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.
New Orleans Area Optimistic Heading into 2015
During the last couple of months, the Regional Economic Information Network team from the New Orleans Branch of the Atlanta Fed was in contact with more than 30 business leaders to gauge sentiment about current and anticipated economic conditions in the region (which covers central and south Louisiana and Mississippi, south Alabama, and the Florida Panhandle to Apalachicola). The optimism and confidence that our contacts expressed over the last few quarters continued and was in fact more prevalent this time. Although contacts' expectations in previous months were for "slow and steady" growth, many business leaders now feel assured about their outlook for a pickup in growth in 2015.
In particular, we continue to receive upbeat reports about the tourism sector. This time, the message came from the Florida Panhandle again, where it was mentioned that tourism was growing into a year-round business, supported largely by an emergence of international travelers rather than the typical wintertime snowbirds. Retail contacts were also very positive, especially about holiday sales in November but also about a notable general sense of improving consumer sentiment. Another sign of strength in the region was commercial real estate, which was reported as robust across Louisiana, particularly for retail, multifamily, and office space leasing and development.
Employment and labor markets
Generally, contacts continued to report positive net hiring in response to increases in demand, though they didn't report acceleration from previous months. We continue to receive reports about firms' efforts to use automated solutions to reduce staffing or conduct optimization studies to enhance efficiency while reducing costs. Once again, contacts noted major challenges filling certain skilled positions, such as trades workers, engineers, truck drivers, and information technology professionals—a predicament business contacts have expressed for more than a year.
Costs, wages, and prices
For several months now, contacts have reported some cost pressures with little pricing power. In most cases, firms have been able to increase prices only after a competitor successfully does so or when contracts are up for renegotiation. Regarding the declining price of oil, energy industry representatives shared their view of the impact on their industry, which they indicated would initially affect smaller players (described in a recent SouthPoint post). In addition, a few contacts noted that declining energy prices posed a risk to their 2015 outlook. For the first time in many months, a number of contacts reported across-the-board wage pressures, which were previously isolated to certain positions. Others indicated they expect to encounter pressure in 2015. Several firms we spoke with indicated they expanded merit program budgets in 2015, with most increases being in the range of 2.5 to 3 percent, though a few in the range of 3 to 5 percent. Though a number of firms reported they were investigating strategies to control compensation costs with tools such as performance-based incentives, health care contributions, and targeted salary increases—a trend we've noted over the last couple of quarters.
Availability of credit and investment
Access to capital and availability of credit remained a nonissue for the majority of our contacts, though some small firms indicated obtaining credit from traditional banks remained difficult because of qualification requirements. Banking contacts indicated that loan demand strengthened in the third quarter. Capital investment reports were consistent with the last few cycles, reflecting some expansion activity but mostly focused on efficiency or maintenance.
Although some contacts noted a bit of uncertainty about the outlook—including the declining price of oil, increased government regulations, and the strengthening U.S. dollar—contacts were overall positive and confident about 2015 expectations. What's your outlook for 2015?
By Rebekah Durham, economic policy analysis specialist in the Regional Economic Information Network at the New Orleans Branch of the Atlanta Fed
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Jazz Fest: Another Capital Boost in New Orleans
In March, I wrote about the impact of Mardi Gras on the New Orleans economy. Well, in case you didn’t know this already, we love our festivals here in NOLA. The fact that they support our economy is just lagniappe (that’s “a little something extra” in New Orleans–speak). Second only to Mardi Gras in terms of economic impact is the New Orleans Jazz and Heritage Festival, or “Jazz Fest,” which this year spanned two spring weekends: April 27–29 and May 3–6. The festival attracts about 400,000 people each year, who come to hear eclectic musical performances (from blues, jazz and rock to gospel, zydeco, pop, and more) and eat some of the best local food around (crawfish monica, alligator pie, shrimp bread, and cochon de lait, to name a few).
According to the New Orleans Jazz and Heritage Festival and Foundation Inc., the nonprofit organization that owns and manages the event, Jazz Fest generates more than $300 million for the city. This figure includes spending at the festival, Jazz Fest staff wages, hotel rooms, and estimated spending at restaurants and other shops and activities. The foundation uses the profits from the festival to preserve the city’s musical culture by putting on other festivals and concerts (smaller and free), lectures and literary events, gallery exhibits, educational programs, and grants for students and community cultural organizations. So you could say that Jazz Fest not only has a positive economic impact on New Orleans but also a significant human capital contribution as well.
If you haven’t been to Jazz Fest yet, make plans to come next year. And remember, your contribution produces economic value in the form of financial and human capital.
By Rebekah Durham, economic policy analysis specialist in the Atlanta Fed's New Orleans Branch
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Is the Southeast Poised for Tourism Growth?
The Atlanta Fed's Travel and Tourism Advisory Council met at the Miami Branch for the first time this year on April 17. Overall, council members were enthusiastic about economic activity, and its benefits for the tourism sector, in the Southeast.
Georgia and Alabama bounced back from harsh weather conditions in January and February. The outlook for the next three months is positive, with contacts reporting a strong number of bookings and ticket sales. Florida's tourism benefited from the winter weather with travelers seeking warm weather or extending stays as a result of cancelled flights. Fort Lauderdale, in particular, indicated record numbers in February and March.
The Southeast experienced an increase in international tourist activity in 2013, primarily from Latin America and Europe. Participants noted domestic travelers were travel fatigued and are staying closer to home. Consumer spending increased from a year ago, not only in hotel and food expenditures but in retail stores as well. The increase in spending came primarily from luxury restaurants and hotels.
On the horizon for regional travel and tourism
The council discussed the increase in capital expenditures across the region, reporting heavy construction activity in new hotels, sports venues, and other attractions in addition to renovations of restaurants, hotels, and convention centers.
Technology enhancements continue to significantly affect the industry and are being implemented across many segments of the industry. For example, customers can now complete ticket sales for theme parks, sporting events, and other entertainment events as well as reservations for dinner or special services such as spa treatments prior to traveling. Travelers can electronically handle requests for food orders, hotel check-in, beach chair reservations, and maintenance requests once they have reached their destination. (Don't be surprised to find yourself handed an iPad upon arrival at your hotel to facilitate check-ins and any other needs during your stay.)
Tourism markets expand
Interestingly, the council indicated that families are using children's sporting events—like traveling little leagues—as their family vacation. In response to this growing market, the industry is developing special venues and events for these groups to include family- and sports-oriented activities.
The state of Florida is promoting itself as a destination for medical treatment as a way to expand its customer travel industry. The state is proposing legislation to require VISIT FLORIDA, the State's official marketing corporation, to market Florida as a medical destination. Business contacts in the health care field are also heavily marketing health care in the state to countries with an underdeveloped health care sector.
All that said, the travel and tourism sector looks promising in the near term, and new industry developments should enhance the vacation experience for those about to visit the Southeast.By Marycela Diaz-Unzalu, an economic and financial education specialist in the Miami Branch of the Atlanta Fed
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Does Fat Tuesday Give New Orleans a Fat Wallet?
"Happy Mardi Gras!" is what's been enthusiastically shouted across the streets of New Orleans the past couple of weeks. Well, there's that and "Throw me something, Mister!" It's Mardi Gras season—a time of king cakes, wild and crazy Bourbon Street, and extravagant parades that include musicians, dancers, and colorful floats filled with masked locals who throw shiny plastic beads and trinkets to excited crowds. Though it may seem like a haze of decadence and chaos spanning two weeks in New Orleans, a lot of planning and money from locals and tourists alike goes into this lively time of year. More than a million people pack the city's streets during the two weeks leading up to Mardi Gras day, also known as Fat Tuesday (which falls on March 4 this year). So, what does Mardi Gras mean to the local economy?
In 2009, the Carnival Krewe Civic Foundation Inc. commissioned a biennial study of the economic impact of Mardi Gras. Tulane University economics professor Toni Weiss prepared the 2009 and 2011 reports. However, in 2013, New Orleans hosted the Super Bowl during Mardi Gras season, making it difficult to separate the economic effects of the two events. Therefore, the next study will reflect 2014 data.
According to the 2011 report, the economic impact on the city was $300 million, accounting for 1.5 percent of New Orleans's gross domestic product. It's worth noting that this figure is likely understated as it does not include incremental restaurant business, airport usage, or any businesses' fixed investment. It may also underestimate local citizens' Mardi Gras–related spending. Weiss evaluated seven main categories in the study: lodging and nonlodging, food and alcohol, merchandise, Mardi Gras–themed tours, Krewes (organizations of revelers who put on the parades, host Mardi Gras balls, and participate in social events throughout the year), Krewe members (the aforementioned revelers who spend their own money on the events), and the city government. Direct expenditures from these categories during the 2011 Mardi Gras season were an estimated $144 million.
So where did the other $156 million come from? According to Weiss, the Mardi Gras "franchise" the city created accounts for the difference. It includes an extensive infrastructure of lodging, food and drinking establishments, retail shops selling themed merchandise, and other factors from which other events and businesses (for example, conventions unrelated to Mardi Gras specifically) could benefit. The net fiscal benefit to the city was more than $13 million, or a return of $8.45 for every city dollar spent.
If you ask me, that's a pretty sizable return on investment—enough to fatten the city's wallet quite a bit.
Weiss's team will begin collecting data on the 2014 Mardi Gras season in a couple of weeks, and I look forward to seeing what the new results show.
By Rebekah Durham, economic policy analysis specialist in the Atlanta Fed's New Orleans Branch
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The Cream of the Crop
The Atlanta Fed’s Agriculture Advisory Council convened recently for another lively discussion and, as always, we learned a great deal. While last year’s overarching agriculture story was “all about the drought,” this year’s conversations were more about “cool and wet.” Council members told stories of delayed planting or replanting, but participants acknowledged that some of that wet and cool weather contributed to good yields, although there is some frost risk for late planted/harvested crops.
Generally speaking, exports for many southeastern agriculture products are expected to increase. This includes beef, poultry, wood/biomass, grains, cotton, and rice. Members also hope for continued strong demand from China for yellow pine saw timber. We continued to hear reports of significant downside risks for cotton. Should China release its large cotton inventory onto the market, cotton prices and exports would be adversely affected.
Regarding investments, council members reported replacing equipment in the timber industry, as well as farming implements such as irrigation equipment as well as storage augmentation. As one council member said, “We are improving what we have rather than expanding.” Additionally, some farmers are replacing smaller, labor intensive equipment with larger, more modern equipment. While these acquisitions improve production efficiency, they also address difficulties in finding labor. Reports persist of paperwork burdens with the E-verify program and the high cost of housing people participating in the H2A guest-worker program.
Overall, farm product prices are down, and headline consumer price index (CPI) is trending down. The chart below shows CPI trends and the price index for all farm products over time.
Although overall farm product prices are down, some specific commodity prices are helping regional agriculture producers, especially those in the cotton, rice, beef, hog, and poultry sectors, which are all showing higher year-over-year prices. Soybeans and corn prices are trending down, although lower corn prices are good news for protein producers whose use corn for feed. Florida citrus growers continue to have problems with citrus greening, and although they believe a solution is forthcoming, the problem is not yet resolved. Meanwhile, the cost of production is higher than normal, but lower yields have resulted in higher prices for citrus products. Lumber prices, which are down from the first half of 2013, are still well above recession-era lows (see the chart).
Land rents are being actively negotiated. Landlords, seeing recent good yields, are negotiating future rents based on these higher yields. Timberland prices were reported as being flat or down, but several council members reported higher farmland prices. Increased costs tied to regulatory compliance and the impact of the Affordable Care Act were both mentioned as having ongoing negative impact on general business conditions.
Council members also discussed how agriculture has changed over time, moving away from small and midsized farms that depended on the subsidy system toward farm consolidation. As one participant said, “Two generations ago, you managed your farm with a little spiral notebook and a pencil in your front pocket. The next generation used a legal pad. Now computers and business plans are the norm.” Members noted that young people are getting degrees and are eager to join the ranks of modern farmers. Some have interests in local organic farming, but others see big agriculture changing and want to be a part of the transition.
Another topic of discussion was the growth of agritourism, which includes such realms as local sourcing, sustainable sourcing, and even destination weddings. An EconSouth article titled "Agritourism Takes Root in the Southeast" reported on this growing trend back in 2011, and it’s one that is helping farmers and rural economies tap into the region’s dynamic tourism market.
So as farmers complete fall planting, finish their harvests, and prepare for winter, we here at the Fed continue to watch, listen, and learn. While farm price and production reports remain essential in our analysis of the agriculture sector, our Agriculture Advisory Council meetings give us the breadth and depth of the story that is agriculture in the South.
As for me, I am thankful to understand a little more about how what ends up on my plate gets there. When I visit the season’s pumpkin patches and tree farms, I know I am in for a lot of fun, but I will also be looking behind the curtain to learn more about the fascinating business that is agriculture.
By Teri Gafford, a Regional Economic Information Network Director in the Atlanta Fed’s Birmingham Branch
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Tourism Update: Demand for Southern Exposure Remains Strong
On October 8 in sunny South Florida, the Miami Branch of the Atlanta Fed hosted our Travel and Tourism Council for the second semiannual meeting of 2013. Business leaders and hospitality industry experts spoke about current economic conditions and their outlook for the sector. The environment in the meeting was generally positive as each member shared news and plans for growth. The meeting took place during the partial federal government shutdown, so it was interesting to hear what effects if any the shutdown was having on the hospitality industry.
According to council members, the region’s hospitality industry has been growing at a reasonably fast clip as growth in business and leisure travel has more than made up for declines in government travel over the past year. Most contacts reported robust growth in tourism activity and anticipated that the fourth quarter of 2013 is likely to continue to be fairly strong, though it may not outpace the third quarter. South Florida in particular is enjoying an increase in visitors. According to a recent newsletter from the Greater Miami Convention & Visitors Bureau, demand for travel to Greater Miami and its beaches remained strong from January through September of this year, ranking fourth among the top 25 U.S. markets in both revenue per available room (RevPAR, a widely used industry metric) and average daily room rate. The area also ranked fifth in hotel room occupancy rates. Tourism professionals there have an optimistic outlook for the next year.
We heard from our council that hospitality employment continues to grow at a solid pace, especially in the hotel business. Firms are reportedly having little trouble finding qualified candidates to fill new positions. Consistent with reports from other sectors of the economy, the tourism industry is seeing a very high applicant-to-opening ratio, with applicants often considered overqualified for available positions. Apart from the ongoing problem of having difficulty attracting specialized skill sets or lower-skill workers willing to relocate to areas with a high cost of living, filling openings has been reasonably easy. (The cruise industry was a notable exception, where lower demand from U.S. and European travelers has prompted industrywide downsizing.)
Council members cited the hospitality industry’s two main concerns regarding the partial federal government shutdown: one was the increased time required at airports to clear customs and security, and the second was the closure of national parks. Some of our airport contacts did confirm longer security lines and longer times to clear customs. In many cases, tourists who had booked tours including visits to a national park shifted to visiting nearby privately owned alternatives. The government shutdown prompted the need for an overseas communication campaign. Since a large portion of southeastern tourism is international, the industry had to clarify any misunderstanding about the U.S. government shutdown, particularly to European tourists and booking agents. The general assumption was that a “U.S. government shutdown” is a full shutdown, similar to strike-related shutdowns that have taken place in other countries. The campaign seems to have been successful thus far; council members had not seen any tour or booking cancellations as a result of the government shutdown.
Council members’ outlook for growth over the next three months was strong as the winter season kicks off. According to our industry contacts, the first two quarters of 2014 are showing strong advance bookings in the hotel sector, and the growth outlook for the cruise industry is in the single digits. Overall, the outlook for 2014 is optimistic, though there was a tone of wariness about the impact of fiscal policy uncertainty on business and consumer confidence. For now, at least, the future is sunny and bright for the hospitality sector in the Southeast.
By Gloria Guzman, an economic and financial education specialist at the Miami Branch of the Atlanta Fed
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Beige Book: Modest Growth and Optimism
Eight times a year, all of the 12 Reserve Banks gather anecdotal information on current economic conditions in their districts through reports from Bank and branch directors as well as interviews with key business contacts, economists, market experts, and other sources. Then, approximately two weeks prior to each Federal Open Market Committee meeting, results are published in the Beige Book on the Federal Reserve Board of Governors' website.
Because the lead sentence—of the national summary and of each region's section—often gives a broad view of economic conditions in that region, that first sentence often gets much attention. Here is a roundup of the first sentences of these sections:
National: Reports from the twelve Federal Reserve Districts indicate that overall economic activity continued to increase at a modest to moderate pace since the previous survey.
Boston: Economic activity in the First District continues to expand at a moderate pace, according to business contacts.
New York: Economic activity in the Second District has continued to expand moderately since the last report.
Philadelphia: Aggregate business activity in the Third District maintained an overall moderate pace of growth during this current Beige Book period.
Cleveland: The economy in the Fourth District expanded at a moderate pace during the past six weeks.
Richmond: District economic activity strengthened moderately in recent weeks.
Atlanta: Reports from Sixth District business contacts indicated that economic activity expanded at a modest pace in June and early July.
Chicago: Economic activity in the Seventh District expanded at a moderate pace in June, and contacts remained cautiously optimistic about growth prospects in the second half of the year.
St. Louis: The economy of the Eighth District has expanded at a moderate pace since our previous report.
Minneapolis: The Ninth District economy showed signs of moderate growth.
Kansas City: The Tenth District economy grew modestly in June, and expectations for future activity improved slightly.
Dallas: The Eleventh District economy generally expanded at a slightly stronger pace over the past six weeks than during the previous reporting period.
San Francisco: Economic activity in the Twelfth District expanded at a modest pace during the reporting period of late May through early July.
Here are some notable highlights from the Atlanta Fed's portion of the Beige Book:
Employment and prices
Since the last report, District payrolls grew at a modest pace. In general, most input costs remained relatively stable, helping to support slightly stronger profit margins in the face of improving, but still below pre-recession sales levels. The Atlanta Fed's Business Inflation Expectations survey showed year-ahead unit cost expectations ticking down from 2 to 1.8 percent in June, marking the lowest reading since January.
Consumer spending and tourism
Reports from District retailers were mixed. While most merchants experienced modest growth, growth was lower than expected in some cases. Some attributed lackluster sales to weather conditions. Auto dealers continued to experience strong growth. Travel and tourism activity continued to exceed expectations. Contacts throughout the District reported that key indicators of demand (visitation, hotel occupancy, average daily rate, and revenue per available room) and profitability were positive and steadily rising.
Real estate and construction
District brokers continued to report that existing home sales remained ahead of last year's level and were mostly ahead of expectations. However, brokers still report that inventories remain at low levels, and thereby restrain sales. Shortages were also said to be putting upward pressure on home prices.
District homebuilders reported that new home sales and construction were ahead of year-earlier levels. However, builders noted that access to financing and a shortage of developed lots continued to constrain construction activity. Most contacts reported that new home inventories were below the year earlier level and prices rose modestly.
District commercial real estate contacts indicated that demand continued to improve from earlier in the year. Construction activity was described as flat to slightly up from earlier this year and was dominated by build-to-suit projects and renovations of existing space. Brokers reported that most markets still favored tenants; however, rate increases continued to be noted in select submarkets.
Regional manufacturers reported expanding activity; however, the rate of growth slowed as a result of a decrease in new orders, production, and finished inventory. Less than half of purchasing managers expect production to be higher in the next three to six months, slightly lower than our previous report.
Banking and finance
Some institutions reported a pickup in mortgage loan demand attributed to improved housing markets and increasing interest rates. They also indicated that while mortgage refinancing had slowed, new purchase loan demand had increased. Some bankers indicated vigorous competition for loans has led them to change loan features, such as relaxing guarantee requirements or covering a substantial chunk of closing costs. Local community bank contacts had eased up on covenants and guarantees and were willing to take more risks, particularly when a loan fit a category in which they were interested.
A final thought: The Atlanta Fed's Beige Book summary notes that "The outlook for the rest of the year remains optimistic for most firms." This matches up well with Atlanta Fed President Dennis Lockhart's view, which he shared in a June 27 speech in Marietta, Georgia:
I expect the moderate pace of growth we have been experiencing to continue, resulting in a GDP number for the year as a whole in the range of 2 to 2.5 percent. To achieve that, the second half will have to be a little stronger than the first half, and I expect 2014 to improve slightly on the pace of the second half of 2013.
The next Beige Book will be published September 4.
By Mike Chriszt, a vice president in the Atlanta Fed's public affairs department
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Nashville’s Music City Center: If You Build It, They Will Come
Borrowing and slightly altering a line from the movie Field of Dreams somewhat applies to Nashville’s high expectations for its new state-of-the-art convention center. The new downtown Nashville facility, aptly named “The Music City Center,” is scheduled to open May 19. Located in the heart of downtown Nashville and within walking distance of the famous Ryman Auditorium and the Country Music Hall of Fame, Nashville expects the convention center to serve as a catalyst for economic development by luring hundreds of thousands of visitors to the city each year. It will be the centerpiece for activity in an already lively downtown area.
The Nashville metropolitan statistical area is already riding a wave of employment expansion. Tennessee’s unemployment rate is slightly above the national rate; however, Nashville’s rate is more than a full percentage point lower. The city’s employment expanded 3.8 percent in 2012 and has expanded 16.6 percent since 2001. Throw a deep recession into the middle of that time frame, and the numbers are impressive. The city’s diverse economy, along with the state’s business friendly environment are just a couple of reasons why Forbes magazine recently ranked Nashville second to only San Francisco on its list of best cities for jobs in 2013.
The Music City Center (MCC) project was born in 2004 when metro Nashville government felt the city needed more convention space. In 2007, Nashville Mayor Karl Dean, along with local business leaders and community activists, pushed the project to the front of Nashville’s developmental priorities. The Metro Council of Nashville approved construction of the project in January 2010. Three years later, the grand opening is upon us.
The massive building, dubbed a “widescraper” due to its enormous footprint, covers four city blocks and is longer than 12 football fields. The building has a total of 1.2 million square feet, with a 350,000-square-foot exhibit hall, a 57,000-square-foot ballroom and 1,800 parking spaces. The center also features 60 meeting rooms and 32 docks to allow seamless loading for convention center exhibitors. The “Green Roof” is four acres of a grass-like plant called sedum. The roof also features the outline of—what else?—a guitar.
The Music City Center’s green roof and guitar motif (photo courtesy of the MCC)
The MCC’s economic benefits could also be significant and immediate. According to the Nashville Convention and Visitors Corporation, hotel room bookings for the center have already surpassed 800,000. The Omni is constructing an 800-room hotel adjacent to the MCC that has surpassed 250,000 nights booked, which is four months ahead of schedule. Another 18 hotel projects are under way or proposed in the downtown market.
The city has already seen a spike in hotel tax revenue because of an increase in leisure travel. A total of 101 meetings with dates ranging between 2013 and 2026 are now booked at the convention center, with another 300 considering Nashville for their meeting, according to Music City Center CEO Charles Starks. The annual impact is estimated to be about $200 million, with more than 1,500 jobs being added to the local economy. Business owners in the downtown area are counting on the new convention center to bring an array of visitors.
Dennis Lockhart, president of the Federal Reserve Bank of Atlanta (right), and Larry Atema of the Nashville Convention Center Authority tour the Music City Center.
Saying that Nashville has high hopes for the Music City Center is an understatement. The city has built a top-of-the-line facility to attract conventions from all across the nation. The project should add to Nashville’s growing economy.
Nashville built it and, based on early indications, they are indeed coming.
By Troy Balthrop, a Regional Economic Information Network analyst in the Atlanta Fed’s Nashville Branch
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Travel Outlook Remains Bright, but Challenges Remain
Members of the Atlanta Fed's Travel and Tourism Council recently met at the Bank's Miami Branch to discuss economic conditions in the travel and tourism sector. Optimistic about current conditions, council members agreed that the sector remains strong and has a positive outlook for the remainder of 2013.
Driving council members' confidence is continued strength across key metrics of growth such as occupancy, average daily rate, revenue per available room, and bed tax collection. The consensus among members is that the health of the industry continues to improve throughout the Sixth District. As a result of robust activity in leisure travel and strong demand from international visitors, South Florida has experienced significant increases across all measures of growth. Though government and business bookings have slightly decreased because of budgetary constraints, council members expect that activity during the next six months will continue to grow.
The only exception to the positive momentum is casual dining, which is experiencing flat to negative growth. As noted in a previous SouthPoint post, consumers have begun to modify spending in an effort to absorb the impact of the payroll tax increase, elevated gas prices, delayed tax refunds, and increased health insurance premiums. As an increased number of consumers forgo dining out, casual-dining restaurants are feeling the impact of these choices. Hungry for business, the restaurant industry has experienced a 5 percent decrease since the beginning of the year, with some restaurants experiencing double-digit decreases in sales. Council member reports noted that that this recent decline is the weakest performance that the industry has experienced since 2009. Unlike their counterparts in casual dining, fast food restaurants and fine dining establishments are not experiencing similar headwinds.
While socioeconomic class is a key driver of demand for restaurants and currently highlights divergent preferences among income groups, consumers across all income levels continue to show strong demand for travel and tourism. Advisory council members reported that consumers—even in challenging economic times—go on vacation and seek tourism opportunities. Whether it's to take the kids to Disney World, go on a cruise, or listen to jazz in the French Quarter, consumers make vacation a top priority in their household budget. Council members agreed that this consumer preference makes the travel and tourism industry one of the last sectors to feel the effects of a sluggish economy.
The industry is not totally insulated from macroeconomic challenges, however. Council members expressed concern about the impact of sequestration on travelers and, in turn, the potential economic fallout in their industry. Several members reported that sequestration is having a negative impact on government-related travel. As sequestration has imposed limitations on travel for government employees, cancellations of government bookings have increased.
In addition to its impact on government travel, the sequestration is also affecting airline passengers. As noted in Jack Nicas and Susan Carey's recent article in the Wall Street Journal, flight delays and cancellations have dramatically spiked as a result of the Federal Aviation Administration's furloughs of air traffic controllers. Our council reported that 1,000 passengers missed their connecting flights at the Miami International Airport in one day alone after the cuts were implemented. As 50 percent of travelers arriving in Miami International Airport are international travelers looking to connect to other flights or visit Miami, the airport is experiencing high volumes of travelers frustrated by missing connecting flights or standing in long lines in customs.
The Miami airport is not alone. As Nicas and Carey noted, delays and cancellations are occurring across the nation. Similarly, the sequestration's impact on Customs Border Patrol has led to significantly longer lines for travelers who must pass through customs. As international travelers have been key drivers of recent demand for travel and tourism in the Southeast, especially in South Florida, the sequestration's effect on them presents a headwind to the industry in this region.
The hotel and airline sectors are not the only ones in the industry to feel the impact of the sequestration. Cruise lines are experiencing the negative effects of not having timely custom clearance. Our council reported that the disembarkation of cruise line passengers has, in some cases, taken as long as two hours. Tourism destinations that offer government-funded programs such as military air and sea shows are also experiencing disruptions. Many of these shows, which draw large numbers of tourists, have been cancelled. Without the shows on the calendar for coming months, cities that host these events expect cancellations of travel bookings.
If prolonged, the widespread delays, cancellations, missed flights, and long lines present a potential headwind to the outlook for the travel and tourism industry. Why? As council members noted, experience and image are integral to consumers' assessment of a travel or tourism encounter and their decision to make future travel plans. Negative experiences, or the anticipation of one, can lead to cancellation or alteration of plans. Thus, while business for the short- and medium-term is booked and council members' organizations are not currently experiencing a significant increase in cancellations, council members agreed that review of activity in three to six months will allow the industry to gauge the economic impact of the sequestration on travel and tourism.
By Jennifer Staley, a Regional Economic Information Network director in the Atlanta Fed's Miami Branch
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From "Hee Haw" to Hollywood
When people think of Nashville, most people think of one thing: country music. Legendary venues such as the Grand Ole Opry and Ryman Auditorium are the popular sites, but dozens of smaller music venues such as the Bluebird Café, Tootsie's Orchid Lounge, and the Wildhorse Saloon dot the Nashville landscape as well. Public administration officials tout the name "Music City USA" as a way to capitalize on tourism and entertainment revenue. In fact, the city's new $585 million convention center, to be completed in 2013, holds the name Music City Center. The city has been no stranger to celebrity sightings, red carpet events, or music video shoots, but when television dressing room trailers, film equipment trucks, and stars such as Connie Britton (well-known for her roles in Spin City and Friday Night Lights) rolled into Nashville, the landscape began to change.
For some time now, cities around the Southeast, such as Atlanta and New Orleans, have increasingly seen growth from the film industry. Nashville is now joining the ranks. When the new ABC prime-time drama Nashville started filming during the summer of 2012, it produced a spark in Nashville's television industry and has infused millions of dollars into the local economy. Nashville residents, city and state officials, film industry workers, caterers, hotels, and local attractions are taking note of the economic impact on the state's capital city from filming each episode.
Crews of approximately 150 people work on the filming and production of the show, which is scheduled to last at least through the end of 2012. The direct and immediate expenditures can be quantified in several different ways. For instance, some of the television crew members are from out of town, so things such as food and lodging expenses and trade done with local vendors can add up. Local craftsmen such as electricians and carpenters have been recruited to work on the set. Additionally, some 350 to 400 Tennessee vendors have been involved in the show's production.
Producers of the show estimate that $44 million in direct spending could occur in Tennessee if the full 22-episode season is filmed in Nashville. While the longer-term benefits can be impossible to measure, the show's producer considers it "a 43-minute advertisement, prime time, once a week" for Nashville each time the show airs. About nine million people watched the premiere. In a perfect world, this would equate to nine million people potentially wanting to visit Nashville and spend money on souvenirs, food, and visiting local attractions. The Blue Bird Café, which is featured prominently in the show, is collecting little direct immediate revenue, but the publicity it is receiving could result in revenue for years down the road. John Valentine, vice president of Lionsgate, which is one of the production companies filming Nashville, estimates the overall impact could exceed $75 million in one season. This sum, of course, is contingent on the show being extended from its current 13-episode deal to a full 22-episode season.
The city's mayor, Karl Dean, is pleased that the show can provide national exposure to Music City and views it as an asset to Nashville's national profile. Of course, this exposure comes with a price. The state's Economic and Community Development Department has approved reimbursable grants of $7.5 million for the show, which covers 17 percent of spending in Tennessee if a full season airs. A combination of state grants and an additional tax credit has allowed the show to obtain incentives that accounted for 32 percent of the Tennessee-based costs. Based on recent legislation changes that would cap reimbursements at 25 percent, Nashville producers hope to convince state economic and community development officials of a larger, multifaceted incentive package.
Far removed from the barnyards and cornfields that we used to see on Hee Haw, country music is now big business. Music Row is alive and well in Nashville and cashing in on the glamorous side of country. The small screen drama of romance, music tour deals, and even a little local politics as seen on Nashville is providing the old pickin'-and-grinnin' sessions with some competition in the Music City. And if you've never been to a pickin-and-grinnin', well, then you're missing out; come to Nashville and experience one of the finer things in life.By Amy Pitts, senior REIN analyst, and Troy Balthrop, REIN analyst, both at the Atlanta Fed's Nashville Branch
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