September 29, 1982
Late summer economic conditions in the Sixth District remain weak. Consumer spending patterns show no increase from mid-summer. Employment conditions are worsening. Falling grain and soybean prices threaten to reduce farm income further. Only the lower-cost sectors of the tourist industry show improvement over last year or earlier this season. Virtually the sole harbinger of recovery in the region's economy is construction, which has begun to realize a previously predicted upturn.
Employment and Industry
Regional labor markets display further
signs of deterioration in August and September. Reports of layoffs
and plant shutdowns combined with preliminary, partial employment
figures indicate the likelihood that the District's unemployment
rate rose again in late summer. Alabama's August unemployment rate
climbed to 14.1 percent (S.A.). Layoffs have recently been announced
in such diverse industries as pharmaceuticals, rubber, food
processing, shipbuilding, agricultural chemicals, paper, lumber,
textiles, apparel, electrical and agricultural machinery, steel,
aluminum, and coal. At some companies, such as McDermott, the large
offshore construction firm headquartered in New Orleans, layoffs
extend to white-collar personnel. Even firms which traditionally try
to retain employees through periods of slack demand, such as
Stockham Valves and Fittings and American Cast Iron and Pipe, have
furloughed workers. Although respondents are generally optimistic
that the recession has passed its trough, almost none have plans to
increase hiring in the next few months. Since the Red Book
employment panel is weighted toward the most successful
manufacturing firms headquartered in the District, this response
does not augur well for the region's near-term employment outlook.
Orders at regional pulp and paper mills are weak, and paper inventories in Tennessee are termed by one observer as "exploding." Aluminum and steel inventories remain at high levels in Louisiana and Alabama, respectively. A spokesman for the petrochemical industry in Louisiana reports that no chemical processing companies in the state have expansion plans at present. In fact, most plants are operating substantially below capacity. One encouraging sign in Florida is that phosphate rock and fertilizer inventories have dwindled significantly. The first-half downtrend in capital spending appears to be continuing in the third quarter. General Electric postponed indefinitely plans to build a $1.5 billion plastics plant in Alabama.
Consumer Spending
August taxable sales were up moderately (in real
terms) over last year in Alabama, Georgia, and Tennessee but down in
Florida, Louisiana, and Mississippi. Retailers report generally flat
back-to-school sales. Although hopeful of improvement by the
Christmas season, they are ordering conservatively and holding
inventories taut. Consumers, too, are widely reported to be very
cautious. Sales of big-ticket home furnishings remain weak,
reflecting the depressed housing sector, while first-time purchases
of such new products as microwave ovens, video recorders, and
personal computers remain strong. Auto sales still appear to be
sharply below last year's levels. Factory incentive plans are
proving less effective for southeastern dealers than earlier
customer rebates, and the tax cut has not spurred car sales. Dealers
also link weak August-September sales to consumer uncertainties
regarding employment, interest rates, and 1983 car prices. Dealers
are ordering new models cautiously.
Construction and Real Estate
According to our survey of building
codes departments, real estate firms, and savings and loan
institutions (S&Ls), housing has begun to improve slowly. Codes
departments report a slight rise in August building permits for
single-family residences and a moderate increase in some areas
during the first half of September. Building permits for "additions"
remain strong. S&Ls indicate that loans are up somewhat. Commercial
sales and leasing remain slow but steady. Even more encouraging are
reports from realtors that home sales are finally improving,
especially in Atlanta, Jacksonville, Knoxville, and Nashville.
However, slower growth areas as well as much of Alabama and
Louisiana have yet to pick up. Moreover, realtors and thrift
officers repeatedly state that mortgage rates need to fall to 12-13
percent before the market really gets moving. Many potential home
buyers are reportedly postponing purchases to see if rates decline
further or stabilize. Aside from these qualifications, the mood in
the District is definitely more positive than earlier this summer.
Tourism
Tourist industry representatives and partial statistics
indicate that higher priced sectors of the industry continue to
languish; moreover, the bright spot of earlier reports-the World's
Fair-has continued the decline reported in August. If average daily
attendance does not increase, the Fair will not reach the break-even
level of 11 million visitors. Fair officials, however, remain
optimistic. Across the District, less expensive facilities, such as
campgrounds and state and national parks, are enjoying sharply
increased usage, especially by in-state visitors, whereas hotels and
motels have fewer guests, and convention business, particularly in
Atlanta, is off from last September. Florida and Louisiana remain
the weakest areas. New Orleans' most popular restaurant reports that
this summer was the worst in its history. Respondents continue to
attribute Florida's poor performance to recession here and abroad
and to the World's Fair; in addition, many have begun to suggest
that the October 1 opening of Disney World's EPCOT is postponing
travel to the state.
Agriculture
Farm income prospects have become decidedly more dismal
in recent weeks. Soybeans produce about two-fifths of the region's
noncitrus crop income. Prices have fallen 10 percent in the past
month, reducing prospective soybean income by $350 million and
dropping the estimated total 13 percent below last year's drought-
reduced level. Prices of most other crops have also declined
recently, leaving tobacco as the sole bright spot with prices
averaging 9 percent above last year. Income prospects of livestock
producers have been bolstered somewhat by recent price gains for
hogs and calves. On balance, however, aggregate net farm income in
the District will be lower than in 1981, and debt problems of
farmers will grow more severe. A major lender reports that an
increase in foreclosures of relatively large Mississippi Delta
farming operations is already occurring.
Finance
A telephone survey of Sixth District banking and thrift
institutions regarding the new 7- to 31-day small time deposits
reveals little consumer interest in these accounts, which only the
larger institutions have offered. Because alternative instruments
which yield competitive rates and/or offer substantially the same
maturity are available, our contacts believe no market exists for
this service. They view it as a defensive move to maintain customer
relationships. The Sixth District's experience with these accounts
suggests that third-party transaction privileges and much smaller
minimum deposits are necessary to elicit adequate consumer interest.
Panel of Economists
Our panel of state forecasters and academic,
banking, business, and investment economists continue to approve of
current monetary policy, finding it conducive to moderate recovery
without rekindling inflation. A smaller majority recommends monetary
growth in excess of targets, while nearly one-third of those polled
urge a rapid return to within-target growth. Virtually all feel
their state is near the trough of the business cycle, with no signs
of recovery and some of further deterioration. The majority,
revising their previous outlook, foresee a later, weaker recovery.
All respondents mentioned lower, stabilized interest rates as
critical to inducing increased consumer spending; a majority also
regard GNP growth as important to overcoming consumer resistance.
There is no clear consensus among those surveyed regarding the
recent drop in business loan demand, but bank economists note that
recent corporate loan demand has been better here than in the
nation.