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.
Beige Book: Warming Economy Accompanies Spring’s Thaw
Eight times a year, each of the 12 Reserve Banks gathers anecdotal information on current economic conditions in its district through reports from Bank and branch directors and interviews with key business contacts, economists, market experts, and other sources. Their findings are reported in the Summary of Economic Conditions, also known as the Beige Book. The report is published on the Federal Reserve Board of Governors' website about two weeks prior to each Federal Open Market Committee meeting.
The first sentences of the national summary and each Bank's report often receive much attention because the lead sentence tends to summarize economic conditions in that region.
Here is a compilation of the first sentence of the national summary and each Reserve Bank’s report:
- National: Reports from the twelve Federal Reserve Districts suggest economic activity increased in most regions of the country since the previous report. (A previous SouthPoint post also mentioned the weather’s effect on overall economic conditions.)
- Boston: The First District economy continues to expand moderately, according to business contacts, although growth rates vary across sectors and firms.
- New York: Economic activity in the Second District rebounded since the last report, as the harsh winter weather abated.
- Philadelphia: Aggregate business activity in the Third District grew at a moderate pace during this current Beige Book period.
- Cleveland: On balance, economic activity in the Fourth District declined slightly in the past six weeks.
- Richmond: The Fifth District economy expanded moderately since our last report.
- Atlanta: On balance, the Sixth District economy expanded at a modest pace from mid-February through March.
- Chicago: Growth in economic activity in the Seventh District picked up in March, and contacts generally maintained their optimistic outlook for 2014.
- St. Louis: Business activity in the Eighth District has declined slightly since our previous report.
- Minneapolis: The Ninth District economy continued to grow at a moderate pace since the last report.
- Kansas City: The Tenth District economy grew moderately in March, and most contacts were optimistic about future activity.
- Dallas: The Eleventh District economy grew at a moderate pace over the last six weeks.
- San Francisco: Economic activity in the Twelfth District continued to improve moderately during the reporting period of mid-February through early April.
As you can see, almost all districts are experiencing the same level of economic activity.
Here are some notable highlights from the Atlanta Fed's contribution to the Beige Book:
Consumer spending and tourism
- District merchants reported an uptick in activity from mid-February through March following sluggish sales in January, which were widely attributed to the severe winter weather. Light motor vehicle sales grew modestly during the time period.
- Hospitality contacts in areas negatively affected by the adverse winter weather saw improvements in activity.
Real estate and construction
- Brokers reported home sales were mixed. Inventory levels continued to fall on a year-over-year basis, and the majority of contacts reported that home prices remained ahead of the year-earlier level.
- The majority of builders reported that construction activity and new home sales were ahead of the year-earlier level. The majority of contacts continued to report 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.
- Manufacturers reported increased activity across the region from mid-February through March. Significant improvements were cited in production and new orders.
Banking and finance
- Bankers noted an increase in loan demand.
- District payroll growth remained constrained from mid-February through March.
Prices and wages
- Nonlabor input costs increased very slowly, with a few noted exceptions, including rising costs for developed land, construction materials, and food. Profit margins remained tight across most industries as contacts continued to report very little pricing power.
- Contacts continued to indicate little wage pressure outside of some high-skilled positions.
The next Beige Book will be published June 4.
By Shalini Patel, an economic policy analysis specialist in the Atlanta Fed's research department
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Southeastern Manufacturing...a Lion or a Lamb?
Remember the saying, “March comes in like a lion and goes out like a lamb?” Its origin is believed to be related to the position of the constellations Leo (the lion) and Aries (the lamb) during the month of March. Some observers suggest that it’s simply an indication that the weather is changing, with the end of winter at the first of the month and the beginning of spring at the end of the month.
I’m not sure which is true, but the weather wreaked havoc on the manufacturing industry the last few months. January and February were particularly tumultuous. Manufacturing contacts in the Southeast reported difficulties receiving supplies, shipping orders, and operating production lines at full capacity because some employees were unable to report to work during those two months. The Atlanta Fed has been monitoring the effects of extreme winter weather on the manufacturing industry. The March Southeast Purchasing Managers Index (PMI) suggests that manufacturing has come back roaring, but we should watch out for a bit of bleating (see the chart).
The Southeast PMI is produced by the Econometric Center at Kennesaw State University. A reading on the index above 50 represents an expansion in the manufacturing sector, and a reading below 50 indicates a contraction. The survey provides an analysis of manufacturing conditions in Alabama, Georgia, Florida, Louisiana, Mississippi, and Tennessee. Representatives from various manufacturing companies are surveyed regarding trends and activities in new orders, production, employment, supplier delivery time, and finished inventories.
The March Southeastern PMI report came in quite strong. The overall reading of 61.5 was its highest since April 2012. There are a couple of different ways to interpret the strong report. With option one, the report is a result of businesses making up for lost production and order backlogs during the previous months, therefore pushing up production and new orders during March. Under option two, underlying demand is improving and will be robust going forward, and March is just the beginning of a strong year. Let’s take a look at the numbers.
The overall March PMI increased 5.5 points over February. The new orders subindex soared 11.2 points to 70.2 and the production subindex vaulted 10.4 points to 65.4. Going back to January, the new orders subindex has increased 21.2 points and the production subindex has risen 17.5 points. No doubt about it, these are solid increases. The employment subindex increased 6.7 points from February’s 52. The supplier delivery times subindex fell 0.3 point from 57 in February, indicating that purchasing agents are getting their supplies slightly faster than the previous month. The finished inventories subindex also fell 0.3 point compared to February. Optimism among purchasing agents increased during March. Fifty-eight percent of survey participants expect production to be higher over the next three to six months.
Whether option one or option two applies remains to be seen. It could be a combination of both. It will be interesting to see the national Institute for Supply Management report in April. Will the rest of the nation experience a similar rise in manufacturing activity? Let’s hope so. We’d like to see the sharp rise in new orders and production in the Southeast resulting from a sustained improvement in demand rather than just a snap-back effect of improving weather. Either way, we will be keeping our eyes and ears open for the lion and the lamb.
By Troy Balthrop, a Regional Economic Information Network analyst in the Atlanta Fed’s Nashville branch
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Southeast Housing Update: Whether It’s the Weather
Since the beginning of the year, housing indicators have been less robust than expected. Existing home sales, as reported by the National Association of Realtors, have declined on a year-over-year and month-over month basis for the past few months. Housing starts, as reported by the U.S. Census Bureau, have declined from a year ago for the last two months. The big question seems to be why. A popular explanation is that the weather is responsible for all the recent ills in housing. Let’s turn to the Atlanta Fed’s monthly poll of Southeast broker and builder business contacts to see whether factors besides the weather are being overlooked.
Our contacts’ responses indicate they have picked up on the slowing pace of growth in home sales, buyer traffic, and construction activity. The majority of contacts continued to indicate an increase in sales on a month-over-month and year-over-year basis, although fewer Southeast builder and broker contacts reported an increase in home sales relative to the prior month.
Reports on buyer traffic were mixed. The diffusion index of responses is near zero, which means roughly the same number of contacts reported increased activity as reported decreased activity. Though most comments indicated that winter weather conditions slowed buyer traffic, a few comments noted that web inquiries during the same period increased. Steady web activity is consistent with buyer interest remaining constant and waiting out the weather to look at properties in person.
Overall, builders continued to report an increase in construction activity in February, but fewer builders reported an increase this month than in the past few months. To better understand what was behind this weakness, we added several special questions to our most recent poll.
We asked contacts if the recent spurts of severe winter weather had an impact on their business. More than three-fourths of our builder contacts and just shy of three-fourths of our broker contacts indicated that, indeed, the gusts of severe winter weather had in fact had a slight to significant impact on their business (see the chart). Brokers and builders explained that the severe weather events slowed home sales (for example, delayed closings), buyer traffic, and the delivery of new homes to the market.
We also asked our contacts several questions about investor buying activity, since investors have been a driving force for improvements in many housing markets, and their exit from the market could account for some of the slowing in housing markets. It appears investor participation has waned somewhat based on our poll results (see the chart).
Digging a little deeper to better understand the variation across markets, we learned that more than half of brokers indicated that sales to investors were flat or had increased on a year-over-year basis; only 46 percent indicated a decline. So, while investor participation may have fallen at a regional level, investors are still very present in certain markets across the Southeast (see the chart).
Given the results to our inquiries, you might conclude that weather and waning investor interest account for much of the weakness in recent housing data. However, our contacts reported that this was not necessarily the case. While the weather events and pullback of investor buying in some markets may be contributing to the slowdown, contacts indicated that higher home prices, higher mortgage rates, and limited inventory were the most significant factors contributing to the weakness in recent housing data (a recent Real Estate Research post discusses changes in affordability). Perhaps more importantly, the majority of broker and builder contacts indicated that they do not expect the recent weakness in housing to persist (see the table).
So, to what extent were the official numbers affected by the harsh weather? The answer is still up in the air. Based on our latest survey results, it appears that a confluence of factors contributed to the recent weakness but that these headwinds will not be strong enough to derail the continuing recovery in housing.
Note: February poll results are based on responses from 42 residential brokers and 23 homebuilders and were collected March 3–12, 2014. The housing poll's diffusion indexes are calculated as the percentage of total respondents reporting increases minus the percentage reporting declines. Positive values in the index indicate increased activity, and negative values indicate decreased activity.
If you are a real estate broker or homebuilder and would like to participate in this poll, please let us know by sending a note to RealEstateCenter@atl.frb.org.
By Jessica Dill, senior economic research analyst, and
Carl Hudson, director of the Center for Real Estate Analytics, both in the Atlanta Fed's research department
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Has Regional Manufacturing Weathered the Storm?
The weather has been a sore topic among manufacturing contacts across the nation this year, and the Southeast is no different. Inclement winter weather has been extreme and widespread in 2014, but hopefully it is close to being over. Production has been slowed across much of the nation as employees were unable to travel to work and supply deliveries to manufacturing facilities were delayed. The Institute for Supply Management (ISM) specifically identified the weather as having an adverse impact on manufacturing activity in January and February. However, the latest Southeast purchasing managers index (PMI) suggests that maybe the South has weathered the storm.
The Southeast PMI is produced by the Econometric Center at Kennesaw State University. A reading on the index above 50 represents an expansion in the manufacturing sector, and a reading below 50 indicates a contraction. The survey provides an analysis of manufacturing conditions for the region in Alabama, Georgia, Florida, Louisiana, Mississippi, and Tennessee. The survey asks representatives from various manufacturing companies about trends and activities in new orders, production, employment, supplier delivery time, and finished inventories.
The February PMI increased 5.4 points over January and represents a healthy overall increase, considering the harsh weather conditions (see the chart). The new orders subindex rebounded strongly in February with an increase of 10.0 points to 59 points. The production subindex also had a solid increase of 7.1 points to 55.0. New orders and production had both been contracting in late 2013 and early 2014, so the increases last month were a welcome development. The employment subindex decreased 3.2 points from January’s 55.2. The supplier delivery times subindex and finished inventories subindex both increased during the month, and the prices subindex fell 7.6 points compared with January.
Looking ahead, manufacturing contacts are not as optimistic as they had been in recent months. When asked for their production expectations, only 46 percent of survey participants expect production to be higher in the next three to six months. That expectation is in stark contrast to January when 62 percent of survey respondents expected higher production over the same timeframe.
Hopefully the weather was only a temporary headwind for manufacturing activity. As the mercury begis rising and snow stops falling on the roadways, maybe manufacturing activity will strengthen in March. Then Old Man Winter can go on a nice, long, sunny vacation.
By Troy Balthrop, a Regional Economic Information Network analyst in the Atlanta Fed’s Nashville Branch
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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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Will the Ice Cause the Recovery to Lose Traction?
In the wake of two strong waves of unusually severe winter weather here in the Southeast—including enough ice here in Atlanta to all but shut down the roadways, even for the most experienced drivers—my colleagues and I have been spending some time looking into the possible implications of such disruptive weather for our economy.
Yesterday in his speech at Mercer University in Macon, Georgia, our boss here at the Atlanta Fed, Dennis Lockhart, pointed out that the recent spurt of unusually harsh winter weather is helping to cast a bit of a shadow on estimates of underlying economic conditions at the start of 2014:
Mixed incoming data on economic activity in December and January have raised concerns about whether the economy has traction at [the] faster growth pace [that we saw in the second half of 2013]. There appears to have been a slowdown. Weather effects may very well have dampened retail sales, auto sales, housing starts, manufacturing activity, and of course transportation, among others.
In fact, the REIN (Regional Economic Information Network) team at the Atlanta Fed reached out to our contacts across the Southeast to try to get a read on the impact of the winter storms on regional business activity. A strong majority of our manufacturing contacts confirmed weather-related disruptions as a result of the storms, as employees were unable to make it to work on icy roads. Reports indicated that overtime work or increased production would make up for the lost output during the outages in the weeks following the storm. In other words, though manufacturers did indicate that, on net, production for the first quarter would likely not be affected by the storms, the forward shift in the timing of that production may skew seasonally adjusted data for output and hours worked in the region downward in the first month or two of the year.
And it wasn't just manufacturers who reported a weather-related dip in activity. Reports from construction and agricultural contacts were mixed. Merchants in the region were more downbeat, reporting a decline in sales growth at the start of the year, which some contacts attributed to the unusual weather. Contacts in the fashion and apparel industry were particularly concerned about the implications of the storms on yearly earnings, noting that cold weather keeps shoppers inside and that even once the temperature picks up, it is unlikely that the increase in sales will be sufficient to make up for revenue lost during the cold spell.
All in all, it appears that the weather could certainly put some downward pressure on reports of economic growth for the first two months of 2014. The full impact of that effect—and how lasting the recent signals of softness will be—can only be assessed once we have more hard data in hand. President Lockhart summed up his views yesterday:
...the current quarter is difficult to read as an indication of the most likely story for the full year 2014 and first part of 2015. The recent mixed data could be just a temporary thing—as the weather explanation suggests—or something more fundamental going on. While I am tracking the numbers carefully, at the moment I think it's too early to draw a conclusion. Even though the first quarter this year may turn out to be soft, I am "looking through" the recent information to a full year of sustained higher growth. In that sense, my outlook remains optimistic for the full year.
By Laurel Graefe, Regional Economic Information Network director at the Atlanta Fed
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