Southeastern Insights: Slow Growth with a Dash of Uncertainty and Caution
The Atlanta Fed's Southeastern Insights report provides a broad summary of economic intelligence gathered through our network of business contacts and other sources throughout the Southeast each Federal Open Market Committee (FOMC) cycle. The latest report covers the period from September 19 to October 30.
As a complement to Southeastern Insights, Adrienne Slack, vice president and regional executive at the Atlanta Fed's New Orleans Branch, discusses the regional economy.
Here are some highlights from the report:
- Since the previous FOMC cycle, most business contacts expect continued slow growth in the short term. However, several contacts noted a rise in uncertainty tied to the effects of the debt ceiling debate and the government shutdown.
- Mixed reports from labor markets, combined with renewed uncertainty, have not strengthened employment trends since the previous cycle and have caused many business leaders to delay decisions about hiring new employees. Overall, very few companies reported adding to employment levels as a result of organic growth, regardless of how robust that growth was. Some companies cited paying overtime before hiring new employees unless the new hires were expected to generate revenue.
- Contacts continued to report stable pricing with no major concerns about inflation; cost pressures were mostly well contained. However, isolated industries that reported minimal cost increases did note that they were able to pass through the increases to their customers (such as fast food, grocery stores, and some construction). Overall, margins remained tight. Reports indicate wage increases remained stable (mostly in the 2 percent to 3 percent range) across most industries. However, there were scattered reports of upward wage pressures for high-skilled workers.
- While our contacts expressed some uncertainty and caution, their medium-term outlook is that the economy will continue to improve.
Atlanta Fed President Dennis Lockhart shares this view, and he harbors concern about the likelihood of more robust growth in the near term. In a November 12 speech in Montgomery, Alabama, President Lockhart said that:
My baseline outlook calls for an improved economy in 2014—growing a bit faster than it has been. But that may not happen. There is a nontrivial chance that 2014 will look like 2013. Next year's economic outcomes will swing importantly on fiscal drag and consumer spending.
The concern surrounding fiscal drag is twofold: the level of government spending and the role that uncertainty plays in business decision making. A recent macroblog post noted that:
- Most firms are expressing more uncertainty,
- For a significant portion of firms, uncertainty today is having a greater impact than six months ago, and
- The government is heavily featured as a source of the uncertainty.
Regarding consumer spending, indications are that spending remains cautious. As reported in Southeastern Insights:
Retail industry reports were mixed, yet most contacts described a decline in sales and demand following a slower than expected summer and back to school season. Some retailers also indicated they plan to hire fewer seasonal staff and are less optimistic about the upcoming holiday season. A bright spot in consumer spending continues to come from the strength of high-end consumers; however, their spending has not been significant enough to offset the scaling back by low- to mid-end consumers.
It's clear that what we are hearing from our business contacts demands that we remain cautious regarding the overall economic outlook. As President Lockhart noted in Montgomery:
I remain cautiously optimistic that growth will pick up next year. This is my baseline outlook. But, at this juncture, I can't fully discount the possibility that the expected economic improvement won't materialize and that we'll see a replay of the weak growth of the past three years.
By Mike Chriszt, a vice president in the Atlanta Fed's public affairs department
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