September 20, 1983
The pace of recovery in the Southeast is showing signs of slowing, but most sectors continue to expand. Consumer spending remains strong although unseasonably hot weather resulted in lower-than-anticipated back-to-school clothing sales. Industrial employment and orders are generally rising, but some reversals appear imminent especially in the forest products industry. Higher mortgage rates have reduced sales of new homes from levels attained earlier this summer. In the financial sector deposit and loan growth is weaker than in June. The surge in central Florida tourism shows further indication of ebbing. Drought-induced crop shortages are likely to increase food prices and lower revenues for crop and livestock farmers.
Employment and Industry
Employment has been expanding, but some setbacks seem likely. Tire
and automotive glass manufacturers report markedly increased
activity. At least one large tire plant is operating seven days a
week. Major government contracts for defense and the space shuttle
will soon create new jobs in Alabama and Louisiana, respectively. In
contrast, representatives of the forest products industry indicate
that the jump in interest rates has diminished orders for and
production of lumber. Building material inventories are increasing
beyond desired levels. Moreover, reduced demand for coal has
prompted layoffs in Alabama's mines. Contacts at industrial
development agencies remark that recent capital expansion plans are
designed more to improve productivity and efficiency than to meet
additional demand. For example, many petrochemical firms in
Louisiana are planning cogeneration projects that would produce
electricity from wasted heat, thereby reducing fuel requirements by
10 to 13 percent.
Consumer Spending
Retailers report that consumer spending in August and September
continued to exceed 1982 levels. Southeastern taxable sales rose 7.0
percent in July over 1982 levels. Florida's 21.0 percent increase
offset a 28.1 percent decrease in Mississippi and a smaller decline
in Louisiana. New car sales are well ahead of the depressed levels
of August 1982. Home entertainment and personal computer items
continue selling well. Sales of fall clothing are strong but less
vigorous than anticipated by merchants. Nearly all of those polled
had stocked back-to-school inventories earlier and on a larger scale
than last year. However, sparked by the prolonged heat spell,
purchases of summer clearance items accounted for an unusually large
portion of consumer expenditures during the back-to-school season.
Notwithstanding less-than-expected sales of fall apparel, most
retailers plan to maintain higher inventories in anticipation of a
good fourth quarter.
Construction
After three months of rising mortgage rates, housing sales fell
during August and early September and have yet to revive even though
the FHA/VA mortgage rate fell 50 basis points to 13 percent as of
August 22. Miami and north metro-Atlanta realtors report little
change from the strong sales activity earlier this summer, whereas
Birmingham, New Orleans, Macon, Knoxville, and Chattanooga have
experienced significant drops in single-family housing sales. In
areas of Birmingham, sales fell by 30 to 40 percent. However,
lenders generally believe early September mortgage rates will hold
steady through autumn, and realtors expect improved sales in the
fall.
Commercial real estate, especially suburban office space and shopping center developments, continues to improve in spite of the recent rise in interest rates. Markets in most central business districts. including Atlanta's, are also tightening. However, gluts in office space continue in Orlando and New Orleans. Because of expected ongoing improvement in the economy, industry contacts foresee a spurt of commercial construction contracts throughout the region within the next six months.
Financial Services
Deposits at thrifts and large banks continued the slow growth of
July into August, according to preliminary, unadjusted data. S&L
money market deposit accounts have been declining since spring,
whereas two other interest sensitive categories-jumbo savings
accounts and six-month money market certificates-have shown
strength. The savings gains by southeastern S&Ls are attributable to
larger investors who can afford the minimum deposits required to
open these accounts, not to smaller savers whom the S&Ls have taken
pains to attract. Loan activity, particularly business lending, grew
more slowly in August than in July.
Regional bank executives have proposed the creation of a southeastern banking zone, whereby southeastern state banking laws would allow mergers and acquisitions only by financial institutions headquartered in the region. This arrangement would allow southeastern financial institutions to consolidate their competitive positions before large-scale interstate banking becomes a reality. Several major, money center banks recently applied to Florida banking authorities to establish industrial savings banks.
Tourism
The boom in central Florida tourism shows further signs of slowing
since earlier this summer. The number of visitors registering at
Florida Welcome Centers in August declined slightly from 1982
levels, whereas the margin of growth in the previous three months
had ranged from 12 to 17 percent. Lodging receipts are up statewide,
but occupancy in many areas is even with or below last summer's
levels. The addition of 850 rooms in the next six months should
cause further softening in the Miami market, where established
hotels are sharply discounting room rates to boost occupancy enough
to cover fixed costs.
Tourist trade appears strong in Alabama and Georgia, where late summer attraction attendance, lodgings tax receipts, and visitor center registrations rose above year-ago levels. Georgia's tourism industry representatives attribute much of this year-over-year improvement to an increase in auto travel relative to air travel as a consequence of cutbacks in discount airfares. Prospects for the 1984 World's Fair in New Orleans improved in the late summer: a number of exhibitors firmed commitments, and several auto and bus associations purchased a total of 500,000 Fair tickets. However, Fair construction is hampering access to New Orleans' tourist district and thereby exacerbating already depressed conditions in that sector of the local economy. Mississippi tourism spokesmen blame the rather lackluster level of business this summer on the Fair, which, they say, is causing travelers to defer trips to Mississippi until next year.
Agriculture
The first widespread rainfall in weeks relieved the drought across
the eastern portion of the region during the Labor Day weekend.
Although rains arrived too late to reverse the damage to most crops;
late-planted soybeans and pasture grasses should achieve additional
growth. Louisiana and Georgia experienced less crop damage than
Mississippi and Tennessee. Corn in southern Georgia achieved
acceptable yields, whereas north Georgia corn was extensively
damaged. Prospects of sharply reduced supplies have caused
substantial increases in soybean and corn prices. By early September
average prices of both important livestock feed commodities had
increased about 65 percent from year-ago levels. Facing severe
losses, livestock farmers have hastened animals to market. Calf
prices, having declined 14 percent since June, are well below
last year's levels. Reductions in poultry and egg output, partially
a result of heat stress and death losses, have already produced
substantial retail price increases for these food items.
Georgia and South Carolina growers, who lost much of their crop to a late spring freeze. will now find it difficult to sell their smaller, drought-stricken apples in the retail market and will have to divert such fruit to lower revenue outlets, such as processing or juice.