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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.


April 16, 2014

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.

Manufacturing

  • 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.

Employment

  • 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.

Photo of Teri GaffordBy Shalini Patel, an economic policy analysis specialist in the Atlanta Fed's research department


April 10, 2014

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.

Southeast Purchasing Managers Index


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

March 25, 2014

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.

Did the recent spurts of severe weather have an impact on your business?

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).

Southeast Composition of Home Buyers

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).

Southeast Home Sales to Investors

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).

Factors Influencing Recent Slower Growth in the Housing Market

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.

Photo of Jessica DillBy Jessica Dill, senior economic research analyst, and

Photo of Carl HudsonCarl Hudson, director of the Center for Real Estate Analytics, both in the Atlanta Fed's research department


March 11, 2014

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.

Southeast Purchasing Managers Index

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


April 16, 2014

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.

Manufacturing

  • 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.

Employment

  • 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.

Photo of Teri GaffordBy Shalini Patel, an economic policy analysis specialist in the Atlanta Fed's research department


April 10, 2014

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.

Southeast Purchasing Managers Index


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

March 25, 2014

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.

Did the recent spurts of severe weather have an impact on your business?

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).

Southeast Composition of Home Buyers

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).

Southeast Home Sales to Investors

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).

Factors Influencing Recent Slower Growth in the Housing Market

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.

Photo of Jessica DillBy Jessica Dill, senior economic research analyst, and

Photo of Carl HudsonCarl Hudson, director of the Center for Real Estate Analytics, both in the Atlanta Fed's research department


March 11, 2014

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.

Southeast Purchasing Managers Index

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