Beige Book Report: Atlanta
October 13, 1976
Deceleration occurred in the stronger sectors of the Southeast's economy, but the lost momentum is considered temporary. The outlook for moderate prices of lumber and wood products has become more favorable. However, curtailment of natural gas supplies and increased rates for natural gas and electricity are creating upward price pressures. Retail sales, with the exception of new automobiles, flattened in August and September. Tourist traffic, although still strong in some areas, has also been disappointing. Offsetting these weaknesses, some improvement has occurred in portions of the construction and real estate sector. Diverse indicators of general business conditions, on balance, suggest an uptrend in economic activity.
Several developments affecting the outlook for prices have been reported by directors. Demand for lumber has decreased by more than normal for the season and prices have declined. Concern has been expressed in previous reports about the effect on prices of lumber and wood products of legislation restricting clear-cutting in national forests. Prospects now appear good that Congress will produce "an acceptable piece of legislation."
Several energy-related developments also have potential price effects. Electrical utilities are pressing for sizable rate increases. The recent action by the Federal Power Commission raising the wellhead price for natural gas takes effect in Tennessee during late October. Customer rates will increase from 17 to 21 percent. Nevertheless, curtailments of gas supplies to industrial users are expected to amount to 24 percent of requirements. These curtailments will necessitate substitution of alternative fuels such as propane and liquefied natural gas which are much more expensive and more hazardous to handle. Furthermore, delivery problems resulting from limited railway tank car and barge capacity may complicate the problem of obtaining adequate, reliable supplies. Finally, the Tennessee Valley Authority is investigating new methods of burning high-sulfur coal in steam-powered generating plants. This research may permit Tennessee to rely more heavily on coal deposits located within the state.
At the retail level, department stores are expected to emphasize seasonal promotions during October in an effort to boost lagging sales increases; price concessions are anticipated. Sales of new car models are proceeding without any evidence of resistance to the higher prices.
Within the construction and real estate sector, some further brightening is occurring in Southeastern condominium markets. Several reports have been received that unfinished, apparently abandoned projects have been revived, completed, and placed on the market. In the Atlanta area, units in such projects have been sold at public auction. Some unsold projects are being rented. But, despite the declining overhang of unsold units, the condominium market remains soft in Florida, Tennessee, and the Atlanta area.
"No-frills" housing is being constructed in parts of the District. In west Florida, substantial numbers of standardized, inexpensive units have been built. This approach has also been followed in Alabama but has not been well received. Apartment construction is becoming increasingly attractive in several areas. Occupancy rates are rising in parts of Alabama and Tennessee. New construction is beginning or is receiving serious consideration. But, in central Florida, the only effect of increased occupancy has been to end a price war.
Renewed interest has also developed in warehouse and shopping center construction. A permit for foundation work has been issued in Mississippi for a large regional shopping mall; plans for additional commercial construction projects have been submitted for approval in several Alabama cities. Government construction remains a strong point, with a new state capitol building under construction in Florida, and planning is under way for a new convention center and hotel complex in Orlando, Florida. In Louisiana, the Red River Navigation Project is receiving annual funding of about $100 million.
Unfortunately, the improved outlook in real estate and construction is offset by some weaknesses in retail sales and tourism. Although sales of new automobile models appear to be consistently strong, according to initial reports, general merchandise retailers indicate that sales flattened or became sluggish in September. However, according to most reports, retailers retain highly positive expectations for the upcoming holiday season. Inventories appear to be well in line. However, many retailers are stressing seasonal promotions in an effort to stimulate sales.
In view of these mixed results, a report from a Florida boat manufacturer is informative. A 25 percent increase in sales volume compared to last year is attributed to higher unit cost as much as to higher unit volume. Larger and higher quality units are being purchased, while less expensive units are difficult to sell. This observation is consistent with recent findings of a disparity in consumer confidence between higher income consumers and low- to moderate-income individuals.
Tourist activity presents a varied impression. A south Florida director feels that Miami is increasingly by-passed by tourists in favor of central Florida and the Caribbean. Occupancy rates in Miami are down. Some softness is also apparent in central Florida, although certain attractions continue to record gains. Northeastern Florida tourism has turned up again after a period of declines. Tourist traffic is at record levels in Tennessee, both at Opryland and in the Great Smoky Mountain National Park.
Finally, an array of indicators of general business conditions appeared in this month's directors' reports. In Alabama, sales of energy-saving building products such as double-paned windows have risen. In addition, engine and stand-by generator sales are strong, reflecting increases in public construction projects such as hospitals. Mining equipment sales are also good. However, declining sales of lift trucks are interpreted as a reflection of a general slowing of the economy as a consequence of their widespread usage. Cargo transported into Florida by trucks has risen 21 percent, year to date, reaching its highest point since late 1973. Truck leasing and rental, after a steady 20-month decline, have risen rapidly in the last 60 days. The reversal is regarded as evidence that consumption is increasing, necessitating increased shipments to maintain a steady flow of goods. Increased truck usage by firms engaged in building trades, redistribution of wholesale hard goods, and fertilizer and chemicals is noted. Increasing TVA power sales to industry, following a lengthy decline, indicate increasing industrial activity in Tennessee.