Beige Book Report: Atlanta
April 12, 1978
The District economy has bloomed with the warmer weather. Florida tourism was extremely good through the spring holidays. Finance companies have reopened in Tennessee. Consumers spent freely in March, but retailers are reserving judgment on spring sales for the time being; auto sales have continued to improve. There's no letup in sight for oil and gas exploration. Housing reports have frequently mentioned extensive home improvement activity. The outlook for nonresidential construction has brightened, but uncertainties about energy supplies and prices temper optimism. Higher prices for farm products have boosted farm incomes. Businessmen are universally concerned about inflation.
All parts of Florida enjoyed an excellent holiday tourist business, with hotel and motel occupancy rates near or at 100 percent. Tampa noted the best season since 1973; visitors to northwest Florida set a record; Eastern Airlines' passenger arrivals and departures at Melbourne Regional Airport surpassed previous highs by a sizable margin. Disney World closed its gates early on several days when attendance reached capacity. In southeast Florida, car rentals, restaurant business, and race track attendance passed Easter 1977 levels by nearly 20 percent.
When the removal of Tennessee's constitutional usury ceiling took effect on April 1, finance companies reopened to face a flood of credit applications. They're now loaning at 18-27 percent. The state's banks seemed relieved to get out of the small loan business, and several set minimums of $1,000. It's generally expected that the banks will return to pre-August consumer lending practices, although some hope to maintain the stricter standards for small borrowers that developed in the seven-month credit slowdown. Many lenders want to resume charging interest rates in excess of 10 percent on loans made prior to the court ruling that declared them unconstitutional; the State Securities Director has said no, but the State Department of Banking will rule on the issue shortly.
Retail sales have apparently been fairly brisk in most areas. But since the early Easter stimulated March sales, many retailers are waiting for April sales figures before they judge the strength of spring spending. Car sales have revived quickly in the past few weeks; modest to moderate gains from the strong year-earlier pace are indicated. A few dealers, mainly in Florida, have complained that low stocks have restrained sales all through the first quarter, but current District-wide inventories appear to be at normal levels. Some expect a shortage of large models by early summer; GM dealers hope that their "big season" (May and June) will help make up for the styling resistance they've encountered thus far in the model year. Used car markets remain active; the reopening of finance companies in Tennessee has spurred these sales to a pitch that one director characterized as "wild." Sales of trucks, both small and large, are heavy.
The onshore drilling boom continues in Louisiana. Rig activity in the first quarter was the heaviest since 1957; completions and workovers were actually stronger than drilling. Only the rig supply is likely to limit activity this year. Offshore in the Gulf, drilling has been intense but probably won't reach boom proportions for a year or so, depending on wellhead prices of natural gas. Pipe- laying and construction are surprisingly active. The turnout for the recent sale of Atlantic Coast leases was small, as expected; $151 million was bid for 57 of the 224 sites offered.
Home builders remain optimistic that 1978 construction will surpass the 1977 pace. The outlook for single-family homes is good, but apartments and condominiums are expected to be the growth sectors in metropolitan areas. Climbing prices have prompted some builders to begin omitting frills on new homes in the Miami area. Several directors from throughout the District commented on the strength of repairs, remodeling, and additions to existing homes. Funds for home improvement loans are plentiful and being pushed by banks. Sales of garden supplies, nursery plants, "do-it-yourself" items, and furniture have been reported as heavy, too.
Commercial and industrial construction is expected to take up any slack that may occur in housing in late 1978. In several major cities, office vacancy rates have declined to the point where real estate analysts foresee a revival of building in the near term. In some areas, particularly Alabama, the prospect for utilities construction is rather dim, as the investment required for new facilities is becoming prohibitively huge. The inadequacy of present capacity for large industrial users has already deterred prospective plant relocations in the state. However, the construction of a giant $135-million terminal to receive imported liquefied natural gas off the coast of Georgia will help ensure District supplies of that fuel.
Builders continue to experience shortages of construction materials—cement, insulation, fabrics, sheetrock, and bricks. Deliveries have been extended for pipes, valves, and construction equipment. The only oversupply problem of late has been farm machinery.
A shortage of rainfall has delayed plantings in many areas of the District and provoked forest fires in the timberlands of Mississippi. Beef and soybean prices have shown particular strength. Higher soymeal and corn prices have put upward pressure on feed costs, but fertilizer prices have been falling. Cotton prices turned down in late March when the early responses to new land-diversion provisions indicated that they would be ineffectual in reducing acreage. Florida grapefruit growers recently approved a new tax to raise advertising funds in hopes of shoring up slow demand. In contrast to the decline reported a month ago, orange juice demand appears now to be near normal levels, though prices continue at a record high. South Florida vegetable growers have expressed concern over dumping of Mexican produce.
Georgia-Pacific projects an 8 to 10-percent increase in plywood and lumber prices in 1978 without the erratic movements of last year. A Tennessee director remarked that paper prices are rising so rapidly that mills won't quote prices until orders are received. She blames limited supplies and an advance in demand generated by an uptrend in advertising. Consumers are paying higher spring electric bills, as utilities pass on the costs incurred in providing normal services during the coal strike. Inflation is far and away the greatest worry of the District's business leaders.