The new Beige Book report describes "tepid" economic growth in the Southeast from October through mid-November, but inflationary indicators continued to paint a mostly promising picture.
Most business contacts in the Federal Reserve Bank of Atlanta's Sixth District reported that the labor market continued to soften as job openings were easier to fill and pressure to hike wages continued to ease. Meanwhile, firms said their ability to increase prices without pushback from customers eroded, according to the latest compilation of anecdotal reports from business contacts in Alabama, Florida, Georgia, and parts of Louisiana, Mississippi, and Tennessee.
In the labor market, hiring slowed for most contacts, and many said they were pickier in filling openings. Several contacts said they plan to pass rising health care costs along to employees next year. Despite more availability of workers, most contacts still said the labor market is tight overall.
Regarding prices, firms reported that most nonlabor costs, other than health and property insurance, declined. Alongside diminished pricing power, the Atlanta Fed's Business Inflation Expectations survey in October showed firms' inflation expectations for the year ahead declined to 2.4 percent, down from 2.5 percent in September.
In other sectors, the Beige Book reported:
- In energy, fossil fuel companies continue to invest heavily in charging stations in anticipation of increased electric vehicle usage. Utility contacts said demand for electricity shifted from residential to commercial customers as more employees are working in offices, and industrial electricity demand began to move from chemical, paper, and housing-related industries to data centers and battery and electric vehicle manufacturing.
- Job seekers and workers in lower-wage positions expressed continued confidence in the availability of employment opportunities and the potential to seek better pay. Still, many said they continue to have trouble covering basic household expenses.
- Like the previous report, retailers noted a softening in consumer spending, which was again described as a normalization from the strong growth seen during the pandemic. At the same time, most retailers do not expect significant declines in sales over the coming months.
- Contacts in commercial and residential real estate reported complications. Home sales remain hamstrung by higher prices and volatile interest rates. Commercial real estate contacts described worsening conditions in the office, high-end multifamily, and industrial segments.
- Transportation activity remained weak. Notably, freight forwarders reported double-digit percentage declines in year-over-year daily volumes because of declining exports and lower consumer spending.
- At financial institutions, conditions broadly remained sound. Asset quality was stable with low levels of bad loans despite an uptick in credit card and auto loan delinquencies.
- In agriculture, recent liquidation of cattle herds limited supply, boosting beef prices and leading farmers to slaughter more dairy cows to capitalize on higher meat prices, which in turn pushed up dairy prices.
The Federal Reserve publishes the Beige Book before each meeting of the policymaking Federal Open Market Committee. The committee is scheduled to meet December 12 and 13.
Charles Davidson
Staff writer for Economy Matters