06/15/2012
Capital expenditure plans for regional firms
We recently reached out to our regional business contacts to gauge their intentions regarding capital expenditures. The results of our regional survey showed that over half plan to increase capital spending over the next six to 12 months. Only 14 percent anticipate decreasing spending from current levels.
Of the businesses that planned to increase spending in the near term, high expected growth of sales and the need to replace information-technology equipment were the two most common factors driving their plans. Firms that commented in the "other factors" category cited expansions as reasons for increasing spending now. Decreased economic/financial uncertainty was the least cited factor.
Among the businesses that said they do not plan to increase spending in the near term, firms cited increased or high economic/financial uncertainty, limited need to replace capital goods, and low expected growth of sales as the major factors behind not increasing capital spending.
Indications are that the broader regional economy continues to grow at a modest pace, and the results from our recent capital expenditure poll appear to support that conclusion. Firms continue to invest, driven largely by expectations for improved sales. Those that have chosen to hold off noted that uncertainty is the main factor, so if the future becomes less cloudy we might expect further increases in capital spending.
By Mike Chriszt, a vice president in the Atlanta Fed's research department
June 15, 2012 in Growth, Outlook, Southeast | Permalink
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03/02/2012
Atlanta Fed’s Beige Book shows an increase in regional economic activity
Eight times per year, each Federal Reserve Bank gathers anecdotal information on current economic conditions in its district through reports from Reserve Bank and branch directors and interviews with key business contacts, economists, market experts, and other sources. Results are published in the Beige Book on the Federal Reserve Board of Governors website. The Atlanta Fed's Regional Economic Information Network (REIN) provides a robust platform for compiling our Reserve Bank's contribution to the Beige Book.
We tend to see the our Beige Book exercise as a touch point for the middle of the Federal Open Market Committee's cycle, where we bring the intelligence gathered by our regional executives and other sources to our staff economists and Atlanta Fed President Dennis Lockhart. It helps inform our forecast for broader U.S. economic activity and gives President Lockhart the latest input from business and community leaders throughout the Southeast.
The latest Beige Book was published February 29. The opening sentence to the Atlanta Fed's latest Beige Book reads:
"Sixth District business contacts described economic activity as expanding at a somewhat stronger pace in January and early February compared with late last year. Expectations were generally more positive, although firms continued to express caution with regard to the outlook."
Importantly, the rising pace of economic activity in the region should not be viewed as evidence that the economy here is taking off. It is performing better, but it would be a mistake to interpret this improvement as a sign that the economy is firing on all cylinders. Our outlook is still rather tame.
President Lockhart noted this in his February 14 speech at New College of Florida in Sarasota:
"Not all the recent economic news has been uniformly positive, but the balance of incoming data has been rather upbeat. This gives me confidence in the view that economic growth in 2012 will be noticeably better than in 2011."
He continued:
"Significant unanticipated developments are part of economic life, but barring shocks, we at the Federal Reserve Bank of Atlanta expect 2.5 to 3 percent growth for 2012."
Fed Chairman Ben Bernanke struck a similar tone in the February 29 Monetary Policy Report to Congress:
"Looking ahead, growth is likely to be modest during the coming year, as several factors appear likely to continue to restrain activity, including restricted access to credit for many households and small businesses, the still-depressed housing market, tight fiscal policy at all levels of government, and some slowing in global economic growth."
Our overall take from the region, based on the incoming data from the Southeast and what our business contacts are telling us, leads us to believe that the economy is gaining some traction and that this momentum should carry forward through 2012 and result in continued, modest increases in economic activity. Caution regarding the outlook was clear. While concerns about a potential spillover from financial events in Europe appear to have subsided, there was growing unease regarding the impact of rising gasoline prices.
Below are sector overviews from the Sixth District's Beige Book:
- Retailers noted that sales and traffic increased compared with a year ago and auto sales remained robust. Hospitality contacts, with the exception of cruise lines, reported strong bookings for this year.
- Homebuilders and brokers reported that unseasonably warm weather has helped bolster residential real estate activity by pulling some activity forward. Nonetheless, overall home sales and construction levels remained weak apart from the generally robust multifamily sector.
- Manufacturers and transportation contacts continued to note positive activity on balance.
- Bankers reported a modest improvement in loan activity at larger institutions.
- More firms reported increased hiring, although contacts continued to signal they approached hiring decisions very cautiously.
- Concerns over increased input costs generally eased as most firms reported that input prices leveled off. Only a few contacts reported having significant pricing power.
- Contacts in the energy exploration sector noted that recent lease auctions have helped stimulate more industry optimism, contributing to an improvement in investment conditions.
- Agriculture sector contacts reported that some farmers in Alabama and Georgia were reviewing their planting plans in light of their concerns of labor shortages.
By Mike Chriszt, an assistant vice president in the Atlanta Fed's research department
March 2, 2012 in Beige Book, Outlook | Permalink
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02/28/2012
Georgia outlook update
On February 22, the Economic Forecasting Center at Georgia State University's J. Mack Robinson College of Business held its first quarterly conference focusing on the outlook for the local, state, and national economies.
According to GSU's forecast, the ongoing fiscal and financial challenges in Europe, rising energy prices, cautious U.S. consumers, and weak corporate confidence are the headwinds that Georgia's economy will face in 2012 and 2013. Rajeev Dhawan, director of GSU's Economic Forecasting Center in the Robinson College, reported that gains in growing sectors—such as professional and business services, manufacturing, and healthcare services—have not been great enough to offset losses in lagging sectors such as construction, local government, and banking.
Here are some highlights from the GSU Economic Forecasting Center's report for Georgia and Atlanta:
- Georgia will add 14,300 jobs, including 2,500 premium jobs, in calendar year 2012. Employment levels will improve in 2013, when the state will add 40,600 jobs, of which 7,200 are premium jobs (resulting in a 0.8 percent annual growth rate). In 2014, the recovery will be better but still moderate, with the economy adding 66,700 jobs, 14,100 of which will be premium jobs (a 1.5 percent annual growth rate).
- Georgia's unemployment rate will be 9.7 percent in 2012, only 0.3 basis points lower than 2011 levels. In 2013, unemployment will decline to 9.3 percent. In 2014, it will decline again significantly, to 8.5 percent.
- Atlanta employment will mirror statewide conditions for calendar year 2012, with 10,300 job gains (2,900 premium jobs). Employment will grow in 2013, with the Atlanta economy adding 28,700 jobs (5,200 premium jobs). Atlanta employment will increase again in 2014 by 44,800 jobs (9,600 premium jobs).
- Atlanta housing permits will increase by 12.6 percent in 2012 to 9,594 units as a result of a boost in multifamily housing permits (28.9 percent). Single-family permits will post a mild increase of 5.9 percent this year. Permit activity will increase by 17.1 percent in 2013, with single-family and multifamily housing activity posting increases of 11.7 percent and 27.8 percent, respectively. Permit activity will grow again in 2014, posting an overall increase of 22.4 percent, with multifamily permits growing at 31.6 percent.
In a recent speech, Atlanta Fed President Dennis Lockhart noted that he anticipates steady, moderate growth in the absence of potential shocks, a view similar to Dr. Dhawan's outlook for the state.
By Mike Chriszt, an assistant vice president in the Atlanta Fed's research department
February 28, 2012 in Georgia, Outlook | Permalink
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01/19/2012
Georgia on my mind (again)
You wouldn't think a breakfast talk about economics would be all that interesting. Not true. Yesterday morning, I participated in a monthly breakfast seminar hosted by a local group aptly called "Eggo-nomics." The discussion was about the current state of Georgia's economy.
I'm not saying that my presentation was all that enthralling, but the questions and comments from the participants certainly were interesting. Of the several questions I received, the most common centered on the theme of why Georgia's economy continues to lag other parts of the country.
As it so happens, these questions mirrored one that was posed to Atlanta Fed President Dennis Lockhart in a recent interview with the Atlanta Journal-Constitution. He was asked, "Certain areas of the country, like the Northeast, are recovering faster than the Southeast. Why?" Here is President Lockhart's response:
"I get the question frequently: 'How is the Southeast doing relative to the rest of the country?' And my answer is, broad generalization, a little worse than the national averages. Not dramatically worse, just a little worse. And I use unemployment as an example. The unemployment rates for the six states we follow here, with the exception of Louisiana, are above the national average.
"Those rates have been coming down, just as the rate nationally has been coming down. But there is a lagging picture for Georgia and for most of the Southeast. You can explain some of the cause by looking at the exposures in the bust which were real estate-oriented, the dramatic slowdown in construction and the number of people put out of work who were in the construction trades.
"And to some extent in banking [many of the problems stemmed from] the dependence on real estate lending in many banks.
"If you want to step back even further, you had a couple of decades of in-migration, particularly Atlanta. You have to build houses to hold the people who migrate here, so real estate construction was a big thing. They come and get jobs; they need office buildings in which to work. So commercial real estate is a big thing and when that turns negative, it creates a problem that is more difficult than in the Northeast service-industry contraction."
SouthPoint has reported on this topic and will continue to dig into reasons behind Georgia's lagging recovery.
Mike Chriszt, an assistant vice president in the Atlanta Fed's research department
January 19, 2012 in Georgia, Outlook | Permalink
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01/06/2012
More on the Sixth District's exposure to Europe
Europe remains in the news as 2012 begins. Developments there continue to influence global financial markets and might be pushing the euro area's economy into recession. Many forecasters have identified contagion from the European financial crisis and recession as a significant risk to U.S. economic growth in 2012.
Atlanta Fed President Dennis Lockhart noted this in his November 29, 2011, remarks during the University of Georgia's Terry College of Business 2012 Economic Outlook conference:
"My baseline forecast for 2012 builds on the picture I've just painted of the second half of 2011. I'm expecting continued moderate growth, decently behaved inflation, continuing net job creation, but slow progress on unemployment. You will note I used the word ‘baseline.' I need to emphasize that at this juncture I perceive considerable downside risk to this baseline forecast. The most prominent source of risk is Europe. "
Steven B. Kamin, the director of the Division of International Finance at the Federal Reserve's Board of Governors, discussed the economic situation in Europe and its impact on the U.S. economy in testimony before the U.S. House of Representatives on December 16, 2011:
"Here at home, the financial stresses in Europe are undoubtedly spilling over to the United States by restraining our exports, helping to push down business and consumer confidence, and adding to pressures on U.S. financial markets and institutions."
A few weeks ago, SouthPoint looked at trade connections between Europe and the Southeast, noting that
"While there is concern about the financial impact of instability in Europe, a souring of economic activity across the Atlantic would also affect international trade. In either case, the region is not immune."
We thought we'd dig a little deeper into the issue and look more closely at which parts of the Southeast economy are vulnerable to the crisis in Europe.
Clearly, U.S. companies that depend on sales of their products to the euro area are likely to see the weakening of demand for their Europe-bound products as the euro area's economy contracts and if the euro continues to depreciate. According to the U.S. International Trade Administration, the exposure of Southeast's exporters—as measured by the share of goods sold in the euro area as percent of total goods exports—is relatively low, but the share varies significantly across the Southeast states.
Alabama's exporters appear to be the most vulnerable to changes in European demand—almost a fifth of the state's merchandise exports are shipped to the euro area. About half of those exports are sold in Germany, mainly autos. The good news is that Germany seems to be one of the more resilient European economies, along with the Netherlands, Belgium, and France—the other large euro area markets for Southeast's exporters. The economically weakest countries in the euro area—Greece, Ireland, and Portugal—account for a small fraction of the region's exports.
While Florida's exporters appear to be least exposed to the euro area compared to other states in the Southeast (most of Florida's exported goods go to Latin America), the state's large tourism industry may feel some impact if a recession and a weakening euro keep Europeans from traveling to the United States. Based on data from the Office of Travel and Tourism Industries and VISIT FLORIDA, an estimated 1.2 million residents of the euro area visited Florida in 2010. Fortunately, this number represents less than 2 percent of all the visitors to the state.
Another important part of Florida's economy that to some extent depends on European spending is residential real estate. In Florida, sales to nonresident foreigners account for about 25 percent of total residential sales (compared with only 3 percent nationally). For the state as a whole, Western Europeans (excluding U.K. residents) account for about 11 percent of all nonresident foreign buyers. While the number is relatively low, some parts of the state are much more dependent on Europeans. For example, in the Miami-Fort Lauderdale-Miami Beach market residents of Germany accounted for nearly a quarter of all nonresident foreign buyers in the 12 months ending in June 2011, according to the National Association of Realtors.
In general, whether through exports, tourism or real estate, the Sixth District's exposure to Europe appears relatively small. The bigger concerns are the possibilities of severe financial contagion (via the banking system and financial markets) and a hit to business and consumer confidence, which apply as much to the District as to the nation overall.
By Galina Alexeenko, director of the Atlanta Fed’s Regional Economic Information Network
and
Mike Chriszt, an assistant vice president in the Atlanta Fed's research department
January 6, 2012 in International, Outlook, Trade | Permalink
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01/04/2012
Happy new year
Resolutions and predictions are hard to avoid as the new year begins. With regard to the former, most focus on personal improvements and tend to be fuzzy and are abandoned by February. "Lose weight" is one that seems to appear on my list every year. But this year is going to be different. I've set real, measurable goals and shared them with my family so they can hold me accountable. We'll see how it goes, but I'm counting on the fact that my children take every opportunity to point out my mistakes (in a fun-loving way, of course).
Predictions can be even more fuzzy. I always seem to predict that my Cleveland Browns will make the playoffs. That's more like a wish than a prediction, but I can't help it. With regard to the region's economy, we don't call "predictions" predictions. They are "forecasts" or "outlooks." Whatever we call them, it is a thoughtful and necessary exercise to look back at where we've been and think about where we're going.
The latest issue of the Bank's quarterly publication EconSouth does just that. In our outlook for 2011 we said that:
"In 2011, the regional economy will have to surmount a number of obstacles before it can resume the growth that made it one of the nation's most dynamic economies."
In the introduction to the 2012 outlook, we asked if the region surmounted these obstacles:
"Has [the region] resumed the growth that made the Southeast so dynamic? Unfortunately, the answer is no. Not completely, anyway. While the region made some progress along the road to recovery, many impediments remain. The challenges the region faces are similar to those faced by the nation as a whole, but many of these barriers have proven especially tough to overcome in the Southeast."
In-migration has been a hallmark of regional economic development for decades. As EconSouth points out:
"The driving force behind the region's economic growth over the years has been robust population growth, which ignited development and spurred job creation. The slowdown in population growth to the levels experienced by the rest of the country explains a big part of the regional economic contraction, and lagging in-migration appeared to continue in 2011."
Drags on regional economic activity in 2011 were largely tied to real estate, which showed few signs of a turnaround. Quoting EconSouth again:
"The dynamic between population and economic growth is quite nuanced, but when real estate developers anticipate steady population gains that fail to materialize, serious imbalances can result. Construction of homes and commercial space does not stop on a dime, hence the high degree of overbuilding apparent in many parts of the region. Housing demand remained historically low in 2011, according to regional business contacts, while commercial property vacancy rates—especially for retail space—barely budged from 2010 levels. Add in continued falling home prices, and it is little wonder that the real estate sector remained a drag on the region's economy in 2011."
The 2012 regional outlook article goes on to discuss trends in agriculture, small business, manufacturing, consumer spending and tourism, government, and overall employment. It concludes by saying:
"Barring unforeseen shocks, economic activity in the Southeast is expected to improve in 2012. But, with in-migration stalled, there is only a small likelihood that the region will regain in 2012 the solid expansion levels seen before the recession. And, while the region is expected to see positive net job creation in 2012, the pace will probably be too slow to make a significant or rapid dent in the high unemployment rates seen in 2011."
In December 2012 I'd love to look back and say we were wrong about our outlook and that the region outperformed our expectations. I also hope to look down at the scale and see that I lost more weight than I said I would. We'll be watching the data and listening even more intently to our business and community contacts with regard to the former, and I'll be watching my waistline and listening to my kids' comments on the latter.
By Mike Chriszt, an assistant vice president in the Atlanta Fed's research department
January 4, 2012 in Outlook | Permalink
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10/21/2011
Some growth is better than none
As a lifelong Cleveland Browns fan, I'm prone to pessimism. A win on Sunday only brings expectations of a loss next Sunday. I wait for good news, then don't believe it when it comes. It's a tough way to go through a football season, but I can't help it.
Tracking the economy over the last few years is a perfect fit for a Browns fan—good news followed shortly by bad. When positive economic reports come out, skepticism creeps in. In September, several pieces of economic data came in better than expected and, when combined with what our business contacts in the region were telling us, paint a picture of an economy that appears to be doing better than what we experienced over the summer. Let's look closer.
The lead from the October 19 Beige Book summary reads:
"Reports from the twelve Federal Reserve Districts indicate that overall economic activity continued to expand in September, although many Districts described the pace of growth as modest or slight."
The opening sentence from the Sixth District's section of the Beige Book struck a similar note:
"Business contacts in the Sixth District indicated that economic activity continued to expand at a modest pace in September."
The message here is an important one. Businesses here in the Southeast and in most other regions are telling us that the economy does not appear to be contracting. True, the overall pace of activity may be modest or slight, but we were told that it is still positive. Recent data support what our contacts were telling us. As Atlanta Fed President Dennis Lockhart said in his October 18 speech to the CFA Society of East Tennessee in Chattanooga:
"The somewhat overlooked story of the period since the end of August is that much of the incoming data have exceeded most forecasters' low expectations. For the third quarter at least, it appears that downgrades of growth forecasts have been too pessimistic."
Of course, we're not going to proclaim that the economy is clearly on a path to significantly better outcomes based on a month of data and anecdotal information. After all, three weeks ago the Browns were 2-1 and tied for first place. Today we are 2-3 and in the cellar.
Along those lines, it is important to recognize that modest economic growth does not help address the high rate of unemployment. As President Lockhart noted in Chattanooga:
"[M]ost private sector forecasters envision growth in 2012 approaching 2.5 percent. In the opinion of many economists, that 2.5 percent approximates the steady-state growth rate of the economy's potential. This rate would certainly be an improvement over 2011 as a whole. The problem is without growth measurably better than 2.5 percent, little progress will be made in absorbing slack in the economy—above all, labor market slack."
The Atlanta Fed's Beige Book recorded little improvement in regional labor markets in September:
"Employers continued to manage their labor supply very tightly. Most contacts indicated that the outlook for hiring remained restrained by modest expectations regarding future sales. Several reports suggested that permanent employees were primarily being used to maintain a firm's core business, while specific projects were being assigned to contractors and temporary hires. Firms continued to seek efficiency gains through investment in technology and other cost-saving applications."
Although not mentioned in our Beige Book, we should also note that while we did not pick up on significant plans to increase employment in our discussions with business contacts, we also did not hear much in the way of plans to reduce current levels of employment. The economy may not be improving enough to help cut into unemployment much, but it appears to be doing well enough to prevent further job declines.
Back to the Browns. They are playing better and we may be looking at a .500 season. After two straight years of going 5-11, 8-8 looks pretty good. But, like the Browns, a steady-state rate of growth and not experiencing further reductions in employment is not the best outcome, but it is better than where we were a few years ago.
President Lockhart concluded in Chattanooga that
"[A]s the numbers over the last couple of months demonstrate, outcomes better than consensus expectations can happen. Let's not talk ourselves into believing that enduring weakness or recession is inevitable."
By Mike Chriszt, an assistant vice president in the Atlanta Fed's research
department
October 21, 2011 in Beige Book, Economic Growth and Development, Forecasting, Labor Markets, Outlook, Southeast | Permalink
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09/14/2011
A view from the Coastal Empire
We have posted about several of our university contacts in our Local Economic Analysis and Research Network (LEARN) over the years. Most publish regular updates on their state or local economies, which have proven very valuable in our understanding of how the economic recovery is progressing across the region.
One such publication is the Coastal Empire Economic Monitor, written by Dr. Michael Toma and his staff at Armstrong Atlantic State University's Center for Regional Analysis. For those of you who may not know what the Coastal Empire refers to, or where Armstrong Atlantic State University is, I'll give you a few hints:
- Money Magazine named this city #8 on its list of top places to retire.
- Paula Deen cooks there.
- Its port is one of the fastest growing in the country.
- It is often ranked as #1 on lists of the most haunted cities in America.
- It is on a coast.
Give up? The answer is Savannah, Georgia.
I'm not writing to plug the town, although it is one of my favorites in the region. I have visited Savannah and its region, but most of what I know about the area's economy I learn from Mike Toma and his report. Here are a few points from his latest reading on the Coastal Empire economy:
"The region's economy continued its slow recovery for the sixth consecutive quarter. The pace of expansion dipped, as compared to the first quarter, mimicking the nationwide slowdown in economic growth.
"The Coastal Empire leading economic index significantly improved during the second quarter of 2011. This consolidates and extends the modest improvement in the forecasting index during the past nine months. The forecasting index is pointing toward more apparent improvement in economic conditions in early 2012, while the remainder of 2011 should feel modestly better than the year's first half."
Below is the graph that shows the coincident and leading indicators for the Coastal Empire economy:
Dr. Toma concludes his assessment of the Savannah area economy by noting:
"Economic growth in the remainder of 2011 will not be particularly impressive, but should outpace growth in the first half of the year. The current expectation is conditions will show more improvement in early 2012."
This assessment is not unlike what Atlanta Fed President Dennis Lockhart sees for the U.S. economy as a whole. Late last month he spoke about his outlook in Lafayette, Louisiana:
"On a national level, the negative effects of the unusual forces that restrained the economy in the first half of this year have diminished. For example, auto production that was disrupted by shortages of supply parts from Japan has bounced back.
"While the risks have increased, I do not expect a recession. In my view, there is sufficient fundamental strength in the economy for a modest cyclical recovery to proceed while the process of necessary structural adjustments moves along. I believe the unemployment rate will come down very gradually over time."
The message here is that Savannah's challenges are not unlike those facing the rest of the country.
By Mike Chriszt, an assistant vice president in the Atlanta Fed's research
department
September 14, 2011 in Georgia, Outlook | Permalink
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08/02/2011
Deep breath time
The Atlanta Fed's macroblog post from August 1 looked at the disappointing first half gross domestic product results for the nation and notes that:
"The news that the U.S. economy is not only growing slowly but has grown more slowly than anyone even knew has justifiably rattled some nerves."
Have nerves been rattled enough to drastically alter our view that the second half of 2011 will show stronger growth than the first? The answer is no. Not yet, anyway.
Atlanta Fed President Dennis Lockhart outlined his view of the current economic outlook last week at the third annual Rocky Mountain Economic Summit in Jackson Hole, Wyoming. He noted that:
"I am expecting greater strength in the second half of 2011 and into 2012, accompanied by inflation numbers that converge to around 2 percent. But, as I said, I don't dismiss the possibility that we're in the alternative, more problematic world I described of low and slow growth improving only very gradually. At this juncture, I think we have to wait and see what the incoming data indicate."
President Lockhart concluded:
"I am not yet ready to shift away from the more optimistic outlook I presented. I feel it's premature to abandon the expectation of a stronger second half that will bring renewed gradual progress on unemployment and a leveling out of inflation pressures. I'm not resigned to the view that we are dealing with economic problems that are more persistent and intractable than I thought."
What are we seeing around the region that helps us stick to our guns in calling for a stronger second half of 2011? There are several reasons:
- Our contacts in the auto sector have indicated that production will be back to normal levels during the second half of the year. Also, manufacturing of equipment tied to energy exploration is strong.
- Tourism activity and business travel are healthy, indicating that consumer and business confidence may not be as bleak as some surveys show. Strong international tourism has helped as well.
- Activity at regional ports has been strong. Imports and exports continue to rebound from 2009 lows, indicating that the region's international sector is doing well.
- Business spending and investment in efficiency-enhancing technologies continue to be healthy. Of course, this sort of activity holds downside implications for labor markets, which may be one of the reasons employment gains have been rather subdued.
- Banks are reporting that loan demand is showing some improvement, although current levels are still considered low. In addition, banks are reporting that lending standards have not tightened. In sum, these developments indicate slow improvement in credit markets.
- Finally, the majority of Atlanta Fed directors (nine Atlanta directors and 35 from our five branches) see stronger growth six months out compared to current conditions. I should add that "stronger" was usually qualified by words and phrases like "cautiously optimistic" and "grow at a modest pace" when we asked them about their outlook for economic activity in late July.
While we are still optimistic that the second half of 2011 will prove to be better in terms of overall economic growth, it's important to be cautious, as our directors advised. Indeed, President Lockhart noted his realistic approach to the outlook:
"I think a continuing flow of weak numbers through the third quarter and into the fourth will call for a serious reconsideration of the situation. The weight of cumulative data could point to a different order of problem—that is, different than just a passing slowdown—if indicators show continued weakness much past year's end."
In periods of economic uncertainty it's essential to take a deep breath and reflect on all aspects of incoming information. Sometimes we forget that we are still emerging from the deepest recession since the Great Depression—a recession that hit the Southeast harder than any other region. Recovery will clearly take time and patience. We will continue to watch the data and listen carefully to what our contacts are saying as the year progresses.
By Mike Chriszt, an assistant vice president in the Atlanta Fed's research department
August 2, 2011 in Outlook | Permalink
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06/07/2011
Regional housing activity remains in the doldrums
The decline in real estate activity is a significant contributor to the depth of the economic downturn here in the Southeast, and it is also a big part of why our national recovery has been slow. Dennis P. Lockhart, president and chief executive officer of the Federal Reserve Bank of Atlanta, spoke to the National Funding Association's Council for Quality Growth in Atlanta in mid-May. The title of his remarks was "Real Estate and the Economic Recovery." With regard to the national picture, President Lockhart commented that
"The residential real estate market remains depressed. In my baseline forecast, the housing sector will contribute only modestly at best to economic growth this year and next."
The same can be said for housing's contribution to economic activity in the region as well. The theme regionally continues to be that housing is stabilizing at very low levels. Whitney Mancuso noted this in her May 17 SouthPoint post.
Looking again at President Lockhart's remarks, he noted that
"Home sales have not shown any clear trend of improvement since the end of the recession, except for a short pick-up during the period of the federal tax credit last year."
Looking at home sales in the states that have experienced the largest decline in housing activity—Florida and Georgia—the national picture is quite similar. Some areas of Florida have experienced a renewed upward trend in sales, and the chart below reflects this uptick. However, it is important to recognize that our Florida contacts in the real estate sector have told us that this is being driven largely by sales of distressed properties and by investors making block purchases of condos, in many cases with cash. Therefore, we hesitate to conclude that a sustainable recovery in home sales is under way.
With regard to home prices, President Lockhart said that
"S&P/Case-Shiller data show that home prices are down more than 30 percent from their peak. While prices appeared to stabilize in 2009 and 2010, today prices appear to be under renewed pressure from the increasing supply of distressed properties that are selling at a deep discount."
The next chart shows that home prices in Miami and Tampa, two Florida metro areas that are components of the national S&P/Case-Shiller Index, are down much more than the national measure—50 percent in Miami and 46 percent in Tampa. They are down 26 percent in Atlanta, the only other southeastern metro area in the national composite measure. Importantly, as President Lockhart noted, prices have been drifting lower recently, although not at the pace of decline seen in 2007 and 2008. Nonetheless, we do not see a recovery in home prices in the Southeast to date.
Weak sales and drifting prices have resulted in a very slow pace of new construction activity in the region. The last chart shows that permits for new residential construction remain at historically low levels. Reflecting this data, our most recent survey of homebuilders noted that more than half of builders reported that sales and construction were down from weak levels a year earlier.
President Lockhart concluded his remarks by noting that
"Because of the factors I've discussed, I do not expect significant new residential construction nationally. Thus, it's unlikely that residential real estate will directly contribute much to GDP growth this year or next."
Unfortunately, the same can be said for the region's real estate outlook.
By Mike Chriszt, an assistant vice president in the Atlanta Fed's research
department
June 7, 2011 in Housing, Outlook, Real Estate | Permalink
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Posted by:
ryan homes |
11/01/2011 at 09:59 PM
Sadly, this is a sign of the times. I don't expect any bullish recovery in the next decade, considering what real estate have dug themselves into.