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.
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
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Southeast Louisiana Housing Market Update
After Katrina hit in late August 2005, the real estate market in southeast Louisiana did not behave as it did in the rest of the nation. Once it came to terms with the destruction, the region attracted a substantial amount of public and private capital, and a period of rebuilding and growth in the housing sector ensued. Meanwhile, other events played out in the region that had some effect on the real estate market: in April 2010, the BP oil spill took place and the region began to experience an energy boom. Both of these occurrences attracted additional capital into the region.
With this as context, the Regional Economic Information Network at the New Orleans branch of the Atlanta Fed thought it would be helpful to touch base with residential real estate contacts to see how housing markets in the region are faring these days.
In general, contacts characterized the current state of the regional housing market as “healthy.”
Existing home inventories in the area have returned to, and often fallen below, levels associated with market equilibrium. Business contacts indicated that declining inventories were being driven by greater absorption, a decline in the number of distressed properties moving through the pipeline, and hesitancy on the part of existing home owners to place their homes on the market. Time on market has declined for existing, move-in-ready homes in desirable neighborhoods while the number of offers for these properties has increased.
Contacts also reported that the rising interest rate environment has not yet had much of an effect on home sales. In a few cases, borrowers have had to adjust their price point in order to maintain affordability. Move-up buyers tend to account for a larger share of home sales; contacts noted that most first-time homebuyers are still struggling to return to the home-buying market due to tight credit conditions and declining affordability.
Appraisal difficulties have somewhat subsided, according to contacts, though difficulties still exist. One persistent problem is that appraisal management companies continue to send out-of-market appraisers. However, a noted improvement was mostly attributed to savvy, proactive agents, who now bring appropriate comps (comparable properties) to the attention of these out-of-town appraisers.
On the new-construction side, contacts noted that larger national and regional builders are gaining market share in southeast Louisiana housing markets. Vacant developed lot inventories are dwindling, as they are in many other Southeast markets, and there still is not much appetite for lending on land acquisition and new development. Unlike in many other Southeast markets (particularly in Florida and Georgia), community banks in this region tended to fare better throughout the financial crisis, according to contacts. As a result, they have been able to continue lending to small, local builders for vertical construction on existing lots based largely on relationships and track records.
So to wrap up, while there are still some aspects that are unique to the region, residential real estate conditions in southeast Louisiana for the most part seem to be in line with those of the Southeast and the nation. Contacts expect the energy renaissance to persist and predict that housing demand will remain strong as businesses continue to move executives and staff into the region. They expressed some concern about local regulations governing the development process and financial regulation governing lending, but their overall outlook for the regional housing market was fairly optimistic.
By Jessica Dill, senior economic analyst in the Atlanta Fed’s Research Department and
Rebekah Durham, economic policy analysis specialist in the Atlanta Fed’s New Orleans Branch
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What a difference a year makes
The region's tourism sector continues to improve—nowhere more so than along the Alabama Gulf Coast, especially when we consider where we were last year on Independence Day:
The Mobile Press-Register's report from the Alabama coast on July 4, 2010, contained this passage:
"The sun shone, the sand glistened and the water was pleasant Sunday at Dauphin Island's public beach. There was only one thing missing from this otherwise perfect 4th of July: People.
"On the 76th day of the ongoing oil spill disaster, only a couple dozen visitors were at the beach at 1:30 p.m. on what is usually one of the busiest days of the summer."
The Associated Press coverage from the Alabama coast on July 4, 2011, contained this report:
"State officials are expecting a big week for tourism along Alabama's coast. … Promoters say almost all of the 17,000 condominiums and hotels in southern Baldwin County are full through the Fourth of July.
"The area's 2,500 camp sites also are occupied, and many guests are staying through next weekend."
More broadly, our contacts in the leisure and hospitality sector throughout the region continue to convey positive reports. From Miami Beach to Dollywood, tourist activity is up. As noted above, beachgoers are visiting the coasts. Attendance at festivals in Tennessee and New Orleans is well up from year-ago levels. The Federal Reserve's last Beige Book report from the Atlanta District noted that:
"Tourism activity improved further throughout the District. Occupancy and room rates were boosted by increases in both business and leisure travel. Convention and cruise bookings have increased as well. Overall, contacts in the travel industry remained optimistic."
The bottom line? People are taking vacations and spending at healthy levels.
By Mike Chriszt, an assistant vice president in the Atlanta Fed's research department
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Is the worst over for Gulf Coast tourism?
There has been a clear shift among our contacts in the Gulf Coast leisure and hospitality sector since the oil stopped flowing in mid-July. Cautious optimism has replaced outright pessimism. That said, most realize that the damage done by cancellations and fewer visitors may not be undone in 2010. However, fears that long-term damage to the Gulf Coast "brand" of clear water and white sandy beaches beyond the current year have subsided somewhat.
Assessing the economic impact on tourism-related businesses is a challenge. We have received anecdotal accounts of reduced hiring of seasonal workers by hotels and property managers, but this reduction is unlikely to be reflected in data through June. Reports of cancellations from our contacts in the region did not begin in earnest until after Memorial Day. In addition, hotels appear to be faring better than rental properties such as beach houses and condos, so the overall impact on accommodation-related employment may not be as great as feared. Clean-up workers, oil company employees, media, and National Guardsmen appear to have stepped in to fill some of the vacancies created by potential Gulf Coast vacationers changing their plans because of the spill. Of course, it is fair to assume that vacationing families spend more on hotel amenities and pump more into the local economy through retail purchases, recreational outings, and dining out than do workers employed to deal with the spill. For that reason we expect to see the greatest impact on recreation jobs as well as food services because of the decline in recreational fishing excursions and fewer visitors patronizing eating and drinking establishments.
On July 20, the U.S. Bureau of Labor Statistics released state and local employment data for June and revised data for May. Based on the total number of people employed in arts, entertainment, recreation, accommodation, and food services in Gulf Coast metro areas (excluding New Orleans) we estimate there were roughly 105,000 tourism-related workers along the affected areas (see the chart). This number is up slightly compared with June of last year and is in line with the average for June over the past decade. We do not see any large swings in the monthly data, but as we noted above, most cancellations came in after Memorial Day and accommodation jobs appear to be the least vulnerable.
Perhaps vacationers who put off travelling to the Gulf Coast may choose to take a fall vacation this year once they are assured that the coast is clear—figuratively and literally—but a recent survey suggests challenges lie ahead for the Gulf Coast's leisure and hospitality businesses. The State of the American Traveler survey conducted by Destination Analysts Inc. showed 26 percent of respondents said they were less likely to travel to the region over the next 12 months.By Amy Ellingson, a research analyst at the Atlanta Fed
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