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Beige Book Report: Atlanta

June 23, 1982

Growing evidence suggests the District economy is in a moderate upturn. Employment is edging higher, although some sectors remain weak. Unemployment rates have declined slightly in most areas. Consumer spending is up moderately. However, high long-term interest rates are depressing the housing and housing-related industries as well as the farm sector.

Consumer Spending
Retail sales are reported to be up moderately in the District compared to recent months and this time last year. Soft goods sales continue to outperform hard goods sales. Sales of home entertainment products are also good, while sales of quality goods generally are outperforming lower priced items. Widespread sales promotions and markdowns contributed to the sales gain but also narrowed margins and strained liquidity of financially weak stores. Although many retailers believe that sales erosion has stopped, they are reported to be lowering their sales estimates for the remainder of the year. For example, many clothing retailers expect fall 1982 sales to be flat compared to fall 1981 and are thus now buying cautiously at trade shows in Atlanta and Miami.

Auto sales in May in the District were generally off from May of last year but up from levels of mid-1981 and early 1982. The geographic pattern of sales within the District is consistent with geographic differences in the severity of the recession; Atlanta car sales are strong compared to agriculturally-depressed South Georgia. Full-size cars continue their recent gain of market share at the expense of compact cars; however, the recent increase in the price of gasoline may soon reverse this trend. Auto dealers are fearful that high interest rates will limit future sales levels.

Financial and Construction
The housing industry remains sluggish. Real estate sales and issuance of building permits are basically unchanged since May. Realtors do not expect much improvement for the summer. Realtors and S&Ls report that housing is definitely a buyers' market-price concessions are causing a decline in housing prices in some areas. The much-feared overbuilding of commercial office space may have been exaggerated. In many areas of the District, downtown office space is attracting occupants, but often as a result of the lowering of rents.

Strength in bank lending is reported to be largely distress borrowing related to the recession. Firms are avoiding the long-term credit market because of high interest rates and are using short- term bank credit to finance operating costs. In Florida, some firms are continuing to borrow to relocate businesses to the region. The Mississippi area had little strength in bank loans from any source.

Employment and Industry
There are recent indications that the region is experiencing a moderate upturn in employment. Florida is behaving as usual, with a slowdown beginning six to nine months after the national recession. Employment there is declining and the state's unemployment rate is over 8 percent. Construction remains weak throughout the District, but based on employment figures through April and impressions from those close to the industry in June, construction jobs have improved somewhat. Service-related employment continues to climb, but recent increases have been below trend as recessions elsewhere have slowed the inflow of northerners to Florida. Unlike the private sector, however, government jobs are still declining.

A slight upturn in employment is also evident in slightly lower unemployment rates in the region. Unemployment rates declined in April in five of the six states in the District, with Georgia experiencing the largest decline. Although Alabama's unemployment rate edged up, the increase was marginal when compared to previous months. Florida's jobless rate fell in April despite a decline in employment as labor force growth slowed in response to the reduced inflow of people from outside the state. Florida and Georgia are the only two states in the six-state region with single-digit unemployment rates. These two states, however, comprise a large portion of the area's population and labor force. Thus movement in their rates has an important influence on the region's job picture.

There are signs of a turnaround in the south Louisiana petroleum industry due to higher crude oil prices and the potential for greater demand. Well financed oil drillers and related operations see opportunities to expand as the surplus is consumed. Streamlined regulations regarding offshore drilling have stimulated drilling activity, particularly in the Mobile Bay area.

The textile industry, a major portion of which is based in the Southeast, has been affected by the recession. However, production has bottomed out and a very gradual revival is expected to begin in August after normal July plant closings. Products tied to autos and housing have been doing more poorly than other segments of the industry and are expected to recover more slowly. Personal consumer products are considered most likely to lead the rest of the textile industry out of the recession.

Tourism
Attendance at the World's Fair through June 17 was 3,427,096 compared to the original projection of 2,271,000. After a slow start, May attendance was considerably heavier than expected. Due to physical site limitations, promoters are still sticking with original projections of 11 million total attendance. Still, overall attendance should exceed 11 million. People driving to the World's Fair are taking in other Tennessee attractions as well. Tourists are reportedly arriving in Memphis and Nashville in record numbers. The Fair's so-called "spinoff effects" appear limited to the state. Tourist activity in north Florida is down from the same time last year, and in New Orleans, hotel occupancy rates are lower than usual.

Agriculture
The farm financial picture for the Sixth District remains unfavorable. From a low rate of 26 percent in Tennessee to a high of 60 percent in Georgia as of June 2, delinquencies on farm loans represent a continuing problem. The 40 percent delinquency rate for the District demonstrates the high proportion of FmHA farm borrowers who are in economic difficulty. Completed and pending foreclosures, nevertheless, comprise less than 2 percent of delinquencies. Recent legal decisions would also appear to forestall any foreclosure activity in the near future.

With few exceptions, acreage for the major crops is down 10 to 15 percent from last year's. Peanut acreage is down even more, 20 to 30 percent. But these acreage reductions do not necessarily portend a drop in production. The highly favorable weather and soil moisture conditions which exist throughout the District may result in production near that of last year. Clearly, if such is the case, there will be less upward pressure on farm prices.