The optimism expressed by the Jacksonville Branch's contacts in north and central Florida in the latter half of 2014 continued through the holidays and into early 2015. Conditions were described as quite good, and the majority of contacts reported strengthening demand across multiple sectors. Further, reported headwinds for current and future activity decreased noticeably.
Universities noted some challenges with enrollment, which—although negative for the schools—reflects a strengthening economy and an improving job market as prospective students lean toward employment rather than continuing education. Growth in new customer demand for utilities indicates people moving. Several financial institutions cited robust consumer lending, led by an increase in demand for auto loans. Some banks reported double-digit increases in credit card use by consumers. However, they described residential mortgage lending as soft, with inventories of both existing and new homes remaining low. Small business lending was characterized as very strong compared with the same period a year ago. Tourism in central Florida remained robust amid reports of record-setting attendance and revenue at some attractions, along with elevated occupancy rates at area hotels for the last half of 2014. Regarding holiday sales, contacts reported increases over year-earlier levels.
Employment and labor markets
Employment stories were mixed during the past couple of months. Some larger companies reported increases in staff, but others indicated that employment levels have shrunk as a result of efficiency and automation. Struggles to find talent continued to be widespread across higher-skilled jobs, including those in compliance, engineering, underwriting, and actuarial science. Some contacts suggested that some lower-skill jobs are also becoming more difficult to fill. In the Orlando area, service workers were in high demand to meet strong tourism activity, which has resulted in employee churn among employers in the hospitality, retail, and theme park/entertainment industries.
Labor and nonlabor costs and prices
Although few contacts reported wage pressures building, certain jobs continue to command higher salaries as competition for talent increased. For example, we heard that some firms are increasing wages to attract and retain accountants. Also, talented lawyers fresh out of law school seeking positions with large law firms are asking for, and getting, higher wages that not only cover the cost of living but help pay down college debt. However, contacts noted a change in the types of jobs where wage increases were evident, such as entry-level distribution center labor, and they expect that wage pressures will increase. Contacts reported offering a variety of other types of compensation, including performance-based incentive payouts, stock options, and equity increases to retain key employees. Increased offerings of "soft benefits," such as more time off and flex time, were also reported. Most contacts reported merit increases between 2 percent and 3.5 percent. Health care premium increases continued to be mixed across all contacts.
We continued to hear from a majority of contacts that nonlabor input cost increases appeared to be stable or slowing. Companies with contractual agreements of multiple years with customers were reporting some pricing power during renegotiations, although government and defense contractors reported very limited pricing power and have been forced to reduce costs to maintain margins.
Falling gas prices have had a positive effect, giving consumers in particular a psychological boost regarding spending. Travel and tourism contacts in central Florida reported increased passenger traffic and hotel occupancy. Others reported higher activity in auto sales, where product sales have shifted to trucks and SUVs in response to lower fuel prices.
Availability of credit/investment
Credit continued to be readily available for most large companies. Bank and credit union contacts indicated strong demand across most lines of business, with an increased interest in warehousing as the retail sector continued to increasingly use online fulfillment in addition to traditional brick-and-mortar stores. Other financial institutions reported significant improvements in the credit quality of consumers. Contacts cited examples of capital investments in IT (for efficiency and process automation), acquisitions, and infrastructure.
Contacts have expressed increased confidence in their outlook, and most are experiencing and expect further improvement. They cited few domestic headwinds outside of the unknowns related to oil's rapid price decline and the regulatory environment in banking and other industries. We continue to hear more about a possible resurgence of domestic manufacturing, with rising wages in Asia and the lower cost of energy in the Western Hemisphere, which could drive manufacturing to Mexico and to the United States during in the medium term. Contacts with a strong international presence didn't view the strengthening dollar as their biggest worry. Rather, they described demand challenges in certain markets and U.S. tax policy as more worrisome. Overall, contacts during the past three months were upbeat about economic conditions, with the majority forecasting higher growth during the short and medium term.
By Sarah Arteaga, a Regional Economic Information Network director in the Atlanta Fed's Jacksonville Branch, and Chris Oakley, regional executive at the Jacksonville Branch