Beige Book Report: Atlanta
June 14, 1978
Current activity levels are quite high, but rapid inflation and tighter money have intensified the uncertainties in the outlook. The only bottlenecks that appear serious are truck and rail transport, although minor shortages of a variety of construction materials are widespread. Consumer response to the new CDs has been slight thus far; financial institutions have accepted them with some reservations. Heavy sales of automobiles and other hard goods have buoyed retail spending to a probably unsustainable pace. Housing demand and actual construction are still booming, but inhibiting factors have begun to emerge. Many directors attribute some of the recent strength in consumer buying to inflationary expectations, but cautious control of inventories has held anticipatory buying to a minimum in the business sector.
Most of the District banks and savings and loan associations are offering both the new six-month and the eight-year certificates. S&Ls have been most aggressive in advertising the deposits, particularly in major cities. Some banks and thrifts, mainly in rural locations or small cities, will offer them only on request; several have taken a wait-and-see attitude and are holding off on the short maturity certificate. Thus far, issuance has been rather slow. By and large, banks and S&Ls do not expect the new instruments to attract a substantial volume of new funds but add that they should help retain deposits, and a few think they will get good volume in one or the other eventually. Although a significant shift of funds between the types of institutions is not anticipated, deposit structures may be noticeably affected. The consensus is that the bulk of money will come out of existing time and savings accounts, thus raising the cost of funds.
The majority of our 35 branch directors and Atlanta area business analysts found only minor shortages, if any, in their areas. Inadequate supplies of various construction materials were widely mentioned but never described as serious; lists included insulation, roofing, plywood, cement, other lumber products, nails, gypsum products, some steel products, and asphalt products (in order of frequency of mention). A continuing shortage of paper for web offset printing presses was described as critical by two sources; directors close to Louisiana's oil industry cite shortages of drilling rigs and drill pipes. Two directors volunteered forecasts of shortages: in unleaded gasoline and mid-sized autos by summer's end and in large steel castings and in lower grade steel used in nails and reinforcing rods by year-end. The most serious supply problems at the moment are bottlenecks in both truck and rail transportation. Because past weather problems have caused an unusual coincidence of crop maturity in different areas, fruit and vegetable growers are having great difficulty moving perishables to market through the strained trucking system. With an abnormally large number of cars and locomotives under repair and seasonal grain traffic, rail freight bottlenecks have delayed shipments of phosphate and building supplies, especially.
Consumer purchases continued brisk through May, with most areas reporting year-over-year sales gains well in excess of price increases. Hard goods sales have shown the most rapid advances. A large grocery chain has seen its beef sales fall 15 percent in the past two weeks in the wake of rising prices. Retail stocks are generally heavier than desired, reflecting overly optimistic buying rather than slower sales. Auto sales have been very strong; the combined daily sales rate of four regional distributors of domestics climbed to 24 percent over the year-earlier pace in May; one set an all-time record, and two posted records for the month of May. Large, luxury models have been selling extremely well. The used car, truck, and import markets remain vigorous.
Home loan demand and construction activity continue to boom, although mortgage rates are rapidly approaching 10 percent and high financing costs appear to have squeezed some projects off the drawing boards. In northern and central Florida, several S&Ls have suspended new mortgage lending. Demand for office and commercial space in Atlanta has improved dramatically and encouraged a return to speculation.
Our survey of directors on the CD and shortage situations also included questions on inflationary expectations and anticipatory buying. Many suspected that buying to beat price increases accounts for a portion of recent strong advances in consumer spending, especially for homes and automobiles. A few gave examples of similar behavior in the business sector—in ordering of capital equipment (cranes, lathes, and milling machinery), purchases of construction materials (although the short supplies may be as responsible as inflation), and real estate decisions. However, uncertainties in the outlook have induced most businesses, and manufacturers in particular, to keep a tight rein on purchases. Apparently, the fear of getting caught with excessive stocks has precluded stockpiling of goods for the purpose of cost control, although some businesses are accumulating stocks to support especially brisk demand where supply conditions permit. Cost increases are the motivation for most mark-ups, the directors believe, but there are indications that recent price hikes have included a margin for anticipated inflation. Virtually none of our directors found evidence that the possibility of price controls has been the major consideration in pricing.
A wide variety of special cut-rate air fares, usually representing a 35- to 40-percent discount, has boosted southeastern passenger traffic and benefited Miami in particular. The airlines have done substantial hiring for reservations offices. When asked how long he thought the low rates would be offered, a major airline business analyst replied that the carrier had already begun to feel the effects of the revenue dilution.