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The Atlanta Fed's SouthPoint offers commentary and observations on various aspects of the region's economy.

The blog's authors include staff from the Atlanta Fed's Regional Economic Information Network and Public Affairs Department.

Postings are weekly.


New Orleans Area Optimistic Heading into 2015

During the last couple of months, the Regional Economic Information Network team from the New Orleans Branch of the Atlanta Fed was in contact with more than 30 business leaders to gauge sentiment about current and anticipated economic conditions in the region (which covers central and south Louisiana and Mississippi, south Alabama, and the Florida Panhandle to Apalachicola). The optimism and confidence that our contacts expressed over the last few quarters continued and was in fact more prevalent this time. Although contacts' expectations in previous months were for "slow and steady" growth, many business leaders now feel assured about their outlook for a pickup in growth in 2015.

In particular, we continue to receive upbeat reports about the tourism sector. This time, the message came from the Florida Panhandle again, where it was mentioned that tourism was growing into a year-round business, supported largely by an emergence of international travelers rather than the typical wintertime snowbirds. Retail contacts were also very positive, especially about holiday sales in November but also about a notable general sense of improving consumer sentiment. Another sign of strength in the region was commercial real estate, which was reported as robust across Louisiana, particularly for retail, multifamily, and office space leasing and development.

Employment and labor markets
Generally, contacts continued to report positive net hiring in response to increases in demand, though they didn't report acceleration from previous months. We continue to receive reports about firms' efforts to use automated solutions to reduce staffing or conduct optimization studies to enhance efficiency while reducing costs. Once again, contacts noted major challenges filling certain skilled positions, such as trades workers, engineers, truck drivers, and information technology professionals—a predicament business contacts have expressed for more than a year.

Costs, wages, and prices
For several months now, contacts have reported some cost pressures with little pricing power. In most cases, firms have been able to increase prices only after a competitor successfully does so or when contracts are up for renegotiation. Regarding the declining price of oil, energy industry representatives shared their view of the impact on their industry, which they indicated would initially affect smaller players (described in a recent SouthPoint post). In addition, a few contacts noted that declining energy prices posed a risk to their 2015 outlook. For the first time in many months, a number of contacts reported across-the-board wage pressures, which were previously isolated to certain positions. Others indicated they expect to encounter pressure in 2015. Several firms we spoke with indicated they expanded merit program budgets in 2015, with most increases being in the range of 2.5 to 3 percent, though a few in the range of 3 to 5 percent. Though a number of firms reported they were investigating strategies to control compensation costs with tools such as performance-based incentives, health care contributions, and targeted salary increases—a trend we've noted over the last couple of quarters.

Availability of credit and investment
Access to capital and availability of credit remained a nonissue for the majority of our contacts, though some small firms indicated obtaining credit from traditional banks remained difficult because of qualification requirements. Banking contacts indicated that loan demand strengthened in the third quarter. Capital investment reports were consistent with the last few cycles, reflecting some expansion activity but mostly focused on efficiency or maintenance.

Business outlook
Although some contacts noted a bit of uncertainty about the outlook—including the declining price of oil, increased government regulations, and the strengthening U.S. dollar—contacts were overall positive and confident about 2015 expectations. What's your outlook for 2015?

Photo of Rebekah DurhamBy Rebekah Durham, economic policy analysis specialist in the Regional Economic Information Network at the New Orleans Branch of the Atlanta Fed