The Atlanta Fed's SouthPoint offers commentary and observations on various aspects of the region's economy.
The blog's authors include staff from the Atlanta Fed's Regional Economic Information Network and Public Affairs Department.
Postings are weekly.
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
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Beige Book: Southeast Growing at a Moderate Pace
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. Then, approximately two weeks prior to each Federal Open Market Committee meeting, results are published in the Beige Book on the Federal Reserve Board of Governors' website.
Because the lead sentence—of the national summary and each district's section—often gives a broad view of economic conditions in that region, that first sentence often gets much attention. Here is a roundup of the first sentences of these sections:
- National: Reports from the twelve Federal Reserve Districts indicated that the economy continued to expand at a modest to moderate pace from early October through mid-November.
- Boston: Economic activity continues to expand in the First District.
- 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 continued to rise at a modest pace during this current Beige Book period (beginning with the first partial week of October).
- Cleveland: Business activity in the Fourth District expanded at a moderate pace since our last report. On balance, demand for manufactured products grew at a moderate rate.
- Richmond: The District economy expanded moderately in recent weeks.
- Atlanta: Businesses across the Sixth District described economic activity as moderately increasing from October to mid-November.
- Chicago: The rate of growth in economic activity in the Seventh District continued to be modest but slowed a bit in October and early November.
- St. Louis: Business activity in the Eighth District has expanded at a moderate pace since the previous report.
- Minneapolis: The Ninth District economy grew at a moderate pace since the last report.
- Kansas City: The Tenth District economy continued to grow modestly in November.
- Dallas: The Eleventh District economy expanded at a moderate pace over the past six weeks.
- San Francisco: Economic activity in the Twelfth District expanded at a modest pace during the reporting period of early October through late November.
As you can tell, all 12 districts experienced similar levels of activity. Here are some notable highlights from the Atlanta Fed's portion of the Beige Book:
On balance, contacts across the private sector reported that the partial federal government shutdown had little to no direct impact on employment, but it has negatively affected business confidence, which could translate into delayed hiring decisions now or in the near term. Contacts continued to express concern about shortages of qualified labor. Their concern is that companies seeking to hire and expand their business could be impeded by an inability to find qualified workers. Overall, firms experiencing any growth in demand for their products expressed no plans to hire in the near term.
Contacts continued to report stable pricing, with no major concerns about inflation. Isolated reports of cost increases (for example in fast food, grocery stores, and construction) were generally passed through successfully to customers. Year-ahead unit cost expectations were unchanged at 1.9 percent in November, according to the Atlanta Fed's Business Inflation Expectations survey (see the chart). Overall, profit margins were tight across most industries. Aside from scattered reports of upward pressure on wages for high-skilled workers, increases remained stable (mostly in the range of 2 percent to 3 percent) across most industries.
Consumer spending and tourism
District retail contacts indicated that economic uncertainty was having an impact on consumer confidence and behavior. Although merchants reported plans to offer robust discounting, beginning even earlier than the traditional Black Friday, retailers' expectations for the upcoming holiday season are only mildly optimistic. Sales of light vehicles were steady. Hospitality firms continued to cite expanding levels of activity in both leisure and business travel.
Real estate and construction
District brokers indicated that growth of existing home sales have slowed notably in recent months. By most accounts, inventory levels continued to decline on a year-over-year basis. Home prices remained ahead of the year-earlier level, but price gains seemed to be slowing. The majority of builders noted that new home sales and construction were ahead of the year-earlier level. Reports on unsold inventory were mixed, while contacts continued to note modest home price appreciation. District commercial brokers noted that demand for space continued to improve modestly. Construction activity slightly increased as well from earlier in the year.
District manufacturers reported gains in new orders, production, and employment in October compared with the previous month. An increasing number of contacts cited higher-than-desired finished inventory levels and remarked that commodity prices continued to rise, albeit at a modest rate. Manufacturers also noted a mild decrease in supplier delivery times.
Banking and finance
Banking contacts reported better overall lending activity relative to our previous report, although loan demand in rural areas remained low. Commercial real estate lending increased as property values rose; commercial and industrial and auto lending was strong. Mortgage lending and refinancing activity slowed as mortgage interest rates increased. Deposit levels were high at most institutions, and banks remained competitive in seeking quality loan customers. Some banks loosened underwriting standards and reduced margins to attract new loan business.
The next Beige Book will be published January 15.
By Shalini Patel, an economic policy analysis specialist in the Atlanta Fed's research department
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Insight from our Energy Advisory Council
The Federal Reserve Bank of Atlanta's Energy Advisory Council met at the New Orleans Branch a few weeks ago. The Energy Advisory Council is one of five such councils that are part of the Atlanta Fed's Regional Economic Information Network (REIN). Others include agriculture, trade and transportation, travel and tourism, and small/emerging business. The Energy Advisory Council consists of representatives from upstream and downstream production firms, utility companies, and manufacturing/fabrication companies.
Part of the meeting focused on the recent increase in oil prices, and council members discussed the causes and sustainability of higher energy costs. The conclusion was that the price increases were largely the result of higher demand and the increased potential of supply issues, the latter being most affected by recent unrest in the Middle East. Longer-term, members agreed that Gulf of Mexico energy production may not reach its potential. They noted that although 10 offshore drilling permits have been approved since the expiration of the moratorium on deepwater drilling in the Gulf of Mexico, only one was for new exploration. The other permits were issued to resume operations that had been shut down during the moratorium.
Another focus of the meeting was the crisis at the nuclear plant in Japan and the possible repercussions this event may have for the U. S. nuclear power industry. Currently, council members noted, the new nuclear facilities being approved and built have an advanced design, which does not require electricity to cool an overheating reactor, but uses gravity instead. The advanced designs will have other redundant backups as well. In addition, the oversight of existing nuclear plant operations will likely become even more stringent. With the government's current push for clean energy, members agreed that a slowdown in permitting new facilities is not likely.
More generally, council members discussed rising commodity costs being felt throughout the industry, especially with regard to steel (see the chart). They agreed that higher raw materials costs will eventually be passed through to oil and gasoline prices.
Also among the notes from the meeting:
• Activity in the utility sector is up as measured by electricity sales, with the industrial sector showing positive activity, but weakness persists in the residential and commercial markets.
• The introduction of horizontal drilling and liquefaction has changed the natural gas industry, both from the supply and demand side. Supply has increased as a result of the development horizontal fracturing, and demand has increased in part because of the high cost of petroleum.
Input from our Energy Advisory Council and other advisory councils helps us gain insight into economic developments in key industries and sectors in the region's economy. Since developments in these important areas of economic activity influence the broader economy, this insight is a key part of our overall assessment of economic activity in the nation as a whole.
By Kate Glover, Regional Economic Information Network analyst at the New Orleans Branch of the Atlanta Fed
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- Assessing the Impact of Oil Price Declines on Louisiana's Economy
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- November 2015
- September 2015
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