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Beige Book Report: Atlanta

November 16, 1982

Autumn economic conditions in the Sixth District remain weak. Most sectors of the labor market continue to deteriorate. Consumer spending has risen only slightly, and the outlook for the Christmas season is mixed. Falling crop prices continue to augur lower farm income, but poultry prospects have improved. Tourism is still off in many areas, but EPCOT is generating widespread optimism. With sustained improvements in residential building and real estate, construction remains the brightest spot in the southeastern economy.

Employment and Industry
Labor market conditions in the Southeast remain grim. The District's September unemployment rate has returned to the April level of 9.9 percent, the highest rate of the current recession and the peak of the 1973-75 recession. Tennessee's unemployment benefits fund is reported near bankruptcy. However, media reports of sharply increased unemployment in Knoxville after the closing of the World's Fair seem exaggerated. The local Office of Employment Security expects only 1,500-2,000 of the Fair's 6,700 employees to apply for unemployment benefits.

Nonfarm employment is still declining. Even in "growth" sectors, including services, trade, finance, and transportation, job expansion is decelerating. Expressions of concern over the shutdown of the Woolco chain are widespread. Most retailers polled plan to increase hours of part-time employees rather than hire more workers for the Christmas season. Public sector employment, although still declining, is not falling as rapidly as earlier, but some of our contacts expect more reductions at the state level. Construction employment has yet to reflect lower mortgage rates. Anecdotes of applicants far outnumbering positions typically accompany reports of job openings.

Manufacturing shows virtually no evidence of a turnaround. The rate of year-to-year declines increased in September, and our directors and others report additional layoffs in October in chemicals, primary and fabricated metals, transportation equipment, and machinery, including computers and other electronics. The number of new manufacturing facilities over $0.5 million declined 40 percent through August compared to the first eight months of last year. Factory expansions were down over 45 percent. Contacts at state economic development agencies report that low utilization rates have prompted manufacturers to do only maintenance and efficiency construction and to shelve new construction plans until solid signs of recovery appear.

Consumer Spending
Taxable retail sales through September are slightly above last year in real terms in Florida, Tennessee, and Alabama but down in Mississippi, Louisiana, and Georgia. One new encouraging sign is the slight increase in sales of big-ticket home furnishings in certain areas. Purchases of men's apparel, cosmetics, auto supplies, and electronic games remain strong. District retailers report that consumers are still wary because of high unemployment. Although optimistic about the Christmas season, retailers continue to hold inventories taut. District auto sales are running far below depressed 1981 levels and behind those of the rest of the nation. Lower interest rates and new models have yet to spur sales in the Southeast. Reduced sales have resulted in a high rate of dealership attrition, particularly in rural areas.

Construction and Real Estate
Most municipal and county governments contacted report that single- and multifamily building permits remain seasonally strong, but slower growth regions, especially blue-collar areas, still show little improvement. Realtors report more traffic and sales during October. The lower FHA rate has helped attract buyers outside high-income brackets. Still, since home buyers are making much use of seller financing, thrift officers find mortgage closings less strong than hoped. Housing industry spokesmen worry that lower mortgage rates may be the result of election engineering and thus only temporary. Realtors expect modest improvement in 1983 but only if mortgage rates drop further or stabilize. Despite improved housing sales, apartment occupancy rates remain high. The office and industrial building market is slow. Recession and high interest rates have substantially curtailed relocation and expansion.

Tourism
Our survey of over 50 tourist industry representatives reveals little change in conditions since last month. Local and less expensive tourism appears to be holding steady or improving, whereas out-of-state and international tourism is down. Respondents state that fewer delegates are attending conventions in Georgia and Louisiana; international tourists in Florida are reportedly lodging with friends and relatives and spending less, thereby depressing hotel/motel occupancy rates, attendance at attractions, and retail sales, especially in South Florida. One bright spot is the October 1 opening of EPCOT (Experimental Prototype Community of Tomorrow), which has already exceeded its own attendance projections and is expected by many to boost local tourism more than the Knoxville World's Fair, which closed on October 31. That exposition met its self-designated break-even point of 11 million visitors, but some of those polled dispute the profitability of its economic impact.

Agriculture
Available evidence does not support the widespread pessimism and expectations of large-scale farm failures. Farm lenders suggest that a higher-than-normal liquidation rate is occurring, but the percentage of farmers affected is quite small and is likely to remain low. Interest rates are declining at farm lending institutions, providing some relief to farmers renewing loans. However, this decline will not affect farmers' cash flows until at least 1983 when loans become due.

Except for poultry, conditions in the livestock industry have changed little in recent weeks. Both egg and broiler prices have increased although egg prices remain 27 percent below year-ago levels. Lower feed costs and higher prices have improved the outlook for poultry farmers. Large supplies of corn and soybeans now being harvested continue to depress prices of these crops. Without high yields or low costs the prospect for breaking even on these two crops looks doubtful. Tobacco, sugarcane, and peanuts appear to offer the greatest opportunity for profit.

Finance
Telephone interviews with District bankers indicate that many are making advance preparations for the new money market accounts to be authorized by the DIDC before mid-December. Bankers currently offering sweep accounts have a headstart because the mechanics of setting up the two accounts are the same. Although our contacts view the new money market account as necessary and desirable, they voiced two major concerns. First, they expect the new account to drive up the cost of funds and to put banks under greater pressure to price individual services. Second, banks' reporting and compliance burden could increase since the new account becomes reservable if the three non-preauthorized, third-party transactions limit is exceeded.

Panel of Economists
Our panel of economists believes that the Fed has eased monetary policy in recent months. Nearly all approve of this perceived change as a means of fueling recovery without reigniting inflation, although one urged a more straightforward acknowledgment by the Fed of its shift in policy. Our respondents detect much internal restructuring in lending activity since the drop in interest rates. Businesses are lengthening their debt maturity; builders are lining up construction loans; homeowners are refinancing mortgages. Other borrowing has not increased substantially. Most of those surveyed believe interest rates will continue to fall at least through Spring, 1983. Except for some improvement in construction, economists see no signs of incipient recovery in their states. There was no consensus regarding the timing and strength of recovery. A slight majority anticipates less than normal Christmas spending, but opinion varies widely on this issue.