Regional Economic Snapshot: Stronger Data but Weaker Optimism
Welcome to the inaugural installment of Financial Update's "EconBrief." As an economist and the senior Public Affairs officer at the Federal Reserve Bank of Atlanta, I understand the essential role financial institutions play in the economy. I look forward to using this section of Financial Update to periodically share with you our perspectives on the regional economy in the hope that it builds a mutually beneficial dialogue.
Our broad view on the region is shaped by recent data that depict clear acceleration in some significant segments of the overall economy. However, when we talk to business and community leaders throughout the Southeast, we detect that business confidence in the economic outlook has wavered.
Employment data shows gains
First, let's look at the data. Employment levels in the states that make up the Sixth Federal Reserve District (Alabama, Florida, Georgia, and portions of Louisiana, Mississippi, and Tennessee) have surged since June, up 143,000 in the July–October period. Over the past 12 months, the region's employment levels have risen more than 350,000. In percentage terms, that's an increase of 1.8 percent, which is the strongest year-over-year increase the region has posted since before the recession.
Job gains have been positive in geographic terms. Over the past year, only one area state has not registered job increases: Alabama. Florida shows the strongest increase at 2.5 percent, with Georgia just behind at 2.2 percent. Other states show healthy increases as well (Louisiana at 1.6 percent, Mississippi at 1.7 percent, and Tennessee at 1.2 percent). All sectors of the regional economy have also added jobs during the last year with the exception of government, which is down just over 1 percent in that period. The largest gains in percentage terms have come from the construction sector, which is up more than 6 percent since June. Business services as well as leisure and hospitality have also registered strong job gains over the past several months.
Meanwhile, the aggregate unemployment rate for the region has declined from 8 percent in October 2012 to 7.3 percent in October 2013, a rate well below the peak of 10.5 percent reached in January 2010.
Real estate is recovering
Home prices, sales, and construction are all improving in the region. The majority of real estate brokers reported that sales in October were flat to slightly up compared with a year earlier, and the majority of builders said that sales were up. However, credit conditions remain tight and income growth is slow, which is restricting some homebuyers from entering the market. Also, the Atlanta Fed's monthly poll of home builders and residential brokers indicated that fewer contacts noted home sales growth on a year-over-year basis than in recent months.
The southeastern purchasing managers index (PMI) rebounded slightly in October after a lackluster showing in September. Produced by the Econometric Center at Kennesaw State University, the southeastern PMI surveys purchasing managers in the Southeast concerning manufacturing activity. The increase put regional manufacturing back into expansion territory, if only barely.
The year-ahead inflation expectations of southeastern businesses were 1.9 percent in November, according to the Atlanta Fed's most recent business inflation expectations (BIE) survey. Information gathered from our business contacts throughout the region confirmed this rather benign view of future inflation. Competitive pressures and wary consumers are making it very difficult for businesses to increase prices.
By all indications, the region appears to be on the path to a respectable economic performance in 2014. That said, while most of our business contacts anticipate continued growth in the short term, several contacts noted that uncertainty from the effects of the debt ceiling, government shutdown, the Affordable Care Act, sequestration, and the regulatory environment are having an impact on consumer and business confidence. Many contacts reported that all of these uncertainties have led to decision-making paralysis, causing businesses to stand pat until confidence returns.
This may prove to be a short-term development, however. One indication that the hit to confidence may be fleeting can be seen in a recent poll by the University of Florida, whose consumer sentiment index for the state in the first half of November jumped 6 points from the October level. The survey revealed that expectations of economic conditions over the next year increased substantially, and when respondents were asked if now was a good time to buy major household items, more of them answered affirmatively.
The bottom line
The region's economic performance will likely continue to grow at a moderate rate absent further confidence shocks. Atlanta Fed President Dennis Lockhart described his outlook for the United States in a recent speech. I highlight a few of his messages below:
"I remain cautiously optimistic that growth will pick up next year. This is my baseline outlook. But, at this juncture, I can't fully discount the possibility that the expected economic improvement won't materialize and that we'll see a replay of the weak growth of the past three years."
"To achieve a faster pace of growth, it's my opinion that we'll need to see two developments. First, we'll need a pickup in consumer activity and, second, we'll need a fall-off of intensity of fiscal drag."
"My greater concern relates to fiscal policy uncertainty because it can affect consumer and business confidence. I've recently heard opinions among contacts in the region to the effect that consumer confidence took a hit with the debt ceiling drama and the shutdown."
By Bobbie McCrackin, vice president and senior public affairs officer at the Atlanta Fed
- The latest ECONversations webcast with Atlanta Fed research director Dave Altig updates viewers on three key measures of the economy's performance: gross domestic product, unemployment and jobs, and inflation.
- The Atlanta Fed's Regional Economic Information Network (REIN) provides more information on the Southeast economy.
- For more information about monetary policy and the national economy, see recent speeches by Atlanta Fed President Dennis Lockhart, and Atlanta Fed's signature economics blog macroblog discusses Fed policy and macroeconomics.
December 10, 2013