Beige Book Report: Atlanta
March 12, 1975
The most recent reports from District businessmen and directors contain a mixture of pluses and minuses. On the plus side, tourist traffic remains brisk in Florida and District manufacturers have recalled some workers. Although residential construction activity remains at low levels, there is some spotty evidence that the large unsold housing inventories are beginning to sell. Oil exploration and mining activity also are adding strength to the District economy. On the minus side, retailers are reporting continued weakness, especially in home appliances and furniture. Inventories in many lines still remain above desired levels. Delays and cancellations in capital spending plans are still being reported. There is evidence that the previously heavy steel demand may be slackening off, with layoffs on the horizon.
The most pleasant surprise has been tourist traffic in Florida; it has been a lifesaver for that state's economy. South Florida's tourist trade has remained at high levels after the Christmas rush. No rental cars were available in Miami for a two-week period, and the hotels are sold out. However, tourists are apparently staying for shorter periods than in the past and are spending more carefully. One cruise ship line reports that business is so good that they are turning away people. They are not sure whether it is bad weather in the North or people taking a last fling that is responsible. However, the cruise ship business does not appear to be booming across the board. The Carnival Cruise Lines have mothballed the "Bahama Star" because of low bookings and increased costs, particularly for fuel.
Reports continue to indicate that mortgage money is becoming more available. A New Orleans director indicates that mortgage rates there are currently at 8.75 percent; he envisions rates going below 8 percent by April. A large, regional life insurance company reports that the sharp decline in short-term interest rates is causing them to consider putting some of their new money into the housing area. As yet, this greater availability of mortgage financing has not translated into a noticeable pickup in sales. A New Orleans businessman reports that, while more people are looking for houses, the discretionary home buyer is still not in the market. New Orleans resisted the condominium market and, hence, has no "Condo" problem. A speculative builder in the Jacksonville, Florida area has reduced prices by as much as $15,000 but is still having trouble selling new houses. Florida still has 60,000 to 70,000 unsold condominiums, but they appear to be starting to sell because of the greater availability of permanent financing. Apparently, the high-priced condos are still not selling, however. Anticipations of lower interest rates and prices were also reported as deterrents to sales. Nevertheless, house sales in South Dade County (Miami) have picked up in the past two months.
The Gulf Coast area is booming from oil exploration. This industry is one of the few still experiencing shortages. A lack of skilled labor and materials has slowed activity. They are begging for welders. Steel pipe and pumps are still in short supply and delivery time remains long. Construction is under way on an oil refinery in the New Orleans area. A company representative reports that anything of sophisticated fabrication is hard to obtain, and there is no fixed price on this type of equipment. The largest strip-mining operation in Tennessee is expected to spend $10 million in new equipment on new coal fields.
The sales and inventory picture remains mixed in the District. It would appear that most retailers are still experiencing slow sales and high inventories. Only auto dealers, as reported last month, have made much progress in reducing inventories. The home appliance business has been particularly weak. One South Florida retailer indicates that inventories are heavy at both the manufacturing and the retail levels. Manufacturers are just beginning to make some selective price reductions. He notes that his credit business had doubled from 30 percent to 70 percent of total sales. He expects that this large portion of credit sales will cause problems in coming months. A large department store representative reports that apparel sales are now doing well but that appliances are not selling. The consumer is buying either the very deluxe or the most economical appliances; he has gotten away from the intermediate market, where inventories are heaviest. Furniture manufacturers have tremendous inventory overhangs and are now taking losses to move their goods. Reflecting these depressed sales and high inventories, plant closings and layoffs continue by textile, apparel, appliance, and furniture manufacturers. Paper and lumber mills are still operating at low levels; many remain closed.
An area of growing weakness is capital spending, where new reports of delays and cancellations of previously announced projects have been received. Plans for a large $100 million chemical plant for the Mobile, Alabama, area have been suspended until market conditions improve. Dupont will delay construction of a $125 million plant in Mississippi until business in the paint, paper, and textile industries picks up. The huge Tenneco-Westinghouse project to build floating nuclear power plants near Jacksonville, Florida, received an additional jolt. First, Tenneco pulled out of the project; then the New Jersey Electric Company, the only customer for four plants, asked for a five-year delay. Westinghouse has laid off workers and is now just hanging on, with its future uncertain.
The recession is apparently beginning to hit the steel industry; foreign steel is now cheaper than United States steel. One businessman indicated that he is now getting promises of steel deliveries in three months rather than the eighteen-month period needed only a short time ago when manufacturers were building up inventories. He indicated that multiple orders will soon be canceled, which will reduce steel order backlogs.