Beige Book Report: Atlanta
December 10, 1980
Weakness in housing and auto sales has darkened an otherwise strengthening economic picture in the District. Retail sales were up in real terms, factory payrolls advanced notably, and nonfarm employment accelerated. Rapidly rising interest rates, however, have about shut down housing starts, and auto dealers express concern over slumping sales.
Consumer Spending and Inventories
Stores were crowded with
customers, and parking lots were overflowing in retail shopping
malls and stores after Thanksgiving. Business volume exceeded
expectations of many merchants in the District as gross sales were
up over the previous year, even allowing for inflation. The customer
is not giving much consideration to prime rate advances or other
financial news, although one report indicates reduced credit sales.
Retailers in central Florida and eastern Tennessee attribute the
strong sales to heavy promotions. Special buys are also helping to
lure potential customers.
This year's Christmas buying season is a full week shorter than last year, although many merchants began Christmas advertising before Thanksgiving. The shortened period may hurt impulse buying. A southern Mississippi merchant notes selective buying of practical items. High- priced quality merchandise, such as televisions and stereos, is selling well. A major department store's strongest sales were in furs, jewelry, high-quality apparel, and items with a western touch. Specialty store proprietors report good sales of investment-priced items. People want something that will last. Retailers catering to the luxury market and discounters selling top-quality goods seem to be doing better than mass merchandisers and low-end discounters, whose customers are the hardest hit by inflation. Retailers report inventory stockpiles up as much as 10 percent over the same period last year in anticipation of a heavier-than-usual post-Thanksgiving Christmas crunch.
Auto dealers are encountering difficulties as high interest rates and buyer resistance to price increases draw down sales. One dealer reports that the only small cars available from the manufacturer are loaded with expensive options. Many prospective buyers are failing to qualify for loans under current interest rates. Dealers expect conditions to persist through December but are optimistic about 1981.
Financial and Construction
High construction and financing costs
are putting home builders in a bind. New housing starts are down
notably throughout the District. The homes that are being built are
scaled down and lots are smaller. Interest rates on home loans are
pushing 15 percent. The current slowdown is affecting not only
detached homes but also condominiums. Condominium conversions have
slowed in Florida where many construction projects have been
deferred or canceled because of high interest rates. Pre-existing
home sales have also slowed there. There are very few large projects
on the drawing boards of commercial contractors due to the high cost
and limited availability of funds; plus, most lenders are now
requiring an equity position. Corporate long-term borrowing in the
form of tax-free industrial revenue bonds indexed to the prime rate
is becoming more prevalent.
Employment and Industry
At least through October, the high interest
rates have not adversely affected employment. Gains in manufacturing
employment were widespread, but levels were still well below those
of last year. Worker recalls lifted primary metals employment, and
the machinery and paper industries registered strong increases.
Services and trade also showed solid employment advances. Rising
factory employment and a boost in hourly earnings have caused
considerable increases in manufacturing payrolls.
We have received mixed reports about the tourist industry at this time. The recession in other parts of the country is being reflected in central Florida as attendance at major attractions there was off 25 percent from last November. In south Florida, however, bookings at a luxury hotel are 30 percent ahead of last year, perhaps indicating the affluence of the international visitors in that area. October was characterized as the biggest month ever for tourists in New Orleans.
Agriculture
Farm income prospects dimmed further. Prices received
by farmers declined in mid-November for the second consecutive
month. A downturn in prices for meat, citrus crops, and cotton was
partially offset by higher prices for grains, eggs, peanuts,
tobacco, and vegetables. Falling livestock prices and high feed
costs influenced farmers to reduce their breeding stock. Outstanding
farm loans at District banks continued well above year-ago levels
during October, suggesting a slowdown in rates of repayment.