Beige Book Report: Atlanta
June 16, 1976
The southeastern economy continues to expand, although the advance remains uneven: Capacity utilization rates are high in most major industries. Yet manufacturers report no unusual shortages or bottlenecks of raw materials, with the exception of natural gas. Consumer spending remains strong in some areas but has weakened in others. Florida's phosphate industry began layoffs; the continuing rubber strike also reduced employment.
Consumer spending in the Southeast has become ambivalent. Autos and trucks are selling well throughout the District, and mobile home sales are strong in some places. Sales of soft goods, however, have leveled off in several areas. This development may reflect a weakening of business activity or simply a growing emphasis by consumers on durable goods purchases.
Florida's phosphate industry has begun layoffs because export demand and domestic fertilizer sales are low. High prices and the Midwest drought have reduced fertilizer applications. Phosphate inventories are at a five-year high. Two companies have laid off 350 workers, while a third has idled 1,000 of 1,300 workers. The ongoing rubber strike has reduced employment in Alabama.
The shortage which primarily concerns southeastern industries is natural gas. There is little worry about the supply of electric power, although in some areas the cost of electricity is uncertain because natural gas curtailment necessitates substitution of more costly fuels. In one area of the District, gas cutoff to customers with interruptible service is expected for 320 days in 1976 compared to 50 days in 1974; there is concern that this makes the locality unattractive to manufacturers seeking plant locations. Many companies report programs for energy conservation and installation of stand-by energy systems, so their major worry is the impact of a gas shortage on costs rather than continuity of production. However, these programs absorb capital which might otherwise be used to enlarge production capacity.
Three automobile assembly plants in the Atlanta area, which manufacture intermediate- and full-size cars as well as light trucks, report production at record levels. Yet, with the obvious exception of tires, no supply problems are reported. A small tiremaker expects the current strike-induced shortage to persist because of the difficulty of replenishing rapidly depleting inventories while meeting new vehicle production requirements, as well as seasonally high replacement demand. Mobile home manufacturers are still operating with significant excess capacity, and no raw material shortages are occurring.
A major steel producer estimates industry operations at 80 to 90 percent of capacity but reports no shortages. Lead times are increasing on flat-rolled steel used in consumer products, and some talk is heard of allocations in late 1976. Steel grades used for capital goods manufacturing and heavy construction are in abundant supply. A large distributor of metal products notes an excess of goods and states that shortages of flat-rolled steel caused by increased automobile output have been relieved by production adjustments. This source foresees no serious stringencies until the capital goods and heavy construction industries resume higher operating levels.
Among companies using metal products, a manufacturer of school buses and a distributor which stocks over 90,000 automobile replacement parts find no unusual supply problems. Other steel users have current shortages of some steel products or are expecting them. Some firms are building inventories in anticipation of shortages and higher prices. In nonferrous metals, shortages are reported for aluminum sheets and aluminum plates used for printing. Large chemical companies are utilizing 90 to 100 percent of capacity; this level is expected to continue. No shortages other than natural gas are reported or expected. Most firms are constructing sizable additions to capacity.
Textile mills are now operating at 85 to 100 percent of capacity, based on three daily work shifts. New capacity for denim production is currently under construction. Prospects for cotton prices have caused some worry in view of crop forecasts and strong foreign demand, but no raw material bottlenecks are reported or foreseen. In apparel, present levels of production vary but are expected to reach full capacity use by year-end. Output is being increased by hiring rather than by plant expansion. The only evidence of shortages is longer lead times for synthetic and spun yarn fabrics. Some reports suggest that retailers' and manufacturers' reluctance to build inventories may result in an influx of last-minute orders for fall goods which will be impossible to fill.
In the carpet industry, unused capacity is abundant and should not be exhausted in 1976. Plant investment is primarily in the form of product line changes and additions to distribution facilities, although one latex manufacturing plant is being built. Transportation is adequate, but truck carrier costs are a major source of price increases. Overcapacity among fiber producers has recently led to some price reductions.
Paper producers' capacity use has risen sharply during the past year and is approaching full utilization; it is expected to remain high. Price increases and some shortages have recently occurred for newsprint; cardboard containers have also been reported in short supply. Some producers regard restriction of timber cutting in national forests as a potential threat to raw material supplies. No reports of pulpwood or chemicals shortages have been received.
Wood products companies present a contrasting picture. A manufacturer of pine and paper chemicals, with capacity usage at 75 percent, finds no raw material problems. But a lumber exporter is experiencing bottlenecks in raw materials and finished goods, which he expects to continue for the remainder of the year despite operating levels well below capacity.