The Atlanta Fed's latest Beige Book reported that:
"Sixth District business contacts described economic activity as expanding at a modest pace from late November through December."
Importantly, the report also notes that:
"Reports from most sectors were positive, yet expectations remained guarded."
Translating from Beige Book-speak, what this means is that (for the most part) our contacts reported their businesses performed well late in 2011, but this performance has not translated into immediate plans to accelerate expansion. They were pleased with their results but did not seem convinced that these results would carry over at the same pace in 2012. We've heard this from contacts from firms of all sizes and from across several sectors.
As a result hiring plans remain modest as well. As our Beige Book reported:
"Contacts across most sectors continued to report modest hiring activity across much of the District. Most of the hiring has been temporary in nature and tied to seasonal employment."
That said, early results from an early January informal poll of our business contacts showed roughly 45 percent expect to increase hiring in 2012, 45 percent see their workforce levels remaining unchanged in the new year, and about 10 percent see further payroll declines. We will be digging deeper into the full results of this survey as the month goes on, and we'll be looking to the actual employment data to see if hiring plans do indeed translate into increased hiring activity.
Part of our hesitancy to ratchet up our expectations for a significant expansion in hiring was also noted in our January Beige Book:
"Firms also noted reluctance towards adding new full-time employees because of uncertainty surrounding healthcare reform, a large pool of both over and under qualified applicants, and because productivity enhancements have made several positions redundant."
Atlanta Fed President Dennis Lockhart talked about the idea of uncertainty in his January 9 speech to the Rotary Club of Atlanta:
"Uncertainty is a nebulous factor. Definition and measurement of uncertainty are elusive. Uncertainty is not as concrete and measurable a fundamental as business balance sheets or public finance, but it's affecting the behavior of consumers and businesses nonetheless. Most of the evidence I've seen for the effect of uncertainty comes from anecdotal comments. These comments reflect on a variety of concerns that are fueling risk aversion. Beyond lots of angst about the direction of the macroeconomy, concerns in 2011 included regulation, taxes, health care costs, and Europe."
Rather than throwing up our hands and writing off "uncertainty" as one of those—as President Lockhart said—nebulous, indefinable factors that may or may not affect economic activity, we do believe that it is having an impact. Lockhart continued:
"There is, however, a growing body of work in the economics profession trying to measure uncertainty, and correlate it to actual spending by firms and consumers. For example, economists at Stanford University and the University of Chicago have built an index based on economic, tax, and forecast uncertainties. Last year, this index reached its highest level since the mid-1980s. The economists concluded that this level of uncertainty has been a significant drag on the expansion."
So while we are receiving information from southeastern businesses that late 2011 activity was positive, we are, like our contacts, guarded about expectations for 2012.
Mike Chriszt, an assistant vice president in the Atlanta Fed's research department