Atlanta Fed reports mixed bag of economic indicators that could factor into rate hike debate

By David Pendered

Sluggish economic growth reported Wednesday by the Atlanta district of the Federal Reserve adds to the notion that the central bank won’t raise interest rates at a meeting this month, and perhaps not at its final meeting of the year, in December.

Construction projects including this one on Memorial Drive continue to be a bright spot in the region's economy, according to a report issued Wednesday by the Atlanta district of the Federal Reserve. Photo taken in July 2015. Credit: David Pendered

Construction projects including this one on Memorial Drive continue to be a bright spot in the region’s economy, according to a report issued Wednesday by the Atlanta district of the Federal Reserve. Photo taken in July 2015. Credit: David Pendered

Several indicators cited in the Atlanta report speak to the tender nature of the recovery. The Atlanta Fed is among the 12 districts that on Wednesday released their Beige Book, a report that presents an anecdotal summary of the nation’s economic status.

Here are three snapshots from the Atlanta report:

  • Unit costs were up just 1.3 percent in August, which the report said is the lowest reading in two years. Looking forward, business leaders expect unit costs to rise 1.7 percent over the coming 12 months.
  • Most companies reported they continue to hire workers, “albeit modestly.” The ready supply of labor in many sectors kept wage growth to a rate of 2 to 3 percent.
  • Banks report tight competition for commercial loans. On the other hand, small businesses reported, “continued difficulty in obtaining financing,” and said they were funding some expansion with cash.

A story posted Wednesday evening on wsj.com cited a number of new federal reports that suggest the economy won’t lift off this year. One of them, regarding producer prices, was down 1.1 percent from the prior year, which the story said was the largest 12-month decline during the current economic expansion.

Atlanta Fed President Dennis Lockhart said Oct. 9 that he expects a rate hike this year, according to a story on reuters.com. The bank posted an overview of his comments made at an Oct. 9 conference of the Society of American Business Editors and Writers. The reuters.com story quoted Lockhart:

Dennis Lockhart

Dennis Lockhart

  • “’The economy remains on a satisfactory track and … I see a [rate] liftoff decision later this year at the October or December FOMC meetings as likely appropriate,’ Lockhart said of the policy-making Federal Open Market Committee.
  • “’However the data are giving off varied signals, and there is more ambiguity in the current moment than a few weeks ago. This ‘calls for especially diligent monitoring of incoming data with particular attention to consumer activity.’

This week, two Fed governors were quoted in a story on wsj.com that they don’t think current economic conditions warrant a rate hike in the near future.

All this being said, here are some highlights from Wednesday’s report from the Atlanta Fed:

Consumer Spending and Tourism:

  • “District retailers reported mixed activity from mid-August through September. Most contacts reported healthier sales growth compared with a year ago while others reported slow or no growth. Industry contacts expect activity to improve from current levels for the upcoming holiday season. Auto sales continued to experience robust sales activity.”

Real Estate and Construction

  • Most builders and brokers reported home sales were flat to up slightly and buyer traffic increased relative to one-year earlier…. Most real estate contacts indicated that they were experiencing modest home price appreciation in their markets…. Commercial real estate brokers indicated improvements in demand that resulted in increased absorption and rent growth across property types, but they continued to caution that the rate of improvement varied by metropolitan area, submarket, and property type.”

Manufacturing and Transportation

  • District manufacturers indicated that business activity declined since the previous report…. Optimism for future production fell, with less than one-quarter of businesses expecting higher production over the next three to six months…. Trucking companies reported healthy demand, which was mostly attributed to growth in e-commerce; meanwhile, flatbed volume, primarily steel shipments, showed some slowing in growth…. District rail contacts indicated that total carload volume declined slightly due to year-over-year, double-digit decreases in shipments of coal, iron and steel scrap, and metals. District port contacts reported strong demand across all types of cargo.”

Banking and Finance

  • Reports indicated that credit remained readily available for qualified borrowers. Competition for new commercial loan customers remained tight and some financial institutions were reported to be extending term amounts and maturities to attract customers. Small businesses indicated continued difficulty in obtaining financing and noted funding some expansion with cash.”

Employment and Prices

  • Many District companies continued to report adding to headcounts, albeit modestly…. ontacts indicated that hiring and retention challenges were most prevalent among higher skilled occupations though firms also noted greater competition for lower skilled labor…. Businesses continued to report negligible non-labor input cost pressures…. Wage growth remained in the 2 to 3 percent range for most job categories, with the exception of specialized positions in high demand, which continued to receive outsized increases.”

Natural Resources and Agriculture

  • Continued weak global demand and an oversupply of oil drove exploration and production companies to further reduce capital investment and business activities that do not improve cash-flow…. Utility contacts reported increased energy usage in both the residential and commercial sectors…. Areas affected by drought conditions expanded in the District since the last report. Most drought-affected areas were categorized as abnormally dry to severe, and parts of Mississippi experienced extreme drought conditions.”

 

David Pendered, Managing Editor, is an Atlanta journalist with more than 30 years experience reporting on the region’s urban affairs, from Atlanta City Hall to the state Capitol. Since 2008, he has written for print and digital publications, and advised on media and governmental affairs. Previously, he spent more than 26 years with The Atlanta Journal-Constitution and won awards for his coverage of schools and urban development. David graduated from North Carolina State University and was a Western Knight Center Fellow. David was born in Pennsylvania, grew up in North Carolina and is married to a fifth-generation Atlantan.

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