Beige Book Report: Atlanta
September 30, 1981
High interest rates continue to undermine seriously the financial stability for a number of Sixth District businesses. The home building sector remains depressed and the forest products industry is on the brink of a major phase-down. Economic problems have caused an acceleration in savings and loan mergers. Positive developments are spotty, with an uptick in retail sales and expansion in the high-technology industries notable bright spots.
Consumer Spending and Inventories
Retail sales have strengthened
recently compared with last year. Gains appear to be spread
uniformly along product lines. Back-to-school sales were
particularly healthy. Perhaps characteristic of the consumer's mood
was the observation of one retailer that video tape recorders
(clearly a luxury item) were his hottest sellers. He thinks that,
since housing and auto sales have been stalled by high interest
rates, more consumer dollars are being spent on retail items.
Inventories were reported as being under control, but "profits have
been cut back due to high carrying costs," according to several
merchants. Credit card use has picked up. Retailers contacted were
generally optimistic-expecting strong sales through December.
Auto dealers say that promotions offering below market financing rates have stimulated new domestic car sales somewhat. Nonparticipating agencies reported declines in sales. All dealers contacted expressed a belief that conditions were unlikely to improve over the next three to six months.
Financial and Construction
Home buying and building have been
reduced to a trickle by high mortgage interest rates. A spokesman
for one of Atlanta's largest savings and loans characterized
construction lending as "substantially terminated." At this time of
year, builders are usually restocking their inventory before winter,
he added. The only people still buying homes are those who don't
have a choice such as transferees. Homes that are being sold require
some type of owner financing and/or second mortgage arrangement. In
northern Alabama, banks report a large overhang of unsold houses
which were financed by construction loans to builders.
One response to the high cost of funds and weak loan demand has been an increase in savings and loan mergers in the District as across the country. In Georgia, a Gainesville savings and loan and one in Savannah formed a holding company that plans to expand statewide. One of Georgia's largest associations also plans to merge with three others in the state to reach combined assets approaching $1.4 billion. A Miami-based association will combine with one in New York and California to form the largest savings and loan association in the nation. In an attempt to maintain their loan volume, some District financial institutions are seeking loans outside their immediate lending area.
Brisk activity in office and industrial construction continues throughout most of the District; however, softness in the rental market for office space is anticipated in a number of areas as buildings that were just starting up when interest rates began to soar reach completion. This softness is expected to be only temporary.
Employment and Industry
The home building dilemma has seriously
affected the forest products industry. Due to lack of demand for
lumber and plywood, mills are on the brink of a major phase-down.
Large companies have all the inventory they can handle and small
companies cannot afford to borrow at high interest rates to stay in
operation. Significant layoffs have occurred as a result of mill
closings and curtailments of operations. Mills in the District are
concentrated in Georgia, Alabama, and Mississippi. Building supply
outlet sales to residential builders have declined noticeably, a
reflection of the decreased building activity. There seems little
hope for a quick turnaround, since there is always less demand for
building materials during the fall and winter.
Tourism traffic in Florida appears to have fallen far short of expectations. The southwest region of the state had its slowest season in ten years, off almost 25 percent from last year. At the Port of Miami, cancellations of cruise reservations are growing and attendance at major central Florida attractions has been down significantly from year-ago figures. Business lenders hope that the recently completed $300 million futuristic Orlando Airport will help boost the central Florida tourist industry.
On a brighter note, clusters of high-technology companies are emerging in the District. Expansion has been rapid in southern Florida with its economic ties to the Kennedy Space Center and at Huntsville, Alabama, site of the National Aeronautics and Space Administration's Marshall Space Flight Center. Technology Park in Atlanta has attracted more than 40 high-tech firms to the area.
Atlanta-area employers predict an improved employment outlook for the next three months, according to a recent survey by a temporary help firm. Openings are expected mostly in the service industries.
Agriculture
Crop production prospects are much improved from 1980's
level because farmers planted more acres of most crops and 1981's
weather has been a good deal more favorable. Projected yields for
most crops are up one-fifth or more from 1980's level; however,
lingering dry weather in some areas has prevented a return to
normal. Cattle producers are somewhat encouraged by the prospective
abundance of feed crops, but calf prices remain 22 percent below the
year-ago level. The poultry industry has also suffered with lower
prices and high production costs. A strong dollar overseas has
curtailed egg exports.
Quick action in Florida on the Medfly problem now appears to have averted damage to the state's crops.