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Beige Book Report: Atlanta

August 18, 1982

Midsummer economic conditions in the Sixth District remain weak; however, signs of increasing activity in some sectors are encouraging. An upturn in building permits indicates that the outlook for construction may be brightening. The District's farm economy is also showing some improvement.

Consumer Spending
With the exception of Atlanta, Knoxville, and Jacksonville, retail sales are down or flat in real terms in spite of heavy promotions. Sales in Mississippi and Florida seem to be especially weak. Home furnishings, most hard goods, and some apparel are moving slowly, while menswear, auto parts, and home entertainment equipment are doing relatively well. Consumers are buying cautiously and paying particular attention to quality. Retailers, reporting generally taut inventories and anticipating a gradual increase in sales over the next two quarters, are buying guardedly for the Christmas season.

Auto sales have come to a virtual standstill since the termination of price promotions in early June. Even in metro Atlanta's relatively strong economy, July and August floor traffic and buying have been quite slow. A spokesman for Atlanta car dealers attributes this slowdown to consumer expectations of further declines in interest rates and of reinstated price rebates.

Construction and Finance
The construction sector appears to be poised for a possible recovery from the slight decline of the past several months. In July and early August both single-family and commercial building permits rose after a two-month drop. Office vacancy rates have been slowly falling. Lower mortgage rates have yet to have an impact on the housing market, where most activity is attributable to adjustable mortgage loans, state mortgage bond programs, and higher income buyers. Nonetheless, realtors and thrifts remain hopeful that the market will improve.

Bank loans in Georgia, especially to corporations, are reported to be showing strong gains from year-ago levels, whereas loan growth in other states is slowing as acceptable loan customers are becoming increasingly difficult to find. Because of the decline in energy- related business activity, bank lending in Louisiana has been especially hard hit.

Planned capital spending for 1982 amounts to a mere 3.5 percent increase in current dollars over last year. Moreover, most of this investment is concentrated in the chemical and petroleum industries. One bright spot is the Port of Mobile, where recently expanded coal- handling facilities have contributed to a 103 percent expansion in coal exports during the first seven months of 1982 compared with 1981. Ongoing improvements should allow the port to double current coal export capacity by early 1983.

Employment and Industry
In general, Sixth District employment statistics except in certain "pockets" of prosperity such as Atlanta present a bleak picture. From May to June the District's unadjusted employment declined slightly (0.4 percent), running counter to both seasonal and current national trends. However, average weekly hours increased slightly more than in the nation. Regional employment and average weekly hours remain below last June's levels. Employment growth did occur in some sectors, for example, construction, services, and certain nondurable manufacturing industries (food, apparel, and paper), but this expansion was generally less than seasonally normal. Chemical and petroleum industries in Louisiana have been particularly hurt by the recession. Layoffs in Louisiana's chemical processing plants numbered more than 2,500 in the past six months, and more are slated.

At 9.4 percent, the region's seasonally adjusted unemployment rate in June was down fractionally from May and remained slightly below the nation's, largely because of Florida's and Georgia's jobless rates of 7.5 and 7.6 percent, respectively. Four of the six District states continue to have double-digit jobless rates.

Tourism
The tourist industry is thriving in the vicinity of the World's Fair in Knoxville, Tennessee, but in Louisiana and Florida, business is down and, elsewhere, merely holding steady over last year. July attendance at the Fair tapered off somewhat from May and June levels but continues to meet official projections. The Fair's "spillover effect" is being felt at hotels, motels, campgrounds, state and national parks, and private attractions as far away as Nashville and in the border regions of Kentucky and the Carolinas. However, elsewhere, the Fair has not overcome the effects of the recession by triggering the widely anticipated increase in tourist trade.

Agriculture
The present outlook for the District's farm economy shows a few bright spots and the possibility of future improvement. In the livestock sector pork producers are receiving prices approximately 15 percent higher than last year. Continuing declines in production of both pork and beef presage further price increases. Poultry, which is important in the District's farm economy, has not yet shown much gain from reductions in supplies of competing meats. Aggregate income from the livestock sector is likely to remain below 1981 levels, but profit margins of individual farmers should improve. Crop producers face low prices and forecasts of high yields. Cotton and tobacco prices, which have recently shown strength, are the sole exceptions.

Despite some improvement District farmers are not likely to be able to make significant progress toward debt reduction in 1982. Loan delinquencies have declined modestly in recent weeks, but they remain alarmingly high by historical standards.

Panel of Economists
Local academic, banking, and business economists polled in a telephone survey indicated their evaluation of the Fed's continuing targets for money growth as acceptable and appropriate to anticipated recovery. Their recommendations for monetary policy ranged from maintaining the status quo by not revising targets upward to stimulating further reductions in short- term interest rates to foster recovery.

Estimates varied regarding the timing of recovery. Some respondents felt that the recession had already reached its trough in all District states except Florida and Mississippi, but others were more optimistic regarding Florida's economy and less so regarding Louisiana's. At least one economist predicted that recovery would not begin until spring, 1983, well after the nation's unemployment rate surpassed 10 percent. All those polled expected only a weak or moderate recovery.

None have seen much effect from federal income tax cuts and social security increases because of the offsetting effects of "bracket creep" and higher state and local taxes. Response in Florida was expected to be stronger than elsewhere due to the relatively large percentage of the work force still employed and the state's disproportionately large number of social security recipients. Economists surveyed anticipated retail sales of nondurable goods to be the prime beneficiary of increased disposable personal income.