Beige Book Report: Atlanta
February 21, 1978
Even the Sixth District felt some ill effects of recent severe weather. Low temperatures added to the strain on already questionable supplies of coal. Construction activity was interrupted and retail sales were slowed in some areas, but strength in unaffected areas and earlier last month gave the District a satisfactory January record in both respects. Damage to winter crops was minimal. Thrift institutions have taken steps to compensate for smaller deposit inflows and generally feel capable of meeting continued heavy demand for home loans. But recent mortgage rate increases have been met with a flurry rather than a flight of home buyers. Foreign capital has become increasingly significant in the District's commercial and industrial development and more frequently discussed.
Savings and loan associations, faced with mild to moderate reductions in savings inflows and the smallest paydowns in many years, generally believe they will be able to meet expected strong demand for home mortgages. Campaigns to promote savings are under way; more associations are offering ceiling rates on certificates, advertising, and giving premiums. The Atlanta Home Loan Bank president feels that the good earnings and liquidity positions of southeastern associations will allow them to pay higher rates and still meet housing demands; however, mortgage rate hikes have been common in the past six weeks. The going conventional rates are 9 percent f or 80 percent loans and 9 1/4 to 9 1/2 percent with 10 percent down payments, up from 8 1/2-8 3/4 percent a month earlier; closing costs have moved up about half a point as well. The currently prevailing rates in Florida are slightly lower, but some cities report top-of-range rates and a number of associations have announced increases to take effect on March 1.
Announcements of coming increases in mortgage interest rates have brought home buyers out of the woodwork, according to a director from South Florida. Yet in Atlanta, where higher rates are already in effect, buyers are coming out in force to head off possible further hikes. Indeed, the only sign of slackening of surging housing demand has been a leveling of single-family home construction in a few areas of Florida where lots have grown scarce and some recent building has been speculative. There, and in other parts of that state, condominium starts and sales have been quite brisk, stimulated by negligible apartment vacancy rates and high rents. Poor weather nationwide has induced a spurt in preretirement home buying and in requests for rental housing in southeast Florida.
With no end to the United Mine Workers' strike in sight, coal supplies have become strained in some areas. Mining operations have virtually halted in Alabama, where 12,000 miners are off the job, although only 70 percent are union members. Severe weather has hindered nonunion production in northeast Tennessee, putting further pressure on prices that are already $l0-$l5 per ton above usual. Electric utilities and major industrial users, most of whom are relatively comfortable with 30-60 day supplies, fear that delivery start-up will not be timely unless settlement and ratification come quickly. Although the TVA has systemwide supplies of about two months, reserves at five of its twelve coal-burning plants are down to three weeks or less; power supplies have been curtailed in at least one rural area of Tennessee. Deliveries to TVA are running about 20 percent of normal; a spokesman says that shifting of coal between plants is not practical. U. S. Steel in Birmingham has undertaken conservation efforts; a coal "loan" from the Redstone Arsenal was required to keep Huntsville area schools open. On the other hand, Mississippi Power carries a 150-day supply, and one TVA plant is flush with reserves adequate for 250 operating days. A director in the coal industry expects that negotiated wage increases and higher severance taxes and related costs will add at least 25 percent to the price of coal.
Icy roads and extreme cold put a damper on consumer spending in the northern portions of the District; consequently, month-end retail stocks weren't as light as expected. However, a fairly strong sales pace continued in areas that were least affected by the cold, and heavy early January buying kept monthly sales estimates even with January 1976 or better in the worst afflicted locations. Auto sales were generally slow but picking up in late January.
Damage to citrus crops from two freezes was mainly limited to specialty fruits and should have little or no impact on the availability of orange concentrate. Fresh orange shipments are running about one million boxes behind last year this season. The late start and projected high returns for processed fruit have been restraints, but the primary reason has been sky-high prices: FOB prices have risen 60 percent over the year, and on-tree prices have quadrupled. Cotton prices continued the uptrend which began in early December, despite the release of reports of heavier-than-expected 1977 production and planting intentions for 1978 and of declines in mill consumption and advance sales for export. A director attributes the price strength to the depressed exchange value of the dollar. He also expects near-record marketings (and thus some price weakness) of fed cattle in the next three months. In Louisiana, the trickle of sugar mill closings continues and threatens to grow; producers say they want out of raw sugar. Processing operations, however, are expanding. As regards the farm strike, some 200 Georgia farmers have promised to withhold 50 percent of their land from production this year; they claim that their counterparts have promised to set aside at least 25 million acres nationwide.
Foreign investment, actual and suspected, has become a hot topic of discussion among southeastern businessmen. A regional real estate firm headquartered in Atlanta described foreign investment in income-producing properties as heavy and primarily from European interests. A director notes that foreign investors bought two-thirds of the shopping centers, one-third of the office buildings, and one- fifth of the large apartment buildings sold in Florida's Dade and Broward Counties last year. There are 55 foreign-owned projects currently under construction or planned in that state, compared to 4 at this time last year. The list includes Siemens-Allis Chalmers' huge electric generator plant recently announced for the Bradenton area. Miami banks have been hard pressed to put to work their recent strong inflows of South American capital. However, business analysts in Georgia indicate that foreign investment in farmland has been insubstantial, despite rumors to the contrary.
Inventory accumulation appears to be accelerating modestly after slowing through year-end. A Georgia survey of purchasing agents indicates that stocks, both current and expected in the near term, are rising, particularly of finished goods. Deliveries are slowing, lead times lengthening. Goods in short supply in the District include a number of building materials, paper for web offset presses, and oil-drilling rigs.