Beige Book Report: Atlanta
May 18, 1983
Evidence of recovery continues to grow, but certain sectors, particularly agriculture and the textile and chemical industries, remain weak. Retail sales, especially of consumer durables, are still on the upswing. Construction continues the previously reported resurgence. The financial sector shows modest improvement, but uncertainty prevails in some local markets. The upsurge in tourism remains concentrated geographically, but the increase in the volume of air travel appears to be spreading.
Employment and Industry
Signs of recovery in manufacturing output
and employment are uneven. Orders in the lumber industry are
strengthening. After an extended period of economic slack, shipments
of phosphates have revived in Florida. In contrast, output and
employment in the textile industry have not yet responded to the
upturn in economic activity. Nonetheless, industry representatives
are optimistic. They expect increasing auto sales and new housing
construction to boost orders for tire cord, upholstery, carpeting,
and draperies. Still, they express concern about the cost of
financing new equipment required to become competitive with foreign
producers. Spokesmen for the petrochemical industry in Louisiana and
Mississippi foresee little improvement in demand for petrochemicals.
Engineering firms report that companies are not expanding product
lines but are exploring alternatives with higher profit potential.
Many establishments are shifting to more lucrative specialty
chemicals.
Consumer Spending
District retailers report continued sales gains
in March and April. Retail sales performance in the Southeast,
especially in Orlando and Atlanta, is reportedly better than in
other parts of the country. Department store officials say that
current promotional activity rather than recovery in the housing
industry is spurring sales and higher-than-usual inventories.
Merchants expect retail sales to weaken in May but look for a strong
back-to-school season. Both attendance and orders at the fall
apparel buyers' market in Atlanta were up 15 percent over last year.
Retailers reportedly stepped up their buying because sales have been
strengthening in recent months. District motor vehicle sales in
April continued the upward trend of the past few months. Automobile
dealers say that sales of full-size, luxury models and light trucks
are responsible for most of the improvement.
Construction
Officers of financial institutions expect mortgage
rates to continue declining through May. Reports from building
permit offices indicate April and May applications are at least as
strong as March, during which they were up sharply in spite of bad
weather. Our respondents believe the strong permit data during the
first four months of the year reflect the true strength of
residential housing demand. Those we polled see a general firming of
house prices and in some areas outright price hikes by means of the
elimination of builder buy-downs and other discounts.
Respondents in Tennessee, Mississippi, and Georgia anticipate new construction and office space absorption to be at lower levels in 1983 than in 1982. Sources in Florida, Louisiana, and Alabama are more optimistic yet cautious. Contacts report a hiatus in new construction of large shopping centers in Georgia, Alabama, Mississippi, and Tennessee. Shopping center construction in Florida and Louisiana is characterized as steady with good prospects for picking up in the near future.
Finance
Legislators in Florida and Tennessee have effectively
defeated bills to allow interstate banking in their respective
states. Proponents of the Florida legislation maintained that
interstate banking would provide more capital for loans, expand the
state's tax base, and create some healthy competition. Although
tabled, the Florida bill could come up later this year. Advocates of
the Tennessee legislation argued that out-of-state acquisition of
some local banks would relieve the lack of confidence in the state's
financial industry caused by the failure of United American Bank
(UAB). Bankers claim the FDIC's failure to honor loan participations
purchased by Tennessee and Kentucky banks from the now defunct UAB
could further weaken some already shaken institutions.
Tourism
Contacts report an expanded increase in the volume of air
traffic at regional airports. Smaller carriers are introducing
service to many local airports that major airlines abandoned
following deregulation. However, financial conditions for
southeastern carriers remain troubled despite a slight abatement in
the intensity of airfare competition. Our contacts do not expect
financial conditions for District-based carriers to improve until at
least the third quarter. In other sectors of the travel market
strength remains concentrated geographically: Central Florida is
booming, while lodgings and attractions in south Florida, Tennessee,
and Louisiana languish. Atlanta's convention trade continues to be
troubled by shortened stays and drop-offs in bookings although
volume is up.
Agriculture
Declining demand for short-term credit by District
farmers reflects continuing weakness in agriculture. Except in
Georgia, loans outstanding from the Production Credit Association
fell in every District state in the first quarter relative to the
previous quarter. The poultry industry is reeling from the side
effects of the Payment-In-Kind program. Feed grain price increases
of $10-30 per ton have resulted in a 2-5 cents per dozen climb in
the cost of egg production. Large supplies, a declining export
market, and weak domestic demand have led to a sharp drop in egg
prices here. A substantial improvement in the weather has allowed
farmers to make up much of their planting, but corn and cotton crops
remain behind schedule, and yield reductions on late-planted corn
are possible. Corn supplies are likely to be below normal in
southern states in July and August.
Panel of Economists
Our panel of economists is almost evenly
divided in its recommendations for monetary policy. Half believe
that current Fed policy is appropriate, and half think that money
supply growth should be reduced to a steady rate, ranging from 5 to
10 percent. Similarly, about half of those surveyed expect inflation
to average 4 percent in 1983; the remaining members anticipate a
more rapid acceleration in prices. Almost all expect inflation to
reach at least 5-6 percent in 1984. By a narrow majority, they look
for the foreign exchange rate of the dollar to fall this year. The
most frequently cited signs of local recovery continue to center on
the construction industry-housing and commercial building, real
estate, and lumber manufacturing. However, a few respondents mention
improving labor markets, increases in consumer spending, and some
upturn in manufacturing. No pattern is evident in regard to the next
phase of recovery. Nearly everyone on our panel regards housing
demand as strong enough to sustain the current pace of construction
activity.