Fed report on economy doesn’t always match local perceptions

The economy has been shuffling along this summer, and Atlanta’s story was not much different from that of the nation, according to a report issued Wednesday by the Federal Reserve Bank.

Known as the Beige Book, the latest periodic report includes snapshots from a dozen Fed branches and discussion of key economic sectors.

What it doesn’t have is a lot of upbeat chatter.

“The pace of economic activity has been slow in most districts,” the Fed reported. “Many described business conditions as ‘weak,’ ‘soft,’ or ‘subdued.’ “

That assessment echoes downbeat news from tourism and hospitality, said Mark Vaughan, executive vice president of the Atlanta Convention and Visitors Bureau.

“We are a direct reflection on the economy,” he said. “We have seen a drop in occupancy in the market.”

Only long-term bookings are solid, he said.

“When the economy is great, business people travel. When it is not so great, they tend not to travel.”

Economic growth has lurched between solid and anemic and negative the past two years. Last quarter, exports provided a surprising punch, pushing expansion to a 3.28 percent pace.

Growth has not kept unemployment from rising — both nationally and in Georgia. That will likely continue: The Atlanta Fed said that most of its contacts were cutting hours and workers.

Thousands of those laid-off workers have been arriving at state offices to file for jobless benefits, said Michael Thurmond, state Labor Commissioner.

“We have definitely seen an increase in the number of unemployed Georgians coming into our career centers,” he said. “It is not just blue-collar. It is broad-based.”

Nationally, the economy has shed jobs for seven consecutive months — nearly 500,000 in all.

“It is true in both public and private sectors,” said Thurmond. “It is just tough all the way around.”

One factor raising the odds against a quick recovery is the credit crisis: Loans are the lubricant of business growth and consumer purchases — as well as a cushion when there’s a fall.

Now, tight credit has crimped both companies and consumers.

“Multifamily developers are finding it extremely difficult to finance new developments,” said William Donges, chief executive of Lane Co., which builds and manages apartments. “Multifamily developments are at an all-time low.”

The mortgage crisis produced such huge losses and tainted so many loans that lenders were spooked.

“A year ago, there was a tremendous amount of capital available,” Donges said. “Now, you have the same institutions looking for ways to kill the deal.”

In the auto sector, skittishness about lending money adds to damage caused by high gas prices.

“Business is slow,” said William Morie, president of the Georgia Auto Dealers Association.

“I think that, almost as much of a factor as gas prices, has been the availability of credit. Some people are taking themselves out of the equation because of the credit crunch.”

The market for single-family homes, where the credit problem started, has seen dramatic drops in sales in many areas — as well as home values.

“We are probably running at about half the sales that we had projected for this year,” said Jim Chapman, owner and president of Jim Chapman Communities, builder of five adult communities.

Chapman is among those spotting a spark of hope, he said. “We have just started to see things begin to thaw out a bit. In August, we sold about half the number that we sold in the first seven months of the year.”

Manufacturing has made a crucial difference in recent months.

“Despite all the things you hear about the economy — and the Dalton area has been hurt — overall, our business has been good,” said Eric Gibson, vice president at Textile Rubber and Chemical Co. in Dalton. “Our export business has been very good.”

But manufacturing accounts for roughly one in 10 jobs. Financial institutions are in many ways now the linchpin of the economy, and many are slow to make loans, the Atlanta Fed said.

Still, in a $14 trillion-a-year economy, a chill does not make everyone shiver.

“There are segments that are doing extremely well,” said Lauch McKinnon, president and chief executive of RockBridge Commercial Bank in Atlanta. “More than half of our client base is still expecting to expand this year. “We are concerned but we are not alarmed.”

About one-quarter of his clients see neither decline nor growth, he said. “The rest see a decline — and they are hunkering down.”

TWO VIEWS OF THE ECONOMY

Manufacturing

Most manufacturing contacts reported slight declines in production for July and August compared with a year earlier. Many reported cutbacks in employment and hours.

— Atlanta Fed

“Despite all the things you hear about the economy — and the Dalton area has certainly been hurt — overall, our business has been good. Part of it is because we are not strictly attached just to the carpet industry. Even in carpet, the commercial side of the business has remained good. Our export business has been very good.”

— Eric Gibson, vice president, Textile Rubber and Chemical Co.

Tourism

District merchants reported that sales were below expectations for July and August. Most contacts expect sales to remain flat or decline in the near term as the stimulus from the tax rebate wanes.

— Atlanta Fed

“We have seen a drop in occupancy. The economy and budget hotels have seen the largest occupancy decrease. … I am very optimistic about the fall for leisure, but Atlanta’s sweet spot is business travel. When the economy is great, business people travel. When it is not so great, they tend not to travel.”

— Mark Vaughan, executive vice president, Atlanta Convention and Visitors Bureau

Residential real estate

Reports from home builders and Realtors indicated that new and existing home sales remained below year-earlier levels for July and August. Contacts reported that sales activity was mixed … Weakness was most pronounced among Georgia builders.

— Atlanta Fed

“We are probably running at about half the sales that we had projected for this year. But in August, we sold about half the number that we sold in the first seven months of the year. So we have just started to see things begin to thaw out a bit.”

— Jim Chapman, owner and president, Jim Chapman Communities

Autos

Vehicle production at District plants weakened in July and August in response to lower consumer demand.

— Atlanta Fed

“Business is slow. Sales are down compared to last year. Anytime that gas prices shoot up it’s going to have an effect on sales. But I think that almost as much of a factor as gas prices has been the availability of credit. Some people are taking themselves out of the equation because of the credit crunch.”

— William Morie, president, Georgia Auto Dealers Association

Apartments and other commercial construction

The majority of reports from commercial contractors noted declines in construction activity on a year-over-year basis. … Vacancy rates among all commercial property types continued to rise in most parts of the district.

— Atlanta Fed

“First and foremost, U.S. capital markets are under a lot of stress. Multifamily developers are finding it extremely difficult … to finance new developments.”

— William Donges, Lane Co. CEO