The Beige Book Looks Rosy
The Federal Reserve released the first Beige Book of 2014 on January 15. To prepare the Beige Book—published eight times per year—each Reserve Bank 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.
The first paragraph from the national summary began with this sentence:
Reports from the twelve Federal Reserve Districts suggest economic activity continued to expand across most regions and sectors from late November through the end of the year.
The Atlanta Fed was one of two Reserve Banks that saw conditions improve compared with the previous reporting period. Overall, we said that “[b]usiness contacts indicated that from late November through December overall economic conditions improved moderately in the Sixth District.”
Below are highlights from our report, beginning with the important sections on employment and inflation:
- Businesses did not indicate a significant pickup in hiring, nor did they report any staff reductions. Businesses continued to employ technology and utilized overtime and contract labor as an alternative to increasing permanent staff. Contacts in manufacturing, construction, professional, and energy sectors report persistent difficulty in finding qualified workers. On balance, many firms expressed continued hesitancy caused by concerns about healthcare reform in terms of their overall hiring plans.
- Cost pressures remained mostly stable, according to business contacts. Healthcare was the most cited exception, with reports of larger cost and price increases than usual. Merit increases remained in the 1 to 3 percent range. However, skilled and professional positions in energy, construction, information technology, and logistics continued to see above-average wage increases and higher starting pay. Year-ahead unit costs expectations were 1.9 percent in December, unchanged for the fourth consecutive month, according to the Atlanta Fed's survey on business inflation expectations.
Most sectors of the regional economy reported a solid start to the new year:
- District merchants noted positive year-over-year holiday sales growth, with online sales outpacing traditional store sales.
- The hospitality sector continued to experience the same solid pace of activity that it had all year long.
- Residential housing brokers noted that existing home sales growth continued to slow, while homebuilders experienced modest growth in new home sales.
- Commercial contractors described construction activity as improving, especially in the multifamily segment of the market.
- Manufacturers indicated that overall activity strengthened since the previous report.
- Capacity utilization in the energy industry remained near historic highs, and deep water oil exploration in the Gulf of Mexico increased.
Atlanta Fed business contacts held a positive outlook heading into 2014. Atlanta Fed President Dennis Lockhart shared this view in a speech delivered to the Rotary Club of Atlanta on January 13, where he said:
I expect the stronger pace of economic growth in the second half of 2013 to continue in 2014. My current view is that real GDP will expand between 2.5 and 3 percent this year, and I would not be surprised if we achieve results at the upper end of this range.
A new year often breeds optimism, sometimes misplaced. But based on our view of the data and what our business contacts are saying, we think that being optimistic this January is justified.
By Michael Chriszt, a vice president in the Atlanta Fed’s public affairs department
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