May 6, 1986
Important economic sectors of the southeastern economy strengthened in the first quarter. However, the adverse employment impact of declining oil prices on Louisiana's economy and that of other energy-producing parts of the region has masked current and expected improvements. With few exceptions, construction activity is strong, and the activity and outlook for tourism has improved. Consumer spending increased in March following a lull in the beginning months of the year. In agriculture, dry weather has slowed the progress of crops thus tar this growing season.
Employment and Industry
The region's unemployment rate edged upward from January to
February, and available state estimates hint at a further slight
rise in March. Weakness in the energy sector has pushed Louisiana's
oil-based economy to the highest unemployment rate in the nation
with little prospect for improvement in the foreseeable future.
Mississippi and Alabama also are suffering from the drop in
petroleum prices, with a refinery In Mississippi temporarily closed
in reaction to falling oil prices. Florida and Georgia continue to
post unemployment rates significantly below that of the nation,
while Tennessee's rate is about on a par with the nation's.
More job losses are expected as a result or falling oil prices. The rig count for Louisiana has dropped to the lowest level since 1975, resulting in further layoffs by companies that service the dwindling number of offshore oil platforms. The offshore rig utilization rate has dropped to 40 percent from 79 percent in early December, with exploration at a standstill.
More positively, some small towns in the region have been able to attract new industry and diversify their economies out of textiles by taking advantage of the labor pool of workers displaced by imports or automation. Furniture producers are starting to note moderate backlogs and some overtime work. They, along with lumber producers, are optimistic that falling interest rates will continue to stimulate their industry but are concerned by growing low-cost imports. Several leading furniture manufacturers are discontinuing production of certain items and are instead importing them for resale. The defense-related aerospace industry continues to bolster many local economies throughout the region.
Consumer Spending
The District's year-over-year retail sales growth in January-
February 1986 was slightly below that of the nation. March and early
April retail sales were compared favorably to year-ago levels by
merchants in all District states except Louisiana, where weak
activity continues. Retailers attributed improving sales in March to
Easter season apparel purchases. In March, Louisiana and Mississippi
were the only states in the region that mirrored the nation's
depressed sales of non-auto durable goods. Through mid-April, 1986
car sales remained weak throughout the region.
Construction
With the major exceptions of New Orleans and Jackson, construction
and sales of single-family home are above last year's levels
throughout the Southeast. Lower mortgage rates are stimulating sales
to both first-time buyers and families upgrading their housing;
favorable weather for building has reinforced the positive interest
rate impact. however, apartment markets in many metropolitan areas
are experiencing softening rents, and condominium prices continue to
fall in south Florida. Southeastern industrial space construction is
beginning to accelerate, while low interest rates are said to be
triggering some "high risk" office, retail, and hotel construction.
Office vacancy rates are high and rising in all major cities except
Birmingham, with suburban rates generally higher than those in
downtown areas. Available retail space and lodging vacancy rates
also are rising as a result of rapid increases in supply.
Financial Services
Total loan growth at large District banks continued its year-long
slide in February and March. Real estate lending exhibits stronger
growth than either consumer or business loans, but its growth rate
also has been declining steadily. The Mississippi legislature has
passed and sent a bill to the Governor that would allow interstate
banking after a period for statewide expansions anti consolidations.
In Louisiana, the remaining state in the region that prohibits
interstate banking, enabling legislation is expected to be
introduced in the current legislative session. After more than a
year of active interstate banking in the District, merger and
acquisition activity has enabled seven bank holding companies based
in the region-up from five a year ago—to rank among the nation's
40 largest.
Tourism
Figures for visitor registrations and national park attendance
through February show strength across the District. Most states are
experiencing double-digit growth over last year for both of these
measures. Some of this increase in activity has been attributed to
already lower gas prices, and there is widespread expectation that
summer tourism will grow at an even faster clip. In Florida,
attendance records were set at major attractions in March, and
expectations for the remainder of the year are very high. Lower
airfares have stimulated passenger traffic through most airports
compared to a year ago, with double-digit growth experienced by most
major airports.
Agriculture
A prolonged period of dry weather has severely limited growth of
forage for beef and dairy animals and has retarded the progress of
spring-planted crops. Rainfall deficiencies also threaten water
supplies that are likely to be needed for intensive irrigation
during the summer. Prices received by farmers remain well below
year-ago levels, with orange, vegetable, grain, and peanut crops
showing especially large declines. At the same time, poultry
producers are reaping favorable returns with market prices comparing
favorably with year-ago levels, and feed costs have been declining.