Atlanta Fed finds labor market pressures easing but labor market still tight in the first months of 2023

The economy of the Sixth District of the Federal Reserve grew at a modest pace from January through mid-February, according to the Federal Reserve Bank of Atlanta. The Federal Reserve’s Sixth District includes Alabama, Florida, and Georgia, and portions of Louisiana, Mississippi, and Tennessee. 

The report is part of the Federal Reserve’s regular commentary on economic conditions throughout the United States. Commonly known as the Beige Book, the report is published eight times a year and is meant to inform members of the Federal Reserve based on reports and interviews with business contacts, economists, and other sources. 

According to the Sixth District, labor markets improved somewhat amid persistent wage pressures. Many nonlabor costs increased, particularly food, utilities, and insurance; however, freight and shipping costs moderated. Low-income families continued to face barriers to full-time employment opportunities, and rising food and gas prices further strained household budgets. District retail sales exceeded expectations, and auto sales remained solid. Leisure travel activity showed continued strength, and business travel grew. 

Housing demand improved slightly as mortgage rates fell. Commercial real estate activity slowed. Transportation activity was mixed. Loan growth at financial institutions was solid, but delinquency rates rose slightly. On balance, energy demand was strong. Agricultural conditions remained mixed. 

Labor Markets

Labor market pressures continued to ease since the previous report; however, contacts still described conditions as tight, especially among front-line, skilled trades, and IT positions. Most firms continued to hire. Layoffs or hiring freezes were noted by a few contacts, but they were largely limited in scope. Restaurants continued to close dining rooms and other firms noted postponing planned projects due to lack of available labor. To combat labor shortages, firms reported investments in training to upskill employees and capital expenditures in technology to reduce reliance on labor. Overall turnover has eased somewhat but not among hourly paid staff, who continued to change jobs for higher pay. Several employers also noted that affordable housing and childcare availability and costs further restrained the supply of workers at all levels. 

Wage pressure remained persistent, though some easing was noted. Several contacts indicated that the wage levels for various positions, especially lower wage jobs, jumped significantly over the last year. Upward wage pressure is expected to persist this year, but many firms are targeting more modest increases than last year. 

Prices

District contacts noted moderation in freight and shipping costs along with improvements in supply chain imbalances over the reporting period. Some construction inputs, like lumber, saw prices decline, while concrete prices rose, increasing building project costs, on balance. Food and utilities costs also rose, further straining businesses' balance sheets. Rising insurance costs and wages were cited most often as risks to the business outlook over the coming year. 

The Atlanta Fed's Business Inflation Expectations survey showed year-over-year unit cost growth at 3.5 percent, on average, in February, down from 4.3 percent in January. Firms' year-ahead inflation expectations were relatively unchanged at 2.9 percent in February, on average. 

The full report for all twelve Federal Reserve District Banks can be found at https://www.federalreserve.gov/monetarypolicy/publications/beige-book-default.htm

Atlanta Federal Reserve Bank President Raphael Bostic: A terrible disappointment

On Friday afternoon, it was disclosed that the President of the Atlanta Federal Reserve Bank, Raphael Bostic, had failed to disclose financial transactions including ones that violated Federal Reserve trading rules.

In his amended Financial Disclosure Report under the Comments section, it reads:

“Consistent with the Federal Reserve’s enhanced ethics procedures, Board ethics officials reviewed Reserve Bank presidents’ financial disclosures beginning this year. In the course of reviewing Raphael Bostic’s disclosure, we discovered that he filed materially incomplete annual disclosures during all prior years in office. After he spent several months retrieving information and amending his disclosures, we concluded that (1) he omitted a substantial number of securities transactions from the disclosures that he previously filed; (2) he held more than $50,000 of Treasury funds in violation of then-applicable Board policy; and (3) he had extensive trading activity during FOMC trading blackout periods and during March-April 2020, which he explains was carried out by third-party financial advisors with investment discretion within managed accounts. The certification of this report is based on the understanding that he has now corrected his prior disclosures and divested his Treasury funds (and other funds that are now prohibited by the Investment and Trading Policy for FOMC Officials), and he and his financial advisor have affirmed that all future trades will be compliant with Federal Reserve policies. His past violations were referred to the Board for any additional action that it deems appropriate.”

From the statement above, it appears that Mr. Bostic did not self-disclose his violations but only admitted to them after they were discovered by Board ethics officials.

In his defense, Mr. Bostic asserts that he did not manage the investments themselves and was unaware of the trades or their timing.

In a news release issued by the Federal Reserve Bank of Atlanta Board Chair Elizabeth A. Smith, it says:

“The Federal Reserve Bank of Atlanta's board of directors has been made aware of inaccuracies in President Raphael Bostic's forms that disclose his personal financial assets and transactions. Furthermore, we learned of transactions that took place during blackout periods and of holdings that violated guidelines set out by the Federal Open Market Committee, or FOMC.

After reviewing the documents and discussing these issues with President Bostic and the Atlanta Fed's chief ethics officer, the board acknowledges the violations and accepts President Bostic's explanation. My board colleagues and I have confidence in President Bostic's explanation that he did not seek to profit from any FOMC-related knowledge.

The directors appreciate that President Bostic has thoroughly corrected his financial forms, going back to when he first joined the Atlanta Fed. We are satisfied with his revised financial disclosures and the changes he has made in managing his investments. The board is also satisfied that President Bostic has established procedures to ensure that future violations do not occur.”

What now?

As the New York Times notes, this is not the first trading scandal involving the Federal Reserve, and you would have thought that the previous problems would have made Mr. Bostic more cautious in his financial activities.

As Jeanna Smialek writes for the Times:

“The Fed’s independent watchdog investigated each official’s trades, much as it will now investigate Mr. Bostic’s. It largely absolved the Fed vice chair, though the results of the other two investigations have yet to be released. Both of the Fed presidents in question — Robert Kaplan and Eric Rosengren — left their posts, and the vice chair, Richard Clarida, stepped down earlier than expected. Other explanations were given for some of those resignations. The central bank ushered in a new and much stricter set of stipulations that limit when, how and what central bankers can trade.”

In any case, Mr. Bostic has destroyed his own credibility as a commentator on economic matters and damaged the Atlanta Federal Reserve Bank’s credibility as well, and it was all so unnecessary. The President of the Atlanta Federal Reserve Bank is a very responsible position and is well compensated. Was the small additional income from these trades really needed? Was it worth the damage to his reputation just to make an additional few dollars? Or did he just think he wouldn’t be caught?

The Atlanta Fed runs an extensive education program, but all that is wasted if the person at the head of the bank cannot be trusted. Whether Mr. Bostic resigns or stays on will depend, probably, on how much pressure is brought to bear, but in either case, his reputation, and the reputation of the Federal Reserve Bank of Atlanta has been damaged with longer lasting consequences. A terrible disappointment. 

Atlanta Fed lowers GDP forecast for 4th Quarter 2021; says economy in Southeast expanded “moderately”

 

The Federal Reserve Bank of Atlanta has lowered their forecast for the United States Gross Domestic Product (GDP) in the last three months of 2021 to 5.0 percent.

 

"The GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the fourth quarter of 2021 is 5.0 percent on January 14, down from 6.8 percent on January 10. After the January 10 GDPNow update and subsequent releases from the US Census Bureau, the US Bureau of Labor Statistics, the US Department of the Treasury’s Bureau of the Fiscal Service, and the Federal Reserve Board of Governors, a decrease in the nowcast of fourth-quarter real personal consumption expenditures growth from 4.5 percent to 2.0 percent was slightly offset by an increase in the nowcast of fourth-quarter real gross private domestic investment growth from 17.8 percent to 18.1 percent. Also, the nowcast of the contribution of the change in real net exports to fourth-quarter real GDP growth decreased from 0.21 percentage points to 0.19 percentage points." 

The U.S. Bureau of Economic Analysis (BEA) announced that the nation’s GDP for the 3rd quarter of 2021 came in at 2.3 percent. 

Southeast economy expanding at a “moderate” pace 

The bank’s latest summary of economic activity found: 

"Economic activity in the Sixth District expanded moderately from mid-November through December, even amidst widespread outbreaks of the Omicron variant late in the reporting period. Demand for workers remained strong and labor market tightness persisted. Upward pressure on wages was widespread. Nonlabor costs grew, albeit at a slower pace. Retail sales were solid; auto sales, however, remained challenged due to supply chain constraints. Domestic leisure travel was strong. Business travel and convention bookings picked up somewhat, though increases in Omicron cases precipitated some postponements and cancellations in the near term. Robust housing demand continued. Conditions in commercial real estate improved. Manufacturing activity was healthy. Conditions at financial institutions were steady, though deposit levels declined, and loan demand slowed somewhat." 

·         Consumer spending was healthy, particularly for off-price retailers. Cruise ship business was strong, though passenger counts were lower than before the pandemic as cruise lines have continued to limit capacity.

·         Demand from investors and second-home buyers continued to make up a significant component of housing market demand.

·         Manufacturing contacts reported increased revenues and believe business will continue to improve this year, even as some expressed concerns about supply chain interruptions, labor shortages, and rising input costs.

·         Transportation stayed strong. Container volume grew at district seaports, and air cargo contacts noted increased demand because of surging ecommerce shipments.

·         Chemical manufacturing and petroleum refining improved. However, contacts continued to report that supply chain bottlenecks constrained some chemical production. 

The report for all the Federal Reserve banks on economic conditions for their districts can be found at https://www.federalreserve.gov/monetarypolicy/beigebook202201.htm. 

The next meeting of the Federal Open Market Committee is scheduled for January 25-26, 2022.

 

Atlanta Federal Reserve Bank sees labor and price pressures

 The Federal Reserve has issued its most recent commentary on current economic conditions.

Commonly known as the Beige Book, this report is published eight times per year. Each Federal Reserve Bank gathers anecdotal information on current economic conditions in its District through reports from Bank and Branch directors and interviews with key business contacts, economists, market experts, and other sources. 

Below is the report provided by the Federal Reserve Bank of Atlanta on economic conditions in its district, which includes Alabama, Florida, and Georgia, and portions of Louisiana, Mississippi.

Summary of Economic Activity
Economic activity in the Sixth District expanded at a moderate pace from mid-August through September. Demand for labor was strong, and worker supply remained extremely tight. Reports of wage increases, along with signing and retention bonuses, were widespread. Some nonlabor costs continued to rise, and pricing power improved. Retail sales activity strengthened, but the pace of new car sales slowed due to supply chain constraints. Domestic leisure travel activity remained strong. Demand for housing was robust, inventories declined, and home prices rose. Commercial real estate conditions were mixed. Manufacturing activity was robust, but production slowed as labor shortages caused more idle time. Conditions at financial institutions were stable, and consumer and residential loan demand improved.

Employment and Wages
District contacts continued to report strong demand for labor and the supply of available workers remained extremely tight. Turnover increased as staff left jobs for higher wages, greater flexibility, and better work environments. At the same time, the number of retirements increased. A few firms noted that recent surges in COVID-19 cases caused higher rates of absenteeism than in previous waves. Several employers said they have been forced to make daily evaluations on which operations can be supported based on the number of employees who came to work. The most severe shortages were among hospital nurses who were noted as migrating to other practices where they can have a stable schedule, or to traveling positions where they can earn multiples of their prior hourly rate. Most employers shared that they would like to implement COVID-19 vaccine mandates but were concerned about losing employees. Worries about employee mental health, burnout, safety, and vaccine mandates impacting company culture were mentioned.

Upward pressure on wages intensified over the reporting period and reports were relatively widespread. Several contacts mentioned that escalating living expenses have become a part of wage negotiations. Wage increases continued to be noted along with signing and retention bonuses. Employers were offering greater flexibility to retain and attract workers when possible and several noted new hires negotiating for more paid time off.

Prices
District contacts reported persistent increases in some nonlabor costs. In particular, steel and freight costs rose markedly. The volatility of these and other input costs, exacerbated by supply chain constraints, delayed construction projects across sectors, with uncertainty around expected completion timelines. Food prices also rose. Contacts continued to note an ability to pass through input cost increases. The Atlanta Fed's Business Inflation Expectations survey showed year-over-year unit costs were relatively unchanged in September at 3.2 percent, from 3.3 percent in August. Year-ahead expectations also remained generally stable at 3.1 percent in September, compared to 3 percent in August.

Consumer Spending and Tourism
District retailers reported strong demand since the previous report. However, several cited missed sales opportunities due to of a lack of inventory and persistent labor shortages that resulted in reduced hours of operation. The pace of new vehicle sales continued to slow due to supply chain constraints.

Domestic leisure travel continued to drive tourism activity for much of the District, though occupancy at limited-services hotel properties declined due to a rise in COVID-19 cases and the start of school. In New Orleans, tourism plummeted following Hurricane Ida; however, the city has since opened, and contacts expect activity will improve over the balance of the year. Some contacts indicated further deterioration in business travel and convention bookings due to rising COVID-19 cases and expressed uncertainty over the next three months.

Construction and Real Estate
Demand for housing throughout the District remained strong, though activity moderated slightly from record highs. Real estate contacts noted multiple offers on properties for sale. On a year-over-year basis, inventory levels declined, and home prices rose by double digits in most markets. Declining home ownership affordability was a growing concern for some buyers, resulting in more moderate growth in sales and declining homebuyer sentiment. The decline in affordability was widespread, with markets in Central and South Florida experiencing the sharpest decline in the District.

Commercial real estate activity was mixed. Conditions in the multifamily sector improved notably from last year, though there was growing uncertainty regarding future effects from the end of the eviction moratorium. Activity in the retail segment continued to improve. The office sector remained challenged as employers expressed uncertainty about future space needs. Negative rates of absorption and new deliveries pushed office vacancies upward. Contacts report that competition is accelerating among CRE lenders. Smaller banks and non-bank lenders have been identified by market contacts as some of the more aggressive CRE lenders.

Manufacturing
District manufacturers reported robust demand over the reporting period. However, materials shortages and longer supply delivery times continued to slow production, and some firms experienced increased down time due to higher absenteeism caused by COVID-19 illnesses. Several manufacturers anticipate further strengthening in demand but expressed uncertainty about future production levels.

Transportation
Activity in the transportation sector strengthened, on balance, since the previous report. Logistics contacts reported robust demand as the peak shipping season commenced. East coast ports saw record container volumes. However, growing numbers of container ships idled off the coast, as short supplies of chassis, trucks, and labor slowed throughput. Operations resumed for Gulf coast ports after Hurricane Ida caused shutdowns due to damaged facilities and power outages. Air cargo contacts reported a resumption of cargo-only flights to capitalize on bottlenecks at ports. Contacts expect gridlocks at ports and other supply chain disruptions to continue into 2022.

Banking and Finance
Conditions at District financial institutions remained stable. Margin pressures persisted as a result of the low interest rate environment, weak loan growth, and elevated liquidity. Loan balances declined for multiple loan portfolios, including commercial and industrial loans. Banks reported improvements in consumer and residential loan demand. Deposit levels remained high but growth moderated, causing some institutions to increase short-term borrowings. Asset quality remained healthy without notable increases to nonperforming loans or charge-offs.

Energy
Energy industry contacts reported damage to infrastructure servicing production in the Gulf of Mexico as a result of Hurricane Ida. However, some indicated that resiliency efforts made since Hurricane Katrina in 2005, including the hardening of energy infrastructure and investments in diesel-driven power generation, accelerated the recovery. Reduced oil and gas output was primarily attributed to challenges in redeploying workers since reentry into some communities was difficult or impossible after the storm. However, collaboration with private entities and state government helped alleviate immediate post-hurricane labor tightness. Some contacts expressed concern about short-term natural gas supply and pricing pressures resulting from reduced output. Further, reduced investment in oil and gas exploration and production in recent months is anticipated to result in long-term cutbacks in supply. Utilities contacts continued to cite strengthening residential, commercial, and industrial sales, as well as significant investment in renewables, particularly wind and solar power.

Agriculture
Agricultural conditions remained mixed. Widespread rain kept the District free of drought, but left parts of the District in abnormally moist to excessively wet conditions. Producers continued to assess damages from Hurricane Ida; initial estimates indicated damage to row and vegetable crops, sugarcane, timber, livestock, and infrastructure. On a year-over-year basis, production forecasts for corn, soybean, peanut, and cotton crops were up while rice and sugarcane forecasts were down. The USDA reported year-over-year prices paid to farmers in August were up for corn, cotton, soybeans, cattle, broilers, and eggs, but down for rice and milk. On a month-over-month basis, prices were up for corn, rice, cattle, broilers, and eggs but down for cotton, soybeans, and milk.

For more information about District economic conditions visit: www.frbatlanta.org/economy‐matters/regional‐economics

Atlanta Federal Reserve Bank finds “modest” expansion of economic activity in the South through the end of December 2020

 

The Federal Reserve Bank of Atlanta is reporting that economic activity continued to expand at a modest pace from mid-November through December in its district, which includes the states of Alabama, Florida, and Georgia, and portions of Louisiana, Mississippi, and Tennessee.

The bank, headquartered in Atlanta, reported that over the period of mid-November through December:

• Labor markets continued to gradually improve
• Wage pressures were muted
• Nonlabor costs related to construction and supply chains were rising
• Sales at auto dealers declined
• Tourism and hospitality activity softened
• Residential real estate demand remained strong
• Residential mortgages showed an uptick in delinquencies
• Commercial real estate markets remained soft
• Manufacturing activity rose modestly
• Banking conditions were stable 

Labor conditions 

Consistent with the findings of the U.S. Bureau of Labor Statistics, the Atlanta Fed found that overall employment levels had risen over the past months, although they stayed below the levels reached a year ago. 

Labor shortages were faced by trucking companies, while manufacturers and technology companies were reporting increased hiring. At the same time, some restaurants reported that they were layoff staff. Professional and business services firms were reluctant to hire even with increased business because they were uncertain about future business, as the coronavirus impacts the overall economy. 

Prices 

The Atlanta Fed found moderate price inflation since its last report. Both manufacturing and service sector firms saw price inflation for their goods and services. Service sector firms reported high prices for their inputs but slowed slightly for manufacturers. 

Inflation of prices paid outpaced that of prices received, according to firms. Prices rose for raw materials and longer lead times were required, particularly for materials used in construction. Some firms reported higher costs for personal protective equipment, also related to the coronavirus epidemic. 

These comments and others are provided by the Federal Reserve Bank of Atlanta as its contribution to the Federal Reserve’s Summary of Commentary on Current Economic Conditions by Federal Reserve District, commonly known as the “Beige Book”. 

The report is published eight times a year in advance of Federal Open Market Committee meetings. The FOMC makes decisions about interest rates and the growth of the U.S. money supply. The first meeting of 2021 will occur January 26-27, 2021.

 A complete report of the Beige Book for all Federal Reserve districts is available at https://www.federalreserve.gov/monetarypolicy/beigebook202101.htm.