Economic activity in the Sixth District grew slowly in April and the first half of May, according to the new Beige Book report on economic conditions from the Federal Reserve Bank of Atlanta.
The report carried generally good news on prices—many of them are falling or increasing less quickly. However, the Reserve Bank’s contacts who serve low- and moderate-income households said those groups continued to feel the sting of inflation. Low- and moderate-income consumers’ financial stress intensified as loan repayment delinquencies returned to prepandemic levels, according to bankers. And while some employers noted slightly lower staff turnover, workforce development contacts affirmed that low-wage workers continued to leave jobs in search of higher wages to offset rising expenses, especially housing.
Small businesses reported feeling the effects of tougher bank lending standards. Some owners of small firms who had relied on mainstream banks for loans found it harder to secure financing and so turned to community development financial institutions, or CDFIs. Some CDFIs are nonprofits, and some are traditional commercial banks. But all CDFIs serve people and businesses in underserved markets and in certain respects do not face the same profit pressures as more mainstream financial institutions.
Labor, nonlabor costs broadly ease
Price pressures from two major cost areas showed signs of easing across the Southeast. First, nonlabor costs stabilized, according to most contacts. Prices of construction inputs, including steel, along with food, freight, and shipping containers, settled back to prepandemic levels. Various retailers instituted discounts amid slowing foot traffic in stores and pushback from price-conscious consumers. As most nonlabor costs continued moderating, the Beige Book noted one significant outlier. Property and liability insurance premiums “rose markedly” for companies in coastal areas threatened by storms, contacts reported.
Meanwhile, most contacts said pressure to increase wages, unusually intense for many months, continued to ease. Still, wage pressures remained high for certain occupations, especially for skilled labor and retail, warehouse, accounting, and nursing positions.
In other economic sectors:
- Liquidity remained a top concern for financial institutions. Continuous variations in interest rates, along with some customers moving deposits to higher-yielding alternatives, put stress on liquidity. Financial institutions reported that the fair value of securities portfolios continued to stabilize, though unrealized losses remained high compared with prepandemic levels. District banks also reported ongoing commercial real estate loan growth, albeit at a slower pace. Shifts in commercial real estate property values raised additional concerns about increasing credit risk as institutions began reevaluating the value of collateral supporting outstanding loans.
- Retailers reported that although consumer spending remained above prepandemic levels, there was some softening of sales as shoppers continued to trade down. On the other hand, auto dealers reported ongoing improvements in inventories and strong demand for new and used vehicles.
- Travel and hospitality contacts reported strong demand and described activity as normalizing from a peak year in 2022. Business travel improved while leisure travel weakened, reverting to a more typical prepandemic mix.
- Housing demand throughout the Southeast remained strong despite interest rate and price volatility. Though below levels of a year ago, home sales in many markets increased month to month as buyer sentiment improved. However, homeowners were increasingly hesitant to list their houses for sale, especially if their mortgages carried a low rate. Consequently, the supply of existing homes for sale remained low.
- In commercial real estate, the industrial sector remained healthy, while office, multifamily, and some segments of retail slowed. Most Reserve Bank commercial property contacts said growing uncertainty and falling property values represent significant issues.
- Demand for transportation services softened. Trucking contacts noted significant year-over-year declines in freight volumes and revenue amid what some called a “freight recession.” Ocean cargo carriers reported shipping fewer containers as retailers worked to sell off high inventories of goods.
The Atlanta Fed and the Federal Reserve System publish the Beige Book before each meeting of the policy-making Federal Open Market Committee. The Committee’s next meeting is June 13 and 14. The Atlanta Fed’s Sixth District covers Alabama, Florida, Georgia, and parts of Louisiana, Mississippi, and Tennessee.
Charles Davidson
Staff writer for Economy Matters