January 30, 1985
The southeastern economy continued to strengthen toward the year's end. Employment growth was noted even in the more depressed areas of the region. Consumer spending, which had been disappointing in the mid-holiday-shopping period, revived toward Christmas, and post-Christmas sales activity also was brisk. Commercial construction remains active, and the pace of home building quickened, owing to further declines in mortgage interest rates. Bank lending to consumers increased in early January, suggesting that demand for automobiles remained strong. A mild winter relative to the rest of the country boosted tourist activity. On the other hand, real estate and business lending by banks was soft. Many crop farmers, adversely affected earlier by heavy rainfall and flooding, are now suffering from low prices for corn and soybeans.
Employment and Industry
Labor market conditions improved in
November. Unemployment rates broke out of a four-month plateau and
declined in four of the six District states. Rates in Alabama and
Mississippi, still at double-digit levels, moved up slightly more in
November. Job markets continued to brighten in Florida and Georgia
and welcomed improvements also occurred in Louisiana and Tennessee.
Strength in paper, petrochemical, defense and aerospace industries overshadow lingering weaknesses in import-sensitive sectors. High operating rates have encouraged some paper plants to expand. Demand for linerboard and bonded paper is particularly strong, and prices are firm. Activity in Louisiana's petrochemical industry continued to brighten as evidenced by higher levels of offshore drilling, growth plans for capital spending, and reductions in inventories. Defense-related spending and aerospace production continue to augment the region's economic activity. Defense-related work doubled at Oak Ridge Laboratories from 1983 to 1984, and spokesmen expect a 25 percent improvement in 1985.
On the other hand, several important sectors have experienced little improvement of late. Employment declined further in the region's steel and textile sectors during December. Although falling long- term interest rates have aided home building, inflows of Canadian lumber are still a concern of the region's lumber and wood product producers.
Consumer Spending
Holiday shopping in the Southeast matched or
surpassed sales growth nationally, according to a survey of District
retailers. Consumer spending was particularly brisk for video-
cassette recorders, microcomputers, television sets, and microwave
ovens. In contrast, unseasonably warm weather through December
depressed sales of winter clothing. Merchants also reported narrower
profit margins due to intense competition from new stores. Post-
Christmas efforts to trim inventories were apparently successful;
however, deep discounts were required to move merchandise. Regional
merchants expect sales growth to moderate in 1985. Automobile
dealers were pleased with their sales performance in 1984, and they
are decidedly optimistic about prospects for early 1985.
Construction. Residential construction reversed a decline early in the fourth quarter as mortgage interest rates eased and a feared plunge in economic activity failed to materialize. Home builders expect further declines in mortgage rates to extend the recent strength in building through the first half of 1985.
Nonresidential construction continued to grow in early January. Although property managers consider the region's office market to be overbuilt, recent increases in rental rates should provide some relief. Shopping center construction continued to increase in December even though merchants contend that competition is already intense.
Financial Services
Overall loan demand at large commercial banks
followed its normal pattern and tapered off in November and December
for both consumer and business loans. Contacts report that consumer
loans have picked up in early January, with a large proportion going
to finance purchases of automobiles. Business loan demand was soft,
reflecting reduced borrowing to finance inventories. Real estate
lending by commercial banks was below normal, and mortgage loan
commitments from savings and loan associations were weak earlier in
the fourth quarter.
Tourism
Unusually pleasant weather in the region gave winter
tourism an added boost in the final months of 1984, and contacts
report bright prospects for coming months. Attendance at tourist
attractions generally exceeded expectations. Hotel/motel revenues
increased vigorously in most southeastern states, and occupancy
rates continued to show strength. Passenger volume also grew at the
region's airports.
Agriculture
Conditions in the southeastern agricultural economy
maintained typical diversity In 1984. Crop farmers, whose cash
income flourished a year ago, fared less well in 1984 as commodity
prices declined. Conversely, total revenue increased for livestock
and poultry producers in 1984. The poultry industry showed
considerable improvement as high prices accompanied increased
production. Income to pork farmers also grew sharply while the dairy
and beef cattle industries experienced declines.