Southeast Economy Shows Modest Gains

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Key drivers of the Southeast’s economy — manufacturing and ports — turned in modest, but solid performances in late spring, according to the Federal Reserve’s quarterly Beige Book.

The Columbia Business Report says the Federal Reserve outlook for the year remains upbeat as a number of companies reported plans to expand and hire more workers. However, there’s growing concern sequestration of the federal budget, which has led to government worker furloughs and spending cuts, could hamper the region’s growth. Also, one contact fretted that recent economic development in South Carolina could outstrip infrastructure to support the growth.

The Beige Book includes anecdotal information on current economic conditions in the Fed’s 12 districts. The report is based on bank and branch data and interviews with key business contacts, economists and market experts. The report will be taken up when officials meet June 18-19 in Washington, D.C., to consider whether the central bank should reduce economic stimulus efforts.

The central bank’s 5th District, headquartered in Richmond, Va., observed that economic activity “strengthened modestly” across the region, which includes Maryland, Virginia, North Carolina, South Carolina, District of Columbia and part of West Virginia. “However growth was constrained by softness in manufacturing, federal spending limits, and unusual weather conditions,” the Richmond District reported. The Richmond Fed added that although the labor market was uneven, “many employers plan to increase hiring in the months ahead.”

The 6th District, based in Atlanta, said business conditions across its region — Alabama, Florida, Georgia, and parts of Louisiana, Mississippi and Tennessee — “improved modestly in April and May.” The outlook remained position, particularly in manufacturing where company’s reported increasing numbers of new orders.

Manufacturing in the 5th District has softened, the Richmond Fed said. Its report cited comments from a machinery producer who said the company was struggling to break even and the volume of new orders was down. “Impacts of sequestration and tax changes were noted by several firms,” the Richmond Fed said, adding that several contacts agreed that sequestration would impact their business.  One contact in North Carolina reported that the company has had to lay off workers because of the drop in federal orders.

Sequestration appeared to be affecting a producer of defense equipment, the Richmond Fed reported. It added that some manufacturers were concerned about orders for military gear being canceled or delayed. Sequestration could trim more than $1 trillion in federal spending over the next decade, with about $600 billion being absorbed by the Defense Department. Before sequestration kicked in March 1, the Pentagon had already agreed to $489 billion in cuts over next 10 years as the war in Afghanistan winds down.  While manufacturing was soft in the Richmond district, the Atlanta Fed said manufacturers surveyed by its economists reported expanding activity in April and May.

“Growth was driven by increases in new orders, production and employment,” the Atlanta Fed said. “Much of this expansion was attributed to the region’s large auto and energy manufacturing presence. Nearly half the region’s purchasing managers expect production to be higher in the near term.” Although orders for heavy trucks were up, the Atlanta Fed attributed the increase to trucking companies replacing equipment rather than adding to overall trucking capacity. Ports in both the Richmond and Atlanta districts reported an uptick in activity, particularly in containerized traffic.

Specialty chemicals were especially strong, the Richmond Fed said. “One contact noted that pharmaceutical manufacturers were changing from air to ocean transport as rising fuel costs drive up air freight rates. Auto exports and imports were robust, and imports of auto parts remained solid.” The Richmond Fed, which covers the ports of Virginia, Wilmington and Charleston, added that some port administrators said that more “manufacturers were evaluating plans for moving product through the ports as they plan to shift production to this country.” One dark spot in the Richmond Fed report was a comment from a commercial real estate agent in Charleston, S.C. The Charleston contact said activity had improved, and he expected nonresidential construction to “increase significantly in the next 12 to 18 months. “He also added that the region is on the recipice of strong growth but will be limited by infrastructure,” the Richmond Fed said.  Read More.