Federal Reserve Bank of Atlanta · Beige Book

Federal Reserve Bank of Atlanta

Summary of Economic Activity

T1Economic activity in the Sixth District grew at a slow pace from April through mid-May. T2Labor markets, while still tight, eased, reducing wage pressures. Nonlabor costs stabilized, on net, though property and liability insurance premiums rose. T3Low- to moderate-income consumers showed further signs of declining household financial health. Retail sales continued to moderate as consumers traded down; new auto sales were solid. Leisure travel softened, but business travel continued to rebound from pandemic levels. T4Demand for housing was strong even amid interest rate fluctuations. Commercial real estate conditions were mixed. Transportation activity weakened. T5Activity in the energy sector was robust. Agriculture conditions softened.

Labor Markets

Sixth District contacts reported that labor markets remained tight, but pressures have eased since late last year. Most firms continued to backfill open positions; however, some noted that weaker demand for products and services was slowing the pace of hiring. Several contacts noted they were increasing hiring standards. The majority of firms indicated that most positions were easier to fill, and retention had improved. Some challenges filling certain roles persisted; labor shortages varied from market to market but were most acute in South Florida, where housing availability and affordability were cited as limiting the pool of candidates.

Most contacts reported that wage pressures continued to ease, and the pace of increases was expected to moderate. However, wage pressure remained elevated for certain positions, particularly for skilled labor and those in retail/warehouse, accounting, and nursing.

Prices

Nonlabor costs were largely reported as stabilizing over the reporting period. Construction inputs, particularly steel and other metals, moderated; freight and container costs were reported as back to pre-pandemic levels. Some contacts reported declining food costs. Various retailers implemented discounts amid slowing foot traffic and price pushback from consumers. T6Property and liability insurance costs rose markedly for firms in coastal areas threatened by storms. The Atlanta Fed's Business Inflation Expectations survey showed year-over-year unit cost growth at 3.5 percent, on average, in May, unchanged from April. Firms' year-ahead inflation expectations were also relatively unchanged at 2.9 percent in May from April's 2.8 percent.

Community Perspectives

Workforce training providers and banking contacts who serve low- and moderate-income individuals continued to see signs of declining household financial conditions. Regional bankers observed that consumer financial stress had intensified from a period of higher savings as delinquencies returned to pre-pandemic levels. While some employers noted slightly lower staff turnover, workforce development contacts affirmed that workers continued to leave jobs in search of higher wages to offset rising expenses, especially housing. Others said workers continued to report a need to work from home to cope with household demands. Some owners of small businesses who previously relied on traditional banks for loans, faced credit constraints, leading them to turn to Community Development Financial Institutions for financing.

Consumer Spending and Tourism

While consumer spending was still above pre-pandemic levels, District retailers reported some softening of sales since the previous report. Consumers continued to trade down and remained cautious with discretionary spending. Restaurants facing labor shortages continued to limit menu options or hours of operation. Automobile dealers reported further improvements in inventory levels along with continued strong demand for new and used vehicles.

Travel and hospitality contacts noted persistent strong demand, and activity was described as normalizing from 2022 peaks. Leisure and business travel rebalanced back toward the pre-pandemic mix as demand for leisure travel softened, and business travel improved. Contacts expect further stabilization throughout the remainder of the year.

Construction and Real Estate

Housing demand throughout the District remained strong despite interest rate and home price volatility. Though below year-ago levels, home sales in many markets increased on a monthly basis as buyer sentiment modestly improved. The supply of existing homes for sale remained low as homeowners showed increased hesitancy to list homes for sale, especially if they had financed at a low interest rate. Home prices remained down from peak levels but have recently shown month-to-month improvement. New home builders have responded to inventory shortages by increasing speculative inventory production and some have begun to reduce buyer incentives.

Commercial real estate (CRE) conditions were mixed. The industrial sector remained healthy, while office, multifamily, and some segments of retail, slowed. Some contacts reported increasing expenses, especially property insurance, as an area of heightened concern. T7An increasing number of contacts reported worries about the availability of financing as some lenders reduced funding commitments and increased underwriting standards. Most CRE contacts noted increasing uncertainty and declining property values as a significant industry headwind.

Transportation

Demand for transportation services softened, on balance, over the reporting period. T8Trucking contacts noted significant year-over-year declines in freight volumes and revenue amid what some referred to as a "freight recession." Activity in the warehousing sector remained robust; however, warehouse development transaction volumes fell substantially. Ocean carriers reported lower container import volumes as retailers worked to deplete elevated inventory levels. Inland barge companies reported stable demand. Transportation contacts' outlooks were mixed, but several downside risks were cited, including the potential for weaker consumer spending, rising interest rates, and persistent inflation.

Banking and Finance

Liquidity remained a top concern for financial institutions over the reporting period. Continuous variations in interest rates, along with some deposit flight to higher-yielding alternatives, put stress on liquidity. Financial institutions reported that the fair value of securities portfolios continued to stabilize but unrealized losses remained elevated compared with pre-pandemic levels. District banks also reported ongoing commercial real estate loan growth, albeit at a slower pace. Shifts in commercial real estate property values raised additional concerns about increasing credit risk as financial institutions began reevaluating the collateral values of underwritten loans.

Energy

Energy contacts reported continued robust activity in liquefied natural gas expansion projects, power infrastructure, clean energy manufacturing, and crude oil production. Global demand for oil and natural gas was steady over the reporting period. Contacts reported that crude oil and finished products refining continued at a high rate. Utility providers described growth across sectors, including strength in the industrial segment due to electric vehicle manufacturing, data center development, and plant expansion projects across the Gulf Coast, as well as sustained growth in residential from in-migration to the Southeast.

Agriculture

Agricultural conditions softened since the previous report. Demand for cotton remained weak, leading many farmers to plant less cotton than last year. Cattle demand was strong. Producers of poultry meat continued to struggle as limits on exports resulting from Avian Flu concerns have led to over-supply domestically. Domestic egg demand remained high. Dairy consumption declined. Demand for citrus remained strong amid lower production.

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