Beige Book Report: Atlanta
December 15, 1982
Late fall economic conditions in the Southeast show mixed signs. Construction continues to improve, generating optimism among construction-related manufacturers. The labor market appears to be stabilizing, and job growth in some sectors is accelerating. Optimism prevails in the travel industry. However, the profit potential for most farmers remains clouded and consumer spending has yet to show a pre-Christmas surge.
Employment and Industry
Latest available statistics on employment
imply an end to the deteriorating labor market conditions reported
previously, but unemployment continues to rise, and reports from
industry representatives on capital spending plans indicate that the
outlook for increased hiring is inauspicious. October figures
indicate that declining construction employment finally may have
reached bottom. Rates of decline are decelerating in several
construction-related manufacturing sectors, such as lumber, wood,
stone, clay, and glass. Bankruptcies among lumber-related
manufacturers are reportedly on the wane, although some smaller
firms may have trouble surviving until the seasonal spring upturn in
housing. Except in government and trade the rate of growth in other
nonmanufacturing sectors accelerated in October. Job attrition
continued in most manufacturing sectors, and for the first time
since World War II the District's unemployment rate reached 10.5
percent.
Our survey of firms and trade associations reveals moderate optimism among producers of construction-related goods, such as lumber and carpets, and among makers of structural steel. The latter expect government spending on defense and infrastructure to stimulate demand. However, chemical manufacturers do not share this optimism. Even in industries with capital spending plans, job creation is likely to be minimal because the impetus is cost-cutting efficiency rather than growth-related expansion.
Consumer Spending
District retailers report generally higher
promotional activity compared to the same period last year. They
regard immediate post-Thanksgiving consumer buying to have been
good, as expected, but the subsequent lull is lasting longer than
usual. Consumers are delaying holiday purchases in hopes of deep
discounts in the last few weeks before Christmas. Big-ticket home
furnishings continue to show improvement in some areas. Purchases of
personal computers, tools, exercise equipment, small appliances, and
cosmetics generally remain strong. Unseasonably warm weather has
caused winter apparel to move slowly, but luxury wear has noticeably
improved. In contrast to 1981, retailers are comfortable with
inventory levels and are not likely to reduce prices more. Thus,
profit margins are unlikely to narrow further. However, sales volume
and profits will depend upon the strength of last-minute buying.
Southeastern auto sales slightly outpaced the nation's rise of 31 percent in November. Cut-rate loans are successfully stimulating sales and helping to reduce car inventories. Nevertheless, the short-term sales outlook is not bright because consumers remain troubled by rising unemployment and high real interest rates.
Construction and Finance
For the near future, realtors and thrift
officials feel that the post-election November 15 drop in the FHA/VA
rates may have "propped a stick" in the mortgage "window," which the
pre-election slide in mortgage rates opened. Confidence in the
future of housing is slowly returning as concern diminishes that
political engineering occasioned earlier drops in mortgage rates.
Single-family building permits show the greatest degree of recovery.
Other construction sectors are faring less well, and industry
representatives expect slack demand and overbuilding to keep
nonresidential contract construction sluggish well into 1983.
Thrifts have been slow to accrue benefits from the housing recovery, but total loans closed by S&L's have finally begun to improve. Industry spokesmen attribute the delayed recovery of thrifts vis-a- vis other construction indicators to increased competition from seller financing and mortgage companies and to a longer "wait and see" period by home buyers.
Tourism
Optimism, predicated upon national economic recovery,
discounted airfares, and the popularity of EPCOT, is widespread
among the tourist industry representatives in our survey.
Preliminary, partial data and reports from those polled indicate
that out-of-state travel in the upper-price brackets (air travel and
lodgings) has already begun to rise. November attendance at EPCOT
remains ahead of projections reportedly because Florida residents
and out-of-state retirees are flocking to the new attraction.
Nonetheless, several sources maintain that EPCOT's effect elsewhere
in Florida is negligible or negative. Business and convention travel
shows mixed signs. Contacts report that Atlanta appears to be
improving while South Florida, Alabama, and Louisiana remain weak.
Respondents in Georgia, Tennessee, and Alabama blame rainy weather
rather than economic conditions for the more than seasonal decline
in local tourism.
Agriculture
Southeastern cotton farmers are experiencing
extraordinary yields in 1982. The most recent USDA projections
estimate five of the six District states will enjoy record yields;
Georgia should surpass its previous record by 20 percent. Yield is
likely to determine profitability for most cotton producers, but
some Mississippi farmers are facing losses of both their crop and
income as a result of an apparent business failure. A large cotton
company, already in receipt of substantial cotton, is unable to pay
farmers or to return the cotton for which warehouse receipts are now
held by a creditor of the company.
Most grain farmers face only a small chance of profit from the 1982 crop, notwithstanding a recent 5 percent rise in prices. At present, widespread flooding in the Mississippi valley has done little injury to crops, but potential damage is of concern, and extension personnel in Mississippi report other weather-related damage. Recent aberrations in temperature and a surfeit of rain have adulterated the quality of the remaining soybean harvest. One estimate suggests a possible loss of 10 million bushels, valued at approximately $52 million. Large supplies have thwarted efforts to sell low- quality beans.
Finance
A survey of a cross-section of District banks and savings
and loans regarding "bridge" and Money Market Deposit Accounts
(MMDA's) indicates a substantial response to the new instruments.
Although few institutions in the District are offering rates as high
(21-22%) as those in Atlanta, the premiums are enough above current
money market funds to attract considerable corporate and personal
interest throughout the District. Insurance, which the MMDA's
provide, is another factor of particular attractiveness to retired
and large personal account holders. Except in institutions offering
low rates, early indications are that most of the funds are being
attracted from money market mutuals. The probability of continued
substantial shifts between money market mutuals and the new accounts
appears high. Such shifts may create either liquidity problems or an
atmosphere of potential problems. In such a climate even more funds
would be transferred out of money market mutuals.
Panel of Economists
In response to our request to assess the
strengths and weaknesses of their respective economies in 1983, most
members of our panel of economists cite construction as a probable
leading sector. Several respondents are pessimistic regarding
nonresidential construction though. Reflecting in part the economic
heterogeneity of the District, little consensus exists otherwise
regarding either strengths or weaknesses. Construction-related
manufacturing seems likely to improve, in the opinion of many
panelists. Chemicals, textiles, oil, gas, exports, and agriculture
were each cited by a few respondents as potentially weak sectors.