Beige Book Report: Atlanta
September 16, 1985
Economic conditions in the Southeast remain healthy on balance, and the outlook in several key sectors seems bright. Retail sales in August grew faster than nationally and compared to last year. The pace of residential building and sales or leasing in many regional markets continues to be brisk although multi-family and office construction are showing signs of excess supply. Bank lending, particularly to consumers, appears to have stabilized after decelerating appreciably earlier this year. Tourism business has been strong in most localities; however, Hurricane Elena drastically reduced tourist spending during the Labor Day weekend. The main areas of weakness are locally important industries, such as textiles, apparel, petrochemicals, and agriculture. The enervation of the region's manufacturing base is being felt in labor markets.
Employment and Industry
Labor markets continued to weaken in July. Primarily because labor
force growth exceeded job gains, unemployment rates worsened in
every District state. Total employment growth more than offset
continuing job losses in the hard-hit apparel, textile, and
petrochemical industries. Despite its problems, the textile
industry's capital spending plans are up slightly from last year.
Expenditures will be applied primarily to new equipment. As a result
of reduced demand for phosphate fertilizer and low prices, Florida
phosphate mine operators have recently furloughed workers and
shortened the workweek. Imports of low-priced chemicals and reduced
activity in the domestic metals industry are having an adverse
effect on Louisiana's petrochemical industry. To meet current
demand, producers are drawing down inventories rather than
increasing production. More positively, the drop in natural gas
prices is benefiting local producers of ammonia, for which natural
gas is a feedstock. The outlook for the region's forest products
industry has also improved. Contacts note that prices have
stabilized and that inventories are not excessive at this time.
Consumer Spending
Retail sales in August were up from a year earlier as consumers
responded favorably to heavy promotional efforts by retailers to
move back-to-school items and remaining summer merchandise. Sales at
regional department stores, especially those in Alabama, Florida,
and Georgia, continue to advance at an above-national average pace.
Merchants say that inventory levels are acceptable but they are
closely monitoring their stocks. Although new orders are being
planned cautiously, most retailers surveyed are optimistic that
sales growth will be healthy over the remaining months of 1985 and
generally expect year-over-year increases to be in the 3 to 10
percent range. After surging dramatically in late August, the
region's car sales are widely expected to remain on the rise in the
second half of 1985, either matching or slightly surpassing last
year's performance.
Construction
Residential building shows mixed signs across the Southeast.
Condominium markets generally are depressed as a result of excessive
supply and low interest rates that enable first-time buyers to
purchase the more popular single-family dwellings. Recent
sluggishness in the Florida economy has adversely affected housing
in the state, and inventories continue to accumulate in the New
Orleans market. In contrast, cumulative residential permits in
Atlanta through July were running about even with last year, well
above the expectations of many industry analysts. The pace of sales
and construction in Birmingham remains steady, and contacts express
satisfaction with the inventory of single-family homes. Except in
New Orleans, southeastern office markets continue to show strength.
Atlanta, Miami, and Nashville are experiencing an improvement in
leasing, although there are signs of overbuilding in Atlanta.
Financial Services
Regional bank loan growth stabilized somewhat during the summer
after slowing substantially from January to May. This pattern is due
primarily to a resurgence in consumer credit demand; real estate and
especially business lending have continued to decelerate. However,
the strength of business and real estate lending varies widely
across the District. The market in Atlanta, for example, is healthy,
whereas those in Miami and New Orleans are weak.
Tourism
Summer air travel was up, according to data from major regional
airlines and many airports, and advance bookings for fall look
strong. In contrast, auto travel, as measured by visitor center
registration, fell in July. However, the latter might reflect the
one-time effects of last year's World's Fair. Hotel occupancies and
receipts in major cities continue to lag behind year-earlier levels
because of recent expansions in supply. However, some Florida
contacts report modest improvement in occupancy despite the surfeit
of new rooms, and reservations for the remainder of this and next
year portend improvement in Atlanta's large convention market. Most
attractions polled have experienced increased attendance compared to
last year, and the pace accelerated in August. However, Hurricane
Elena had an adverse impact on Florida and Gulf Coast tourism during
the important Labor Day weekend.
Agriculture
The hurricane and related weather which struck Mississippi
apparently did little damage to crops in that state. Prospects for
crops this growing season remain in favorable throughout the
District as high yields appear likely. Nevertheless, much lower
prices this year and less production of some crops may cause net
farm income to fall from 1984. In addition, lower production and/or
prices may result in a decline in gross income in the animal
products industry. Financial distress also remains a concern. The
Federal Land Bank of Jackson, Mississippi, which holds approximately
$3 billion in real estate loans in Mississippi, Louisiana, and
Alabama, may experience a year-end loss for the first time since the
1930s.