Federal Reserve Bank of Atlanta Issues Beige Book for Nov. 29, 2023

WASHINGTON, Dec. 1 (TNSres) -- The Federal Reserve Bank of Atlanta issued the following Beige Book on Nov. 29, 2023:

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Summary of Economic Activity

The economy in the Sixth District grew at a tepid pace from October through mid-November. Labor availability and employee retention improved, and wage pressures continued to ease. Some construction input costs fell, but fuel prices and insurance costs rose; pricing power dwindled. Retail sales moderated; new auto sales were strong, although demand for used cars declined. Domestic leisure and group travel was healthy, but spending at hotels slowed. Home sales remained constrained as house prices and mortgage interest rates rose. Commercial real estate activity decelerated. Demand for transportation services remained soft. Loan growth was flat. Energy demand increased.

Labor Markets

Most business contacts reported that labor markets softened further but continued to describe conditions as tight. Labor availability, retention, and candidate quality improved. Firms that required in-office attendance experienced higher turnover in professional roles than companies with more flexible work arrangements. The pace of hiring slowed for most, and many employers noted being more selective as they backfilled roles while letting low performers go. Fewer firms reported hiring to expand headcount. Reports of worker shortages varied considerably by occupation across the region but were more widespread among South Florida contacts.

Most firms indicated that wage pressures continued to ease, and further moderation is expected next year. Several contacts noted that rising healthcare costs would be passed along to employees in 2024.

Prices

Health and property insurance costs continued to rise. However, the cost of other nonlabor inputs like freight, steel, and lumber declined. Several contacts, most notably homebuilders, said construction input cost decreases were slow to translate into realized savings. Fuel costs rose, though shipping costs, while still elevated, fell somewhat. Food prices increased. Pricing power diminished amid pushback from customers. The Atlanta Fed's Business Inflation Expectations survey showed year-over-year unit cost growth increased slightly to 3.2 percent, on average, in October, from 3.1 percent in September; firms' year-ahead inflation expectations for unit cost growth declined slightly in October to 2.4 percent, on average, from 2.5 percent in September.

Community Perspectives

Jobseekers and workers in lower-wage positions expressed ongoing confidence in the labor market, both in available opportunities and in the potential to secure better pay. Still, many reported ongoing difficulties to cover basic household expenses. Business contacts affirmed that high prices continued to squeeze consumer finances, with rental delinquencies rising slightly and financially constrained households relying to a greater extent on credit card debt to get by. Some civic leaders shared concerns that worker shortages in construction could delay anticipated infrastructure investments. Workforce development contacts indicated that employers are finding labor more readily available when offering on-the-job training.

Consumer Spending and Tourism

Similar to the previous report, retailers noted a softening in consumer spending, which was again described as a normalization from the pandemic's strong pace of growth. Demand for services and luxury goods remained robust; however, lower income consumers continued to trade down. Automobile dealerships reported that manufacturers were offering incentives for new vehicle purchases, resulting in strong sales, but that the demand for used vehicles ticked down. Most retailers do not expect significant declines in sales over the coming months.

Tourism and hospitality contacts characterized leisure and group travel to the District as healthy. However, some noted mounting levels of uncertainty among travelers as indicated by shorter booking windows. Spending on merchandise, food, and services in hotels decreased compared with year-earlier levels. On balance, contacts described the environment as continuing to normalize and remain cautiously optimistic into the first quarter of next year.

Construction and Real Estate

Home sales throughout the District remained constrained amid higher prices and volatile interest rates. Home purchases by repeat buyers contracted the most, as many who were locked in at low interest rate mortgages remained disincentivized to re-enter the market. Though moderating, house prices in most markets were at or near peak levels. Price growth was strongest in South Florida. Rising homeowners' insurance premiums have become a major expense, especially for homeowners with lower and/or fixed incomes. Home builder sentiment deteriorated amid declining affordability. Builders experienced more challenges qualifying buyers. Incentive offers, such as rate buy downs, remained prevalent.

Commercial real estate (CRE) contacts reported diminishing conditions across the sector. In addition to the office segment, high-end multifamily and industrial real estate were noted as areas of distress. Contacts reported concerns regarding financing, as most lenders increased underwriting standards and reduced funding commitments. A growing wave of CRE loan maturities and declining asset values are significant downside risks to the CRE outlook.

Transportation

Transportation activity remained weak. Freight forwarders noted double-digit declines in year-over-year average daily volumes, citing downturns in exports and lower consumer spending. Railroads reported increases in the total number of carloads, but softness in intermodal freight. Some ports noted an increase of cars shipped in containers due to capacity constraints on roll-on, roll-off vessels; overall cargo volumes declined. Inland waterway activity was characterized as back to pre-pandemic levels. Trucking contacts reported a drop in consumer-driven freight and characterized the 2023 peak season as "non-existent" for parcel carriers. Insurance and regulation costs, along with the current geopolitical environment, were cited as significant longer-term risks.

Banking and Finance

Conditions at District financial institutions remained sound. Loan growth was flat for most portfolios. Asset quality was stable with low levels of nonperforming loans as a percentage of total loans, despite an uptick in credit card and auto delinquencies. Institutions relied on noncore funding sources, such as large time deposits, while reducing borrowings. Net interest margins remained compressed given high funding costs, and some financial institutions sought cost savings to improve earnings. Securities portfolio losses remained a drag on capital.

Energy

Demand for fuel picked up over the reporting period compared with a year ago, as more employees returned to the office and business travel improved. Mid-level fuel demand increased, with contacts speculating that drivers of luxury vehicles were trading down from premium grade gasoline. Fossil fuel companies continued to invest heavily in charging stations in preparation for increased electric vehicle (EV) usage. Demand for electricity shifted from residential to commercial with more employees in office, and industrial electricity demand began to move from chemical, paper, and housing-related industries to data centers and battery and EV manufacturing. Demand for chemical intermediate products remained sluggish.

Agriculture

Demand for agriculture rose slightly in recent weeks. Recent cattle herd liquidation constrained the supply of beef, driving prices up. Meanwhile, the supply of dairy was down as high beef prices led to an increase in dairy cows being slaughtered, resulting in higher dairy prices. Poultry farmers expressed growing optimism as stronger demand allowed some to turn a profit again after losing money amid low prices. Most row crops produced strong yields, but demand for cotton remained low.

For more information about District economic conditions visit: https://www.atlantafed.org/economy-matters/regional-economics

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Original text here: https://www.federalreserve.gov/monetarypolicy/beigebook202311.htm