In March, we shared the view of our contacts in the Regional Economic Information Network (REIN) in north and central Florida. Those contacts described modest but sustained growth in activity in the first quarter of the year. That sentiment continued as winter turned into spring, with reports of increasing activity and greater optimism for continued growth during the remainder of the year.
Since mid-March, the REIN team in the Atlanta Fed’s Jacksonville Branch held 13 one-on-one interviews, one roundtable with a mix of business leaders, a Trade and Transportation Advisory Council meeting (recently summarized), as well as our branch board meeting. Although meeting participants noted acquisitions as a primary growth engine for most firms, some firms are expanding capacity to meet improving demand. Community banks are reporting increased commercial activity as bigger banks trim lines on small businesses. Though loan demand is still relatively soft, our contacts characterized clients as somewhat more confident, which bodes well for future lending activity. One banker cited noteworthy increases in credit card usage and home equity loans.
Retail contacts continue to express concerns about low-income consumers but note that the slowly improving labor market is resulting in somewhat more spending. In central Florida, contacts noted strong spending by more affluent consumers, including foreign visitors who are seeking high-end retail and dining. Robust home sales and price appreciation, accompanied by declining lender-mediated sales, were widely reported. Commercial construction is on the rise, especially in sectors such as health care, manufacturing, apartments, and higher education.
A focus on cost-cutting along with productivity-enhancing efforts continues. As one chief executive officer put it, “People are the last thing we’ll invest in.” Another company has committed to keeping its general and administrative expenses flat, which will result in support staff cuts to offset the increased cost of technology investments and health care. Two other large contacts noted significant reductions of full-timers to avoid having to provide health care coverage and to “be more in line with the industry.” We increasingly hear more about firms restructuring employee health plans and benefits to reduce costs to the company, including shifting more cost burden to the employee, restricting eligibility for spouses who may have access to insurance elsewhere, and adding risk-based surcharges.
Education contacts noted that the ability to place graduates seeking work has improved. Stories abound regarding difficult-to-fill positions (truck drivers, IT, accounting, etc.), and reports of a willingness to increase starting salaries are mixed. Generally, there were few reports of wage pressures mounting (outside of the trucking industry). The news on input prices remains relatively quiet.
Our contacts noted that qualified mortgage rules—and regulations more generally—have the potential to affect the housing recovery. A mortgage and refinance company has cut the majority of its workforce as refinance volume diminishes but noted that current regulations are making first mortgages, especially to the self-employed, “nearly impossible” to issue. Two other small-banking contacts indicated they have discontinued providing residential mortgages. However, two residential real estate contacts did not indicate any major concern about clients’ abilities to obtain mortgage loans.
At the April meeting of the board of directors of the Jacksonville Branch, we asked board members whether the current and near-term environment reflects an economy that is growing at a 2 percent rate or one that is growing at 3 percent. The majority view activity now and in the coming year to be more closely aligned with a 3 percent growth rate. The board members feel that the biggest potential impediment to growth is related to the consumer, as many people continue to struggle and consumer confidence remains lower than before the recession (see the chart).
The old proverb goes, “No matter how long the winter, spring is sure to follow.” One could apply this adage to the Great Recession and the long recovery and ask: Has an economic “spring” finally sprung? We’ll be keeping tabs as the year plays out.
By Sarah Arteaga, a Regional Economic Information Network director in the Atlanta Fed's Jacksonville Branch