the middle-skill group shrank for both the United States and Sixth District. The proportion by which the middle-skill group’s share shrank during the time period was roughly similar for the nation and Sixth District, with the difference between the two differences being less than 1 percentage point. Yet more interesting, we were able to compare how these groups’ compositions have changed prior to and following the recession for each Sixth District state. You can see a state-by-state decomposition in the following chart:
Florida, Georgia, and Tennessee all saw their share of their middle-skill jobs shrink by roughly 4 percentage points during the time period, while Alabama’s share of middle skill jobs decreased by about 3 percentage points. The middle-skill groups in Louisiana and Mississippi, often the outliers in Sixth District data, shrank by the smallest amounts during the time period 2007–13, roughly by 2 percentage points. However, Louisiana’s share of higher-skill occupations was the only one not to expand from 2007 to 2013. The shrinking share of middle-skill jobs in that state was almost solely the result of a growing share of lower-skill jobs.
To understand how the data in the chart above came about, we can look at changes in the composition of these groups (higher-, middle-, and lower-skill groups) by state during both the recession and recovery. The first chart below shows that the middle-skill groups took a particularly hard hit across the nation and District in the previous recession...
...while those middle-skill jobs have been the most sluggish to come back, both across the nation and the Sixth District, as the following chart shows:
By Mark Carter and Sandra Ghizoni, both senior economic analysts in the Atlanta Fed’s research department
Southeast Housing Update: Home Prices Increasing, If Only Slightly
To detect emerging real estate trends prior to the release of the official statistics, the Atlanta Fed conducts a monthly poll of Southeast broker and builder business contacts. The latest poll results came in a few weeks ago and revealed the following:
- More builders, but fewer brokers, indicated that home sales had increased from the year-earlier level. Contacts were much less optimistic about future sales growth than they were a year earlier.
- Fewer brokers, but more builders, noted that inventory levels were down from the year-earlier level.
- Most brokers and builders continued to report that home prices increased slightly in May compared to year-ago levels.
- Fewer builders reported an increase in construction activity from month-earlier and year-earlier reports, but their outlooks remained optimistic and largely unchanged from the year-earlier level.
To view the latest poll results in more detail, please visit the Atlanta Fed's Construction and Real Estate Survey page.
Thoughts on credit availability
After more than a year of periodically posing questions about mortgage and construction and development finance, we decided to include the credit questions on a monthly basis starting in January 2014. In the latest poll, roughly two-thirds of brokers and builders reported that the amount of available mortgage finance was either equal to or greater than the amount of demand this month (see the charts).
Most builders, on the other hand, continued to report that the amount of available construction and development finance fell short of demand (see the chart). Because we didn't start asking this question until 2012 (and, again, at that point only intermittently), it is hard to say how this perception compares to how conditions were viewed before the housing downturn.
In an attempt to put things in perspective, we posed a special question in June to builders asking them how the availability of construction and development finance now compares with the availability four, six, eight, and 10 years ago. Most builders reported that construction and development finance is more available now than it was four years ago in 2010. The results for 2008 were somewhat mixed. Builders were almost unanimous in reporting that construction and development finance is less available now than it was in 2004 and 2006 (see the chart).
Note: The latest poll results are based on responses from 38 residential brokers and 19 homebuilders and were collected June 2–11, 2014. If you would like to participate in this poll, please sign up.
By Jessica Dill, senior economic research analyst in the Atlanta Fed's research department
Florida, On Holiday
In May, the Sixth District states added just 15,000 net new payrolls. This increase follows three months where the states hit the mark of 40,000 new payrolls per month. However, last month, the District's labor market held two dubious distinctions: first, Florida shed more payrolls than any other state in the nation, and second, Georgia—despite adding 12,900 payrolls in May—had the largest statistically significant increase in its unemployment rate than any other state in the nation (up 0.3 percentage points; see the chart).
As you can see in the chart above, Florida added about 100,000 payrolls for the first four months of 2014 before hitting a snag in May. So what happened last month? Three of the state's sectors that appeared to have turned the corner following the downturn actually were hit hard in May: employment in the construction and accommodation and food services sectors both declined last month, losing 6,100 and 7,700 payrolls, respectively. Hiring in professional and business services—a sector recovering faster than most in the postrecession period—shed 9,500 payrolls. Florida's professional and business services sector added 25,500 payrolls during the first four months of 2014.
As always, a reasonable word of caution when looking at these data: one month does not a trend make. Still, you can't help but scratch your head on this one, especially with accommodation and food services, as the weather warms up after a harsh winter and people begin planning their Florida beach getaways. You can see how employment in the previously mentioned sectors is faring relative to their most recent peaks and troughs in the chart below.
On the other hand, Florida's labor market is still showing some signs of life: the trade and transportation sector added 5,300 payrolls, and retailers added 2,100 payroll jobs.
Other District states fared better in May. As previously mentioned, Georgia added 12,900 payrolls (with 5,400 of those being in professional, scientific, and technical services), and Louisiana added 8,500 payroll jobs over the month. Tennessee added 6,700 payrolls, and Mississippi—where monthly payroll growth has averaged 1,300 during the past 12 months—added 4,100 payrolls.
State unemployment rates
Despite five out of six District states adding payrolls in May, five out of six District states also saw increases in their unemployment rates. The District's aggregate unemployment rate ticked up 0.1 percentage point to reach 6.5 percent, while Mississippi's ticked up to reach 7.7 percent (the highest rate in the District). Georgia saw a 0.3 percentage point increase, reaching 7.2 percent. Louisiana's noticeably lower rate of employment increased to 4.9 percent (see the chart).
To find out how many jobs it would take to lower unemployment rates in all 50 states, check out the Atlanta Fed's Jobs Calculator.
The next national employment release will be out July 3, and the next regional employment release comes out July 18.
By Mark Carter, a senior economic analyst in the Atlanta Fed's research department
The Growing Gulf Coast: Good Signs despite Low Sales
The weather is not the only thing about to heat up along the Gulf Coast. The economy is warming up as well, according to the Regional Economic Information Network’s (REIN) contacts. The REIN team in the Atlanta Fed’s New Orleans Branch reaches out to leaders from large and small businesses from all sectors of the economy and to representatives from community groups along the Gulf Coast in order to gain a representative picture of regional economic conditions, which, by the way, appears to be markedly improving. Since mid-April, we’ve held 15 one-on-one interviews, one roundtable with a mix of business leaders, our branch board meeting, and we also attended several conferences.
According to our contacts, business sentiment has picked up. Most of them were optimistic about near-term (three to six months) and medium-term (two to three years) growth and were more confident in their outlook than in the recent past. Of contacts who indicated they were experiencing second quarter growth, approximately half believed the growth was a rebound from an unusually weak first quarter, with the other half attributing it to a modest increase in economic strength.
Burgeoning capital investment was a consistent recent theme. A lack of “visibility”—or a firm’s ability to confidently predict future business conditions—was not reported as a significant inhibitor of capital investment. Nearly every contact shared information about merger and acquisition (M&A) activity or capital expenditure projects under way or planned for 2014. Most projects involved expansion to meet growing demand, including constructing new facilities and upgrading existing ones, although several projects involved new product offerings. Consistent with the recent trend along the Gulf Coast, much of the increased investment stemmed from the energy sector. However, we noticed investment picked up in other industries, such as in education and medical services.
Business contacts also reported that spending on consulting services for leadership development and organizational culture training increased. The addition of new leaders, M&A activity that resulted in conflicting organizational cultures, and the recession-era deferral of discretionary spending generated a surge in demand for these services.
Residential real estate across the Gulf Coast picked up marginally since mid-April. The median residential home sale was around $200,000, though inventories were low. Homes in coastal Alabama’s high-end market (over $600,000) were slow to move, and a lack of high-end inventory in coastal Mississippi led to increased construction in that market. In past months, we heard reports of an increase in raw land deals along the Florida Panhandle, and similarly, a recent reemergence of raw land deals was reported in coastal Alabama, often 50 percent bank-financed with fully collateralized loans. Commercial construction also resurfaced in parts of the region.
Unfortunately, the general optimism was not shared by all sectors. Regional retail contacts shared dampened expectations for the second quarter. Some admitted to difficulty adjusting to a shopping landscape increasingly dominated by the internet, which forced big-box retail stores to rethink sales strategies and reevaluate store locations and sizes and in some cases led to resurgence in the redevelopment of shopping centers.
Bracing for the boom
The employment picture was heartening, with nearly all of our contacts implementing hiring plans. In fact, a few contacts who took steps to reduce employment to “lean and mean” levels during the recession and early recovery admitted they were not so sure the decision was advantageous, and recently they saw productivity increase significantly once they added workers. However, the continued shortage of skilled labor has many contacts worried that some project start dates may be pushed back as they struggle to find qualified people.
Most contacts continued to report isolated wage pressures for skilled labor, medical services, and professional jobs, though some expressed they are bracing themselves for significant wage pressure in the coming months as the economy picks up.
The chatter about plans to increase prices in recent months materialized into reports of price increases, yet contacts admitted the increases were challenging and required a great deal of negotiating.
Overall, the Gulf Coast economy appears to be rising out of the recessionary fog and shedding the winter frost. The picture across most industries was definitively positive, with reports of large investment projects, hiring plans, and price increases.
By Adrienne Slack, vice president and regional executive; Rebekah Durham, economic policy analysis specialist; and Harrison Grieb, economic intern, Regional Economic Information Network, all in the New Orleans Branch of the Atlanta Fed