Beige Book Report: Atlanta
November 14, 1979
A serious downturn in the District economy has not occurred, but weaknesses are becoming increasingly evident. Generally, retail sales have remained steady; however, auto sales declined. In many areas, new home construction decelerated abruptly. Presently, commercial building is propping up the construction industry, but record interest rates will likely have a severe dampening effect on future projects. Across the board, inventories are expected to remain low because of nearly prohibitive financing charges. Delinquencies on consumer credit are rising, but unemployment remains relatively low.
Retail sales gains were moderate, but retailers are becoming less optimistic about future prospects. Retailers at a major mid- Tennessee shopping mall report that sales are not meeting expectations. In south Alabama, most soft goods merchants report very slow sales, while a major Birmingham retailer indicates extremely strong sales in the first half but weak sales in the second half of October. Comments from Florida were still upbeat; however, two south Florida directors see signs of sluggishness. As with automobiles, the pleasure boat business has turned sharply downward because of abruptly increased financing costs. Also, high financing costs for retailers' inventories will keep these inventories to a minimum. Many contacts report that consumers are becoming very price and quality conscious and that credit buying is being curbed. Consumer credit delinquencies continue to increase at many banks.
With the expiration of Chrysler's initial rebate program and the jump in auto loan rates in October, auto sales turned down. Increasingly strict credit requirements by lenders for auto loans are further dampening sales. Dealers are keeping inventories to a minimum because of drastically increased floor plan expenses.
The two GM plants in the Atlanta area, which heretofore have not experienced large-scale, indefinite layoffs, recently announced that the entire Doraville night shift of 2,200 workers and the truck assembly line of 650 employees at Lakewood will be laid off near the end of November.
Declines in residential construction are prevalent throughout the District except in Florida, which so far has experienced unchanging resiliency. Comments from northeast and central Florida indicate continued buoyancy. Housing starts in Nashville and Knoxville are down sharply. In northern Alabama, one contact reports that very few starts are expected for the rest of 1979, while another says new construction activity is at a "virtual standstill." Residential mortgage funds in most of the District are becoming scarce. Nonetheless, some S&L's report adequate funds, together with drastically reduced demand and a dearth of qualified applicants.
Commercial and industrial construction continues to prop up local economies throughout the District. However, contacts caution that ongoing projects were funded long ago. Present commercial construction levels are providing relief for some building materials suppliers who would otherwise be faced with declining orders resulting from a drop-off in residential construction. Record interest rates and decreased availability of funds do not augur well for a continuation of healthy nonresidential construction activity. Additionally, a northern Alabama contact reports that new orders at architectural firms, the initial step of a construction project, have slowed markedly.
The sharp spurt in interest rates has had pervasive repercussions. The sophistication of savers is evidenced by a noticeable flow of funds from banks to higher-yielding money market instruments. For most District banks, loan demand is down, and an increasingly cautious attitude is being taken regarding borrowers and liquidity. One commercial banker reports he is making loans to preferred customers in the interest of goodwill. An Atlanta credit union has stopped loans entirely for furniture, appliances, and furnishings. It is their intent to seriously curtail all lending activities, but they have not forbidden all loans because of a concern for customer relations. In Tennessee, it is reported that large institutional investors, such as Prudential and Metropolitan Life, have taken their money out of the long-term market and placed it in short-term commitments.
District-wide, employment remains firm. Unemployment is expected to nudge steadily upward in coming months. However, contacts from localities with a diversified, service-oriented economic base repeatedly express confidence regarding the ability of their area to perform better than the nation in the event of adverse economic developments. Atlanta, New Orleans, Nashville, and most metropolitan areas of Florida are the most noteworthy examples.
The Tennessee Valley Authority plans to construct a coal gasification complex valued in excess of one billion dollars in eastern Tennessee or northern Alabama. This facility is projected to supply one-third of the TVA region's energy needs by the mid-1980s, and will be the world's second largest coal-gas plant. The diversified paper products firm, Kimberly-Clark, which recently divulged plans to construct a division headquarters and research facilities near Atlanta, announced an initial construction commitment of $300 million for a manufacturing plant and distribution center in the Augusta area. This commitment is the largest ever in Georgia. In another forest-industry development, the United Furniture Workers of America made public a plan to relocate its headquarters from New York City to Nashville. The movement of most of the furniture industry to the South and lack of unionization of southern furniture workers are the primary reasons.
Sharply higher feed costs and very low market prices for broilers and hogs are significantly widening loss margins for most producers. These losses are causing hog farmers to cut back planned production, and the number of eggs incubated for broiler chick placements has declined dramatically. Soybean yields are up this season. Prices have dropped from early summer levels, but compare favorably with prior harvests.