Beige Book Report: Atlanta
February 2, 1983
Signs of recovery in the Southeast remain sporadic, but most respondents foresee imminent improvement. Banks and thrifts are not losing funds deposited in new money market accounts despite mid- January rate reductions. The retail sector shows ongoing strength since the holidays. Sustained upward trends in construction are generating resurgence in some housing-related industries, but the clouded situation in agriculture is adversely affecting farm-related manufacturing. The upturn in tourism is localized, but industry spokesmen convey a strong conviction that broad improvement is forthcoming. A review of the economic prospects of individual southeastern states will appear in the February issue of this Bank's Economic Review.
Employment and Industry
Manufacturing evidences intermittent signs
of improvement, but widespread concern over employment persists.
Orders at regional carpet mills are rising substantially relative to
this time last year, and executives expect an excellent second half.
Textile manufacturers, however, are more cautious. Fearing a sudden
reversal of economic conditions, they are lengthening hours rather
than recalling laid-off workers. Wood producers report a slight
increase in orders and express encouragement regarding declining
interest rates, but few have plans to expand capacity unless more
signs of sustained recovery appear. Inventory depletions have
spurred the recall of 700 workers at an Alabama steel mill, but
1,000 remain on indefinite layoff, and a Louisiana aluminum plant
will close this week, idling 550 workers. The unemployment rate in
two states declined in December but rose in three others, including
Florida, where it now approaches the double-digit level prevalent in
every other District state except Georgia.
Conditions in the chemical industry are more uniformly negative. The industry's inventory-to-sales ratio has recently edged higher; domestic producers fear serious encroachment of market share by low- cost, foreign imports; and federal programs to reduce farm acreage are likely to diminish demand for fertilizer even further. Fertilizer plants in Louisiana and Tennessee and phosphate mines in Florida furloughed still more workers in January.
Consumer Spending
Our most recent survey of District retailers
indicates healthy conditions in this sector. Taut holiday season
inventories and brisk sales, relative to last year and to the
nation, are responsible for depleting stocks of merchandise. January
sales were better than expected. In particular, some retailers
report that resurgence in the housing market is stimulating
purchases of furniture and appliances. Respondents expect slow gains
in sales this quarter but an acceleration in the spring. January
auto sales grew faster in the District than in the nation. Despite
this performance, competitive pressures have led regional dealers to
reduce auto loan rates to 5.9-6.9 percent and even as low as 2.9
percent. Although such financing requires a hefty 25-30 percent
downpayment, it is reportedly stimulating floor traffic and
purchases.
Construction
Mortgage activity appears lively. Realtors report a
marked increase in traffic and sales during the last two months,
reflecting perhaps some release of the "pent-up" demand for houses.
Lower rates are attracting a greater number of first-time, middle-income buyers and are reducing activity in adjustable mortgage loans
(AMLs). Demand is strongest for conventional, fixed-rate, 30-year
loans, rates of which currently range from 12 3/4 to 14 percent.
Consumers are seeking to "lock in" lower rates out of fear that they
may rise again, and, in fact, conventional mortgage rates are edging
back up. Thrift officers report that discount points on FHA and VA
loans have jumped several points over the last two to three weeks,
reaching as high as nine points in the last week of January. If
rates stabilize at current levels, realtors and thrift officers
anticipate an overall increase of 25-30 percent in mortgage activity
through the spring.
A survey of building permit departments indicates that issuances of single-family building permits continued to improve during January. Builders that "haven't been seen in a year" are now paying for permits. Still, some of the district's local economies remain in the doldrums. Columbus reports no changes in permit activity, and Chattanooga contacts observe that recovery is just beginning. Construction activity is probably most depressed in Birmingham, especially in the suburbs; some building inspectors have been laid off. Commercial permit activity remains unchanged in most of the District.
Tourism
A survey of industry representatives reveals little change
in conditions other than seasonal declines during December and
January. Convention travel remains soft. Lodgings spokesmen expect a
sluggish first quarter but hope for national economic recovery to
trigger local improvement by the second half at least. Year-end
increases in air passenger traffic of major District-based carriers
are more the consequence of discounted fares, which have reduced
profit margins, than of incipient economic turnaround: Still,
airline officials report that advance bookings are running
substantially ahead of this time last year. EPCOT remains the bright
spot, but its benefits have yet to extend beyond Orlando to Miami
and south Florida.
Agriculture
An unusually heavy harvest volume has contributed to a
downturn in Florida's citrus prices. Late December flooding in
Louisiana and Mississippi did little damage to winter wheat crops.
The District's winter wheat acreage is down 9 percent from last year
but remains well above previous years. Participation in the new
Payment-in-Kind and other acreage reduction programs is not likely
to reduce production significantly because farmers tend to idle
marginal, low-yield lands. With existing large stocks, the small
production decline may not result in substantial price
strengthening. In January egg prices rebounded 7 percent from their
8-year low in mid-summer. Price stabilization and declining feed
costs augur better returns for poultry producers this year. Recent
hog price strength reflects continuing small supplies of pork.
However, increases in breeding stock and farrowing intentions
suggest that an expansion of supply is beginning. Lower feed costs
and higher prices portend a second consecutive year of profits for
hog farmers in 1983.
Finance
A survey of banks and thrifts in the District indicates
little attrition in money market deposit accounts after the
expiration of the original premium offers on January 13 and 14,
1983. All organizations contacted express amazement at the inertia
surrounding the accounts in view of the sharp drop in rates from
over 20 percent in some cases to 8 1/2-10 percent currently. In
addition, institutions polled report that consumers have little
interest in the Super NOW accounts. Only half of the institutions
contacted are offering the Super NOWs, and most of these are doing
little or no advertising to boost them.
Panel of Economists
The majority of economists polled endorse the
Federal Reserve's monetary policy of paying less regard to Ml
because of technical factors. Most business economists on the panel
regard Ml as an unreliable measure. Only a few state forecasters
express concern that recent rates of money supply growth could
rekindle inflation. Respondents hold no consensus regarding
projected 1983 GNP growth although none is strongly optimistic. A
narrow majority of the panel doubts that the recession reached its
nadir in the fourth quarter of 1982, but most see at least some
signs of recovery. Panelists most frequently cite construction and
auto sales as sectors exhibiting signs of recovery, but improvement
appears uneven across the District. Respondents expect Georgia,
Florida, and Mississippi to surpass or at least equal the nation's
rate of rebound; they expect Tennessee, Alabama, and Louisiana to
recover at a slower and weaker pace.