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Southeastern Insights

May 2014

A Spring in One's Step

Southeastern Insights provides a broad summary of economic intelligence gathered through our network of business contacts and other sources throughout the Southeast during the latest Federal Open Market Committee (FOMC) cycle. This report covers the period from March 20 to April 30.

General conditions
We’ve received mixed reports about the harsh winter weather’s impact on southeastern businesses; the majority of contacts believe that sales and production will snap back fairly quickly, although there may be some lingering transportation/logistic issues to be worked through. Overall, our contacts report the season’s impact should be relatively short lived.

We’ve also heard that some firms are expanding capacity to meet improved demand. Ports are experiencing a rise in energy exports and higher container volumes, while trucking and rail companies are reporting strong freight volumes beyond backlog recoveries due to the inclement weather.

Residential construction contacts are optimistic that 2014 will be a good year, and demand for developed lots is growing across the district. Commercial construction is on the rise, especially in sectors such as health care, manufacturing, multifamily (specifically, apartments), and education. Tourism contacts reported robust activity, which is expected to continue over the next several months.

Manufacturing
The Southeast Purchasing Managers Index (PMI), produced by the Econometric Center at Kennesaw State University, provides an analysis of manufacturing conditions in Alabama, Georgia, Florida, Louisiana, Mississippi, and Tennessee. The March PMI report came in strong with an overall reading of 61.5, its highest level since April 2012 (a reading over 50 indicates expanding activity, see chart 1). Optimism among purchasing agents increased 12 percentage points in March with 58 percent of survey participants expecting production to be higher over the next three to six months.

Chart 1: Southeast Purchasing Managers Index

Employment and hiring
Although hiring remains generally cautious, even with companies that are seeing rapid revenue growth, there has been some job growth in the district. In March, the district added 41,500 jobs on net, up slightly from February. Florida was the primary driver of payroll growth, adding 22,900 jobs. Florida and Tennessee have seen job growth strengthening since the first of the year (see chart 2).

Chart 2: Contributions to Change in Net Payrolls, by Sixth District State

Job growth has been fairly widespread with most industry sectors across the district enjoying some employment gains, expanding both over the short term (three-month moving average annualized) and long term (year over year). The retail sector, in particular, has had positive long-term growth, but its momentum has slipped over the short term. Overall softness continues in both the government and information sectors (see chart 3).

Chart 3: Employment Momentum by Sector: Sixth District States

Costs and prices
Although most contacts continued to report minimal pricing power, we did hear about price increases in lumber, food, aggregates, transportation, and construction materials and labor. In the Atlanta Fed’s most recent business inflation expectations (BIE) survey, respondents indicated that, on average, they expect unit costs to rise 1.9 percent over the next 12 months, virtually unchanged from March’s reading of 1.8 percent. Inflation uncertainty was unchanged at 2.4 percent in April (see chart 4).

Chart 4: Business Inflation Expectations

Most contacts continue to report moderate wage increases in the 2–3 percent range except for some high-skill, low-supply jobs.

Business outlook
With the exception of non-coastal Alabama, more contacts this FOMC cycle have a bullish outlook. Our directors, in particular, continue to anticipate level or even accelerated growth over the next three to six months (see chart 5).

Chart 5: What is your outlook for the rate of growth in your business over the next three to six months compared to current rates?

Our directors also expressed continued optimism over the medium term, that is, over the next two to three years (see chart 6), and we have noticed a significant absence of headwind concerns.

Chart 6: What is your medium-term outlook (over the next two to three years) for the rate of growth in your business compared to current rates?

As visibility seems to be improving, and optimism is on the rise, we will continue to keep our finger on the regional economy’s pulse, and will report back often. Please visit SouthPoint for additional regional economic updates and information.

By Teri Gafford, director, Regional Economic Information Network in the Birmingham Branch, and Shalini Patel, an economic policy analysis specialist in the Atlanta Fed’s research department