Keep on the Sunny Side

Southeastern Insights
August 2014

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 June 19 to July 30.

General conditions
Contacts across the Sixth District described economic conditions as modestly improving since our last report. Businesses across a number of industries reported sustained strength in customer demand.

Retail contacts noted a nice bounce back in sales from the first quarter and sounded mostly upbeat about prospects for consumer spending. Auto sales remained strong, supported by robust auto lending.

According to the Southeastern Purchasing Managers Index produced by Kennesaw State University, manufacturing activity continued to grow, with the index reaching 55.3 in June. An index reading above 50 represents an expansion in the manufacturing sector, and one below 50 indicates a contraction (see chart 1).

Chart 1: Southeast Purchasing Managers Index

Real estate activity in June appears to have strengthened. Most respondents in the Atlanta Fed’s monthly survey of residential brokers and homebuilders noted higher home sales and prices and lower inventory levels, compared to a year ago.

Similar to residential real estate, most business contacts in our quarterly commercial construction poll indicated that the pace of nonresidential and multifamily construction increased in the second quarter compared to year-earlier levels. This growth appears to have been driven by the construction of apartments and warehouse distribution facilities, while survey respondents were pretty evenly split on whether construction activity increased or held steady across other property types.

Contacts have been adding to payrolls at a moderate pace. According to the latest available data, District payrolls rose a relatively modest 24,000 in June. Florida had the largest month-over-month increase in the nation, with 37,400 jobs added. However, the jump in Florida’s payrolls was in part offset by declines in Georgia, Alabama, Tennessee, and Mississippi (see chart 2).

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

The District’s unemployment rate held steady at 6.5 percent in June, slightly above the national rate of 6.1 percent. With the exception of Louisiana, the unemployment rate in every state in the District was higher than the national rate (see the table).


We’ve again heard reports about difficulties finding qualified workers. The difficulty seems to be both intensifying and broadening across the skill and occupation spectrum. In particular, contacts were increasingly sharing stories of frustration with filling midlevel positions such as analysts and clinicians. Similar to our previous report, we continued to hear of problems finding qualified workers in construction. In our commercial construction poll, nearly two-thirds of respondents noted more difficulty filling positions, compared to less than half in the second quarter of last year (see chart 3).

Chart 3: Commercial Construction Poll: Difficulty Filling Positions vs. Year Ago

Input prices and wages
Most of our contacts noted modest and relatively stable labor and materials costs pressures. This anecdotal information is consistent with national data that have shown moderate increases in prices of crude materials and intermediate supplies, as measured by the Producer Price Index (see chart 4).

Chart 4: Producer Price Index

The majority of companies continued to report 2 to 3 percent merit increases. In some occupations, however, the growing shortage of qualified job applicants has been putting upward pressure on offer wages.

Overall, businesses continued to report relatively benign input costs pressures and don’t expect those pressures to intensify significantly in the near future. According to our July business inflation expectations (BIE) survey, costs are expected to increase by 1.9 percent in the next 12 months (see chart 5).

Chart 5: Business Inflation Expectations

Profit margins improved slightly in July, with nearly half of survey respondents saying their profit margins are at or above normal, compared to 44 percent in June. Overall, businesses noted that they have little to no pricing power. Only a few companies shared plans to increase prices over the remainder of the year and expressed confidence that those increases would stick.

Investment and capital
Capital investment continued to strengthen, reflecting companies’ increasing confidence in the sustainability of customer demand growth. Many firms have also been replacing their obsolete equipment and investing in new labor-saving technologies. Most medium and large companies indicated that credit is readily available. The financing environment was described as much better than a year ago, with projects being both self-funded and bank financed without too much difficulty.

Business outlook
Looking forward, most of our director contacts believe that in the next three to six months, sales growth will be either sustained at current levels or will accelerate, while the vast majority think that growth will be higher in the next two to three years (see chart 6).

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?

Overall, businesses continue to express their sense of optimism in the sustainability of recent positive growth trends. Firms have slightly fewer concerns about potential risks and headwinds that might hold back economic growth in the near term and over the next few years.

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