Though Easing, COVID Still Exerts Force on Region's Economy
Pandemic-related forces continued to shape the southeastern economy in late May and June, as firms scrambled to fill job openings and competition for talent pushed up wages, according to the new Beige Book report on regional economic activity from the Federal Reserve Bank of Atlanta.
As some companies reported offering more flexible schedules and wage hikes spread beyond just lower-paid positions, many contacts were optimistic that labor availability would improve in coming weeks as schools reopen and enhanced unemployment benefits end.
However, several businesspeople said they don’t expect labor market circumstances to change for another six to nine months.
Business leaders reported continued increases in fuel, shipping, and freight costs. Some contacts were able to pass rising costs on to their customers, while others absorbed the increases to avoid losing business. Most firms expect those cost increases to ease as supply chains return to normal. Still, the Atlanta Fed Business Inflation Expectations survey for June showed that expectations for the next year rose to 3 percent, up a bit from 2.8 percent in May.
Consumer spending broadening
Like employment and prices, consumer spending patterns continued to reflect forces related to the pandemic and the resumption of more normal economic activity. For example, an uptick in travel meant that malls in vacation spots reported strong sales. And Atlanta Fed contacts said they expect spending to shift from home goods to travel-related activities during the summer. (This report covers mid-May through June.)
Meanwhile, auto sales stayed strong, but slowed because of a shortage of new vehicles, a phenomenon caused in part by a dearth of computer chips related to supply-chain disruptions.
In other sectors:
- Contacts in the energy industry were upbeat. Demand for oil and gas was up, chemical manufacturing surged, and utilities reported rising commercial and industrial use.
- Commercial real estate executives noted increasing competition among lenders for a small segment of commercial real estate loans. Smaller banks and nonbank lenders were said to be most aggressive.
- In manufacturing, business picked up, and contacts remained optimistic about future production despite ongoing supply-chain problems and worker shortages.
- Transportation activity strengthened as demand outstripped supply. Notably, seaports reported record container volumes and capacity utilization fueled by strong demand for imports. Contacts expected supply-chain disruptions to last another six months to a year.
- Banking and finance conditions remained stable. Loan growth was tepid beyond some growth in vehicle and other consumer loans, although asset quality stayed strong. Delinquency rates held steady and charge-offs for bad loans continued to decline.
- Agricultural conditions were mixed, much like the weather. Though swaths of the region experienced excessive rainfall, much of Florida and South Georgia were unusually dry. The prices farmers received for corn, cotton, soybeans, cattle, broilers (chickens), eggs, and milk were up compared to a year ago, but they were down for rice, according to the U.S. Department of Agriculture.
The Fed publishes the Beige Book before each meeting of the policymaking Federal Open Market Committee. The committee next meets July 27 and 28.