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.
Florida's Economic Rebound Continues
During the last several months, business contacts in south Florida have been reporting improving economic conditions. They've discussed increased opportunities for capital expenditure projects, optimistic hiring plans, and a general upturn in business activity. This optimism made me wonder if the data on Florida's economic activity reflected what we've been hearing from our contacts in south Florida.
In November, coincident economic indicator, which measures overall economic activity, was 155.99 (see the chart). The index has been steadily improving since 2012. Although it has not yet reached its peak of 160.87 from February 2007, it seems to be within reach. While the November data for metro areas are not yet available, our South Florida business contacts recently indicated that the economy in south Florida continues to improve. Falling oil prices have not had a direct impact on businesses yet, though the general consensus is that oil's price decline is good for the consumer and consumer spending should improve if these lower prices are sustained.
On the manufacturing front, the Southeast Purchasing Managers Index, which is produced by the Econometric Center at Kennesaw State University and measures regional manufacturing activity, declined to 54.1 in November (see the chart). However, with the exception of this past September, it has remained in expansionary territory since August 2012. (A reading above 50 indicates expansion in overall activity; a reading below 50 indicates a decline.)
Regarding employment, payroll employment in Florida hit its trough in March 2007 and has been steadily increasing since then. In November, payroll employment in the state increased by 41,900 to 7.897 million employed, remaining slightly below the prerecession peak of 8.053 million (see the chart). South Florida business contacts, however, specifically report continued challenges in filling positions with specialized skills in technology, mathematics, engineering, management, and lending.
While Florida's unemployment rate has a ways to go before reaching its prerecession low of 3.3 percent, it improved steadily from April 2012 through December 2013 and then plateaued at a little more than 6 percent for the first eight months of 2014 (see the chart). A downward trend in unemployment started in August of last year, reaching 5.8 percent in November. Anecdotally, we heard positive reports from contacts in the employment sector of an uptick in activity from employers using employment agencies to fill open positions.
As you can see from the data above, overall economic activity continues to look promising in Florida, supporting the information we've been receiving from business contacts. Let's hope conditions remain accommodative and that our contacts continue to report good news.
By Marycela Diaz-Unzalu, a senior Regional Economic Information Network analyst at the Atlanta Fed's Miami Branch
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A Timely Talk with Energy Professionals
If you read or watch the news, you've undoubtedly noticed what's happening with the price of oil. But for those of you who may have missed these reports, here it is in a nutshell: the price of Brent crude oil, the international benchmark, has declined more than 40 percent since its peak of over $115 in mid-June (see the chart).
Many reports have discussed what the decline means to the energy industry and economy as a whole. In fact, the Atlanta Fed's very own macroblog published a post that examined the impact on energy investment and overall economic growth. We were also fortunate to be able to discuss this important and timely situation, along with other industry trends, with energy sector representatives last month during our Energy Advisory Council meeting held at the New Orleans Branch. So what did council members think about the declining price of oil? I gleaned a few key takeaways.
Council members reported that the recent drop in the price of oil had led exploration and production firms to reevaluate operational flexibility, cost-management strategies, and extraction technologies. These firms also initiated renegotiations with oilfield service companies for reductions to pricing structures, which a recent report suggested may drop as much as 20 percent.
In addition, council members conveyed their expectation that marginal oil producers may be negatively affected by falling oil prices, as their breakeven point is typically much higher than the larger producers. They shared that foreign oil-producing countries that acquire a majority of their revenues from the world's most traded commodity may also be adversely affected, which is a known concern among many key people inside the industry. The council also pointed out that if oil prices continued to decline or even hold at current levels, capital spending may be affected since firms would have fewer profits to reinvest into production and growth. Some reports indicate that this effect on spending is already beginning to occur. However, some members told us that they anticipate continued steady production in both deepwater and onshore drilling since many of these projects are large scale and long term and have high front-end costs (which in many cases have already been funded). Decisions about future projects may need to be reconsidered, however.
All in all, the Energy Advisory Council meeting was very timely, considering our attempts to understand what was happening globally with the price of oil and its impact on the economy. It will be interesting to learn how the energy industry will have adapted to current events when the council convenes again in March 2015.
By Rebekah Durham, economic policy analysis specialist in the Atlanta Fed's New Orleans Branch
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Employment Momentum Grows in Florida and the Retail Sector
The U.S. Bureau of Labor Statistics published October 2014 state-level labor market data on November 21. For Sixth District states, a couple of factors stood out. First, after several months of anemic job growth, Florida employers added lots of jobs. In fact, Florida contributed 61 percent of October's net payrolls to the region. Second, although job gains were solid in a number of sectors, retail shined with 13,300 jobs added on net across the District, a figure that represents nearly half of the 27,100 jobs added to the sector in the entire United States in October. These regional retail job growth data confirm what the folks in our Regional Economic Information Network described earlier this month in their recap of economic intelligence gathered from business contacts across the Southeast: retailers anticipate strong holiday sales, and this anticipation translated into robust seasonal hiring in the retail sector in October.
A summary of the payroll and unemployment data for Sixth District states sheds more light on recent activity.
Payrolls flex some muscle
Employers in all Sixth District states except Mississippi added to payrolls: 56,600 jobs were added on net (see the chart). Florida dominated aggregate net gains in October, adding 34,400 jobs on net. Most of these gains came from the leisure and hospitality sector (up 9,300). Big contributors to Florida gains also included the educational and health services (up 9,000), professional and business services (up 6,100), and goods-producing sectors (up 5,100). (The good-producing sector was up 6,200 payrolls from construction alone but was reduced by losses in manufacturing.)
The sectors with payroll additions varied by state, though gains in the trade, transportation, and utilities sector were prevalent, with 16,800 net jobs added. Gains in this sector were dominated by retail trade (see the chart), which was the only sector tracked by all states that added jobs in every Sixth District state in October. This increase is typical for October, as retailers gear up for the holidays.
Employment momentum in the retail sector has been building for most of the region's states for a few months now (see the chart).
District gains in the professional and business services sector were also sizeable, with 13,100 jobs added. Momentum in this sector has been building in district states (see the chart). However, two states subtracted jobs from this sector in October: Louisiana (down 1,200) and Mississippi (down 1,500).
A few other facts about the Sixth District's October payrolls and sectors are noteworthy:
- Alabama added 2,200 jobs on net. The leisure and hospitality (up 3,200) and professional and business services (up 1,400) sectors were the top contributors. The biggest losses occurred in the government (down 1,500); trade, transportation, and utilities (down 600); and financial activities (down 500) sectors.
- In Florida, aside from job gains mentioned above, payrolls fell in the information (down 2,100) and financial activities (down 100) sectors.
- Employers in Georgia added 11,600 jobs on net. The largest gains occurred in trade, transportation, and utilities (up7,900, with 4,700 of those payrolls from wholesale trade) and professional and business services (up 5,400). The biggest losses came from government (down 3,200) and financial activities (down 1,200).
- Louisiana added 1,200 payrolls on net, most of which came from the trade, transportation, and utilities (up 1,500) sector. That sector was up 2,900 from retail trade, reduced by losses in wholesale trade) and educational and health services (up 1,200) sectors. The biggest losses occurred in leisure and hospitality (down 2,600) and professional and business services (down 1,200).
- Mississippi was the only district state to subtract payrolls from the aggregate district figure. The largest losses came from the professional and business services (down 1,500) and government (down 700) sectors. The only gains occurred in the educational and health services (up 1,300), leisure and hospitality (up 500), and trade, transportation, and utilities (up 400) sectors.
- Tennessee employers increased payrolls by 7,900 on net. The largest increases occurred in the trade, transportation, and utilities (up 3,500) and professional and business services (up 2,900) sectors. The biggest losses occurred in educational and health services (down 700) and leisure and hospitality (down 400) sectors.
Regional unemployment declines, if only slightly
The aggregate district unemployment rate was 6.6 percent in October, a decline of 0.2 percentage point from September (see the chart).
The rate fell in all states except for Louisiana, where it increased to 6.2 percent from 6.0 percent the previous month and was the sixth straight month of an increasing unemployment rate in that state. As I reported last month, this isn't necessarily a bad thing in the short run, since the state added jobs yet appears to have increased its labor force participation rate.
The unemployment rate fell in all remaining District states. Alabama's rate fell 0.3 percentage point in October to 6.3, its lowest rate in nine months. Florida's rate fell 0.1 percentage point to 6.0 percent, the lowest it's been in more than six years. The unemployment rate in Georgia fell for the second month in a row, to 7.7 percent in October from 7.9 percent in September. Though Georgia's unemployment rate declined, it had the highest rate in the United States in October for the third month in a row, at 7.7 percent. Mississippi's rate declined 0.1 percentage point to 7.6 percent, the lowest it's been in six months. In Tennessee the unemployment rate was 7.1 percent, a 0.2 percentage point decline from September.
So once again, collectively, the Sixth District states' labor market showed continued strengthening in October, particularly the state of Florida and the retail sector.
Hopefully, this progress continues for the month of November. We'll see when the data are released on December 19.
By Rebekah Durham, economic policy analysis specialist in the New Orleans Branch of the Atlanta Fed
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Southeastern Manufacturing Continues to Expand
The return of fall has not cooled down manufacturing in the Southeast. The Southeast Purchasing Managers Index (PMI), which was released October 5, indicated expansion in the manufacturing sector for the ninth consecutive month.
The Atlanta Fed's research department uses the Southeast PMI to track manufacturing activity in the Southeast. The Econometric Center at Kennesaw State University produces the survey. It provides an analysis of current market conditions for the manufacturing sector in Alabama, Georgia, Florida, Louisiana, Mississippi, and Tennessee. The PMI is based on a survey of representatives from manufacturing companies in those states and analyzes trends concerning new orders, production, employment, supplier delivery times, and inventory levels. A reading above 50 points indicates that manufacturing activity is expanding, and a reading below 50 points indicates that activity is contracting.
The Southeast PMI fell slightly to 55.0 points in September. The index was only 1.7 points lower than August and still solidly above the 50 threshold for expansion (see the chart). The new orders subindex registered a nice increase, and the employment subindex rose, but all other subindexes fell during the month.
- New orders: The new orders subindex increased 4.5 points over August's levels and has now climbed 15.7 points during the last two months.
- Production: The production subindex decreased. September's 59.0 reading was 1.2 points below August but was still well into expansionary territory.
- Employment: The employment subindex inched up 0.5 points compared with the previous month. The employment subindex has now indicated expansion for 12 consecutive months.
- Supply deliveries: The supplier deliveries subindex declined 3.6 points during September, indicating that manufacturers are receiving their inputs slightly more quickly.
- Finished inventory: The finished inventories subindex decreased 8.6 points compared with August. The fall completely reversed the previous month's gain of 8.4 points. The subindex is now below 50, implying that purchasing managers are not as concerned about a buildup of inventory levels.
- Commodity prices: The subindex measuring input price pressures moved down to 53.0, a 5.3 point drop from the previous month.
Optimism among purchasing managers continued to rise during September. When asked for their production expectation over the next three to six months, 50 percent stated that they expect production to be higher, an increase from 44 percent in August. Only 18 percent of survey respondents expect their production to be lower.
The rise in new orders and strong production numbers bode well for manufacturing heading into the fourth quarter. The Southeast PMI has averaged a 56.6 reading so far this year. Conversely, the national PMI (produced by the Institute for Supply Management) has averaged 55.2. (I should note that the Southeast PMI is not a subset of the national index.) We'll be on the lookout for any changes in activity. After all, it's fall—the season of change.
By Troy Balthrop, a Regional Economic Information Network analyst in the Atlanta Fed’s Nashville Branch
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Leafing through Developments in the New Beige Book
Yesterday, the Fed´s Board of Governors published the Beige Book. The report, published in advance of the upcoming Federal Open Market Committee meeting, provides a summary of recent economic conditions gathered by all of the Federal Reserve Banks.
The first sentence of each section often gives a succinct overview of economic conditions in each specific region. Below is a compilation of each section´s lead sentence:
National: All twelve Federal Reserve Districts report that economic activity expanded during the current reporting period.
Boston: Business activity generally continues to increase on a year-over-year basis in the First District, but performance varies across sectors.
New York: Economic activity in the Second District has continued to grow 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.
Cleveland: Business activity in the Fourth District expanded at a modest pace during the past six weeks.
Richmond: Fifth District economic activity expanded moderately in recent weeks, and contacts reported an optimistic outlook.
Atlanta: Sixth District business contacts described economic conditions as improving modestly in April and May.
Chicago: Growth in economic activity in the Seventh District was moderate in April and May.
St. Louis: The economy of the Eighth District has grown modestly since our previous report.
Minneapolis: The Ninth District economy grew at a moderate pace since the last report.
Kansas City: The Tenth District economy expanded modestly in late April and early May with solid expectations for growth during the coming months.
Dallas: The Eleventh District economy grew at a moderate pace over the past six weeks.
San Francisco: Economic activity in the Twelfth District continued to improve moderately during the reporting period of early April through mid-May.
Overall, it´s clear that economic activity continued to pick up at a moderate pace in every region. Here are some highlights from the Atlanta Fed´s section:
Employment and prices
District payroll growth improved modestly since the last report. Staffing agencies noted a small increase in transitioning workers from temporary to permanent positions. Firms continued to show a preference towards using capital investment to enhance efficiency over hiring.
Consumer spending and tourism
District retail reports were mixed in April and May. Merchants with multiple sites stated that sales were better in locations with more affluent customers. Retailers reporting lackluster growth attributed it to a number of factors, including people diverting spending to obtain mandatory health insurance and a reduction in food stamp benefits. Contacts from the District´s tourism and hospitality sector expressed an overall exuberance regarding activity. The near-term outlook among contacts remains positive.
Manufacturing and transportation
District contacts reported that manufacturing activity continued to expand. Growth in new orders, production, and employment suggested substantial strengthening in the District´s manufacturing sector. Transportation contacts continued to cite expanding activity in April and May. District ports reported significant increases in exports of energy-related products; record unit volumes of cars, trucks, and tractors; and double-digit growth in containerized cargo.
Real estate and construction
More District brokers reported growth this period than the previous report expressed. Roughly two-thirds of broker reports indicated that home sales had increased from the year-earlier level. The majority of contacts continued to report that home prices remained ahead of the year-earlier level. Reports on current conditions from District builders were also more positive than the previous report. Most contacts reported that recent activity either met or exceeded their plan for the period.
Banking and finance
On balance, loan demand across the District increased, evidenced by a combination of new loan growth and increased lines of credit. Community banks also noted loan growth. However, new loans were being poached from larger banks.
Natural resources and agriculture
Energy activity in the District continued to expand as new discoveries, production, and oil field development increased across the Gulf Coast. Energy firms expect continued strength in the sector during the summer months.
The Board will publish the next Beige Book on July 16.
By Sadat Karim, strategic information research analyst in the public affairs department of the Atlanta Fed
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A City of Big Ideas
Here in the Southeast, a buzz has been growing around the idea of innovation. In my hometown, Atlanta, startups have been popping up like weeds. What makes Atlanta a good place to innovate? To start, Atlanta is home to a number of top-tier universities and colleges, including Emory University, Georgia State University, Morehouse College, Spelman College, Agnes Scott College, and Georgia Tech, which U.S. News recently ranked fifth in the country for engineering. The city also boasts one of the fastest-growing urban populations in the country and a cost of living below the national average.
Among recent developments, a study done by the Kaufmann Foundation ranked Atlanta second in the nation in entrepreneurial activity. As well, Georgia companies drew in more than $116 million in venture capital funding in the first quarter of 2014, compared with $46 million just two years earlier. On top of it all, Forbes magazine placed Georgia Tech’s Advanced Technology Development Center (ATDC) on its list of the top 12 Business Incubators Changing the World. So what’s the deal? Is Atlanta becoming the next Silicon Valley? Why has innovation been the buzzword of the last decade here?
A growing consensus holds that innovation is the key to economic growth in developed economies. Innovation enables firms to become more productive and thus increase output without increasing the amount of inputs (labor, capital, etc.). Throughout modern history, the kings of all innovations are the game changers, sometimes referred to as general-purpose technologies. Game changers include inventions including the steam engine, electrical power and, more recently, information and communication technology. Juan Moreno-Cruz, an assistant professor in the school of economics at Georgia Tech, noted that although you can’t always recognize a game changer right away; “there are small things that combine that make general-purpose technologies important.”
Without the small things, general-purpose technologies never become significant, and it’s here that start-ups become important. Stephen Fleming, vice president for economic development and technology ventures and executive director of the Enterprise Innovation Institute (EI2) at Georgia Tech, says that, “Innovation is the reason that they exist.” Part of Fleming’s role is to oversee Georgia Tech’s ATDC, one of the nation’s oldest—it was founded in 1980—and largest business incubators attached to a university. Throughout the years, it has graduated more than 150 companies, which together have acquired over $2 billion in outside financing. “We shelter them from the ups and downs of the market,” says Fleming. “We do this for a while so that the company does not die from the downs.” But how exactly does the ATDC foster innovation in their start-ups? “We allow them the chance to fail.”
This is one of the many things that Fleming feels the U.S. does right. “There is a difference between being a failure and failing. If you fail, you just had a very expensive education on what not to do.” This holds true even for established small and medium-sized enterprises. “Let your people try stuff!” A survey done by PricewaterhouseCoopers asked CEOs which elements are some of the “most important ingredients to successful innovation,” and 57 percent of respondents agreed: “the right culture to foster and support innovation.” Meanwhile, 37 percent also responded by citing a “willingness to challenge norms and take risks.”
So, back to the question at hand: Is Atlanta becoming the next Silicon Valley? Fleming (wearing his “No Valley” button) would answer no; we’re becoming a better version of Silicon Valley that is welcoming to small companies. He points out four parts of our innovation ecosystem that make Atlanta a great place to innovate right now: First, the city has top-tier talent from all of the schools mentioned above. Second, unlike Silicon Valley, the city has the customers for the companies (Atlanta ranks third in the nation among cities with the most Fortune 500 headquarters). Third, customers who aren’t here are just a nonstop flight away, thanks to Hartsfield-Jackson Atlanta International Airport. Fourth and final, Atlanta has plenty of capital to work with.
It’s certainly a compelling case, and I’m looking forward to seeing how it plays out.
By Trevor Lindsay, an economic intern in the Atlanta Fed’s research department
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Is Florida Finally Beginning to Flourish Again?
In March, we shared the view of our contacts in the Regional Economic Information Network (REIN) in north and central Florida. Those contacts described modest but sustained growth in activity in the first quarter of the year. That sentiment continued as winter turned into spring, with reports of increasing activity and greater optimism for continued growth during the remainder of the year.
Since mid-March, the REIN team in the Atlanta Fed’s Jacksonville Branch held 13 one-on-one interviews, one roundtable with a mix of business leaders, a Trade and Transportation Advisory Council meeting (recently summarized), as well as our branch board meeting. Although meeting participants noted acquisitions as a primary growth engine for most firms, some firms are expanding capacity to meet improving demand. Community banks are reporting increased commercial activity as bigger banks trim lines on small businesses. Though loan demand is still relatively soft, our contacts characterized clients as somewhat more confident, which bodes well for future lending activity. One banker cited noteworthy increases in credit card usage and home equity loans.
Retail contacts continue to express concerns about low-income consumers but note that the slowly improving labor market is resulting in somewhat more spending. In central Florida, contacts noted strong spending by more affluent consumers, including foreign visitors who are seeking high-end retail and dining. Robust home sales and price appreciation, accompanied by declining lender-mediated sales, were widely reported. Commercial construction is on the rise, especially in sectors such as health care, manufacturing, apartments, and higher education.
A focus on cost-cutting along with productivity-enhancing efforts continues. As one chief executive officer put it, “People are the last thing we’ll invest in.” Another company has committed to keeping its general and administrative expenses flat, which will result in support staff cuts to offset the increased cost of technology investments and health care. Two other large contacts noted significant reductions of full-timers to avoid having to provide health care coverage and to “be more in line with the industry.” We increasingly hear more about firms restructuring employee health plans and benefits to reduce costs to the company, including shifting more cost burden to the employee, restricting eligibility for spouses who may have access to insurance elsewhere, and adding risk-based surcharges.
Education contacts noted that the ability to place graduates seeking work has improved. Stories abound regarding difficult-to-fill positions (truck drivers, IT, accounting, etc.), and reports of a willingness to increase starting salaries are mixed. Generally, there were few reports of wage pressures mounting (outside of the trucking industry). The news on input prices remains relatively quiet.
Our contacts noted that qualified mortgage rules—and regulations more generally—have the potential to affect the housing recovery. A mortgage and refinance company has cut the majority of its workforce as refinance volume diminishes but noted that current regulations are making first mortgages, especially to the self-employed, “nearly impossible” to issue. Two other small-banking contacts indicated they have discontinued providing residential mortgages. However, two residential real estate contacts did not indicate any major concern about clients’ abilities to obtain mortgage loans.
At the April meeting of the board of directors of the Jacksonville Branch, we asked board members whether the current and near-term environment reflects an economy that is growing at a 2 percent rate or one that is growing at 3 percent. The majority view activity now and in the coming year to be more closely aligned with a 3 percent growth rate. The board members feel that the biggest potential impediment to growth is related to the consumer, as many people continue to struggle and consumer confidence remains lower than before the recession (see the chart).
The old proverb goes, “No matter how long the winter, spring is sure to follow.” One could apply this adage to the Great Recession and the long recovery and ask: Has an economic “spring” finally sprung? We’ll be keeping tabs as the year plays out.
By Sarah Arteaga, a Regional Economic Information Network director in the Atlanta Fed's Jacksonville Branch
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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
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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.
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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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