November 10, 1981
Economic activity appears to have slowed in the Sixth District in October. Retailers' sales have weakened. The outlook for housing remains depressed, and foreclosures of builders and real estate firms have become more common. Industrial expansion continues for the District's high technology companies while other industries have registered little growth or are cutting back operations. Inventories are being kept quite lean. Bank lending has been anemic, businessmen seem wary of the volatile interest rate situation. Yield prospects for the District's late-growing crops have been further reduced due to continued dry weather.
Consumer Spending and Inventories
Retail activity remains sluggish.
Sales, for the most part, exceed last year's levels, but inflation
has negated any real growth. A favorable trend that has persisted in
the retail sector has been the apparent maintenance of a low level
of credit delinquencies. Most merchants contacted are also
experiencing a decrease in credit card sales. Retailers are stocking
cautiously although we do hear some optimism about the approaching
Christmas season. Some merchants, however, express fear that early
shoppers will clean the shelves and reorders could be slow on
delivery.
Apparently, the incentive programs offered by the auto dealers have lost their effectiveness. New car sales have been extremely slow throughout the District. Most dealers were not optimistic about near-term prospects.
Financial and Construction
The outlook for housing is bleak. Many
builders do not expect substantial improvements over the next 8-10
months. High mortgage interest rates continue to stifle the housing
industry and builder foreclosing has become common. The public
auction of the entire 85-house $7 million inventory of Atlanta's
seventh largest builder is just one case in point. The seven-year-
old firm, which had 1980 sales of $14 million, had built a total of
900 houses originally priced from $60,000 to $115,000. The president
of the company said that "our situation became critical in August
when a large number of buyers who had contracted to purchase homes
already under construction could no longer qualify for mortgages or
backed out of deals as interest rates climbed." Mortgage loans
closed in Atlanta in September were down 82 percent from the year
earlier figure. Moreover, in Atlanta, the apartment market is
softening. Offers of $200 rebates, free microwave ovens, and 1978
rent levels are being promoted to shore up rising vacancies.
Severe financial stress in the thrift industry persists. Growth of the small savers certificates has been rapid and there is evidence that the all savers certificate is lowering the cost of funds to the thrifts. Nevertheless, savings and loans have continued to borrow extensively from the Federal Home Loan Bank. The latest information from the Fourth Federal Home Loan Bank of Atlanta shows that advances to Georgia savings and loan associations were up 30 percent in September from September of last year.
Business loan demand has remained low in most of the District. Some bankers attribute softness in loan demand to cut-rate loans offered by auto companies. Businessmen are skeptical of the recent drop in short-term interest rates. The high costs of carrying inventories has caused most businesses to keep their inventory levels at an absolute minimum.
Employment and Industry
The building materials industry continues
at a low ebb. A cement plant in Tennessee has closed part of its
production line and has reduced its labor force due to slack product
demand. In north Florida, lumber mills are closing due to lack of
volume. A brick plant reports a very unprofitable year so far.
Building supply firms also report slow sales. September, October,
and November are usually good months for building and supply
companies-a period when contractors normally would be starting
houses, hoping to have their crews under a roof before bad weather
sets in. The lumber and wood industry has been particularly hard hit
in Alabama. Average weekly hours in the sector have fallen to only
36.3 in September from 41.7 at the same time last year. In
Mississippi, where the lumber and wood industry is the state's third
largest manufacturing employer, hours worked in the sector have also
fallen sharply.
The employment outlook for the Atlanta area is mixed at this time. Our survey of 14 of metropolitan Atlanta's largest employers gives some insight into recent economic conditions and prospects for the immediate future. It appears that the heavy durable goods industries (automobile assembly, cable manufacturing, aircraft manufacturing) have limited hiring plans at best for the near term. The service industries contacted report no hiring plans at the present time. In contrast, the high technology and communications industries are growing at a rapid pace. A manufacturer of satellite earth stations and communications equipment has added 1,200 employees in the past 12 months and is still hiring. A manufacturer of word processing equipment has also had dramatic employment gains recently.
The tourism industry is beginning to show signs of improvement following the usual post-Labor Day slowdown. Opryland in Nashville expects to equal or come close to its 1978 attendance, which was a banner year; hotel occupancies are up four percent from last year. Hotels and motels throughout Florida are receiving advance bookings for the winter season. Airlines also report heavy bookings. Because of the forced cutback of flights due to the air traffic controllers' strike, airlines are fully utilizing wide-body equipment to assure more seats in the Florida market than last year. In south west Florida, less expensive family hotels are full while large, expensive hotels have some vacancies-reflecting the fact that visitors to that part of the state are vacationing on a more modest budget.
Agriculture
Continued unusually dry weather has further reduced
yield prospects for the District's late-growing crops. Reduced
production combined with October's additional price declines for
important crops indicate continued shrinkage in 1981's farm cash
receipts and growing financial problems for farmers. Over 50 percent
of the outstanding farm loan volume of the Farmers Home
Administration in Georgia is currently in a state of delinquency.
Prospects seem brightest for the region's citrus producers.
Production is down less than was earlier expected and prices to
growers are anticipated to be substantially higher than a year ago.