Regional Economy Cooling Slightly, Beige Book Shows

October 23, 2024

The new Beige Book from the Federal Reserve Bank of Atlanta showed economic activity in the Southeast has continued the slight slowdown that began in July into the current reporting period of September and the first half of October.

Contacts reported declines in tourism in the wake of Hurricane Helene, in manufacturing output and commercial real estate, and also in retail sales as middle- to high-income consumers joined lower-income shoppers in trading down to lower-priced goods or seeking discounts.

In a period that encompassed the Federal Reserve's September 18 announcement of its first interest rate cut in four years, the pace of hiring continued to slow. In general, firms don't expect widespread layoffs this year, but a growing minority reported modest and targeted reductions in headcount. Wage growth was modest, except in roles that require specialized skills or in certain geographies.

Regarding price pressures, contacts reported little change over the reporting period. Pricing power diminished as contacts offered discounts to maintain margins. Increases in insurance premiums were accompanied by decreases in coverage, leaving covered firms with greater exposure.

The Atlanta Fed's Business Inflation Expectations survey showed year-over-year unit cost growth at 2.6 percent, on average, in September, unchanged from August. Firms' year-ahead inflation expectations for unit cost growth were 2.1 percent, on average, also unchanged from August.

In other sectors:

• Consumer spending declined modestly in recent weeks as shoppers in general sought lower-priced items and discounts. Luxury car sales haven't slowed as much as other vehicles, though some contacts reported buyers pushed back on prices.
• Housing demand was flat or slightly down as the savings provided by lower mortgage interest rates were offset by elevated prices, taxes, insurance, and HOA costs. Some builders offered aggressive incentives, such as rate buydowns, to attract buyers.
• Commercial real estate activity declined slightly as contacts in office, industrial, and multifamily sectors reported rising vacancy rates. Nonbank lenders reported higher levels of delinquencies of office, multifamily, and hotel loans.
• Transportation activity grew, on net, since the August report. Some seaports reported an increase in year-over-year container volume leading up to the anticipated dockworkers strike, which lasted three days and caused little operational disruption. Trucking reports were mixed, and demand for warehousing development remained slow.
• In general, manufacturing activity declined modestly. A car engine manufacturer reported significant growth in hybrid vehicles as part of a broader uptick in year-to-date sales. Demand grew for electronics, while demand slowed for apparel producers and certain inputs for export, such as plastics and products fabricated of metal or rubber.
• In banking and finance, contacts reported modest loan growth and expectations for additional loan demand in a lower rate environment. Multifamily lending increased moderately. Deposits, including large time deposits, rose modestly since the previous report.
• Energy contacts reported Hurricane Helene caused minimal disruption to offshore production, but the storm did cause power outages at inland fueling terminals, which resulted in delays in resupplying the hardest-hit areas.
• Agricultural conditions declined modestly as row crop farmers saw both low demand and disappointing yields. Demand for citrus remained steady. Hurricane Helene caused significant farm losses in south Georgia and parts of Florida. Dairy farmers reported strong sales amid reduced competition as high beef prices prompted some farmers to harvest their cattle for beef instead of dairy.

The Beige Book is a compendium of anecdotal reports from business contacts that the Federal Reserve publishes before each meeting of the policymaking Federal Open Market Committee. The committee gathers next on November 6 and 7.

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