Beige Book Report: Atlanta
October 23, 1986
The Southeast's economy registered mixed performance as weaknesses in some sectors offset strengths in others. Petroleum still tops the list of several weak primary industries in the region. The farm economy remains depressed, and Alabama employment is suffering from coal mine closings. Some commodity exports may be on the rise, however. Vigorous construction and sales of single-family homes are promoting growth of domestic lumber, furniture, and other consumer durable goods production. Tourism too boosted the region's economy. Department store sales outpaced those in the nation, while District auto sales lagged the national rate.
Employment and Industry
Regional labor markets improved marginally from July to August;
employment rose slightly, and the District unemployment rate fell by
0.2 percent to 8.1 percent. The trade and service sectors
contributed most of the job growth, while manufacturing continued to
edge below year-ago levels. Only Georgia and Tennessee, with
unemployment rates of 6.0 and 7.9 percent, respectively, posted
declines from a year ago. Mississippi's rate increased to 12.7
percent, the nation's highest.
Declining petroleum revenues have diminished tax revenues in Louisiana and Mississippi. In especially hard-hit Louisiana, the governor has imposed a 10 percent cutback in state expenditures at all levels. New Orleans faces severe revenue shortfalls as well. Total employment declined in August in Mississippi, Louisiana, and Florida. Bank directors report that large Florida computer manufacturers are cutting job rolls as a result of stiff competition and weakness in the computer market.
Demand by the housing industry is stimulating regional lumber production, although contacts in Mississippi report continued weakening in that state. The furniture industry has been expanding rapidly in Tennessee and Mississippi, and home appliance producers in the region have noted accelerating demand, both outcomes due to an increase in home building. Textile industry spokesmen note that their capital spending has gone mainly to productivity enhancement and not to expansion. Department of Defense spending on shipbuilding, uniforms, and electronics is boosting business activity in the region. Tennessee's aluminum shipments, however, have weakened.
Consumer Spending
Through July, southeastern year-to-date sales growth continued to
outpace that of the nation. However, retailers reported poor sales
of apparel and durable goods during September due to unseasonably
hot weather. Low automobile finance rates diverted funds from
purchases of other items such as appliances and furniture. Most
District retailers are reporting favorable sales increases over
year-earlier levels, but some Louisiana retailers are still plagued
by double-digit sales declines. The sluggish sales pace is inducing
retailers to maintain lean inventories.
Car buyers in the region responded to the special financing programs introduced by manufacturers in September. As a result, inventories of unsold l986 models were virtually exhausted by the second week of the program. Still, the fall sales pace in the region was much below the comparable rate nationally.
Construction
Single-family residential building and sales maintained most of
their strength through mid-October, though a second consecutive
monthly decline in single-family building permits (seasonally
adjusted, three-month moving average) suggests construction may slow
soon. Aggressive construction has boosted builder inventories,
although these are not yet viewed as troublesome in most markets.
According to an Orlando source, apartment tenant turnover has
accelerated because lower mortgage rates have narrowed the gap
between rental and mortgage payments.
District commercial developers face increasingly strict preleasing requirements prior to construction loan approval. Additions to established complexes or new construction in developed areas qualify for lower preleasing requirements; "pioneering" projects are subject to higher standards. Though quoted office lease rates are holding steady, sizeable concessions are pandemic in District markets.
Financial Services
August loan growth at large commercial banks in the District
declined two percentage points from year-earlier levels due
primarily to slower consumer lending advances. Bankers blame the low
auto finance rates offered by automobile manufacturers for much of
the decline. Bank contacts in Nashville and Tampa add that high
consumer debt levels and rising bankruptcy rates are creating a more
cautious lending atmosphere. District bankers acknowledge they will
have to create new consumer products to supplement those made less
attractive by tax reform, such as IRAs and home equity loans.
Tourism
Tourism in the Southeast remains generally strong; increases have
been noted for both automobile and air travel. Cruise ship bookings
are also solid, industry sources report. Foreign travel to the
United States seems to be rebounding. Miami hotel occupancy is up
slightly due to increased travel from Brazil and Chile. Hotel
occupancy has been off in many regional cities because of
construction of many new lodging facilities. Louisiana has closed 20
out of 32 state-operated travel attractions and is laying off
tourist-related employees.
Agriculture and Mining
At mid-year, southeastern banks held $70 million (2 percent) less in
farm loans than at the same time last year. Declines of nearly 10
percent in Louisiana and Mississippi were partially offset by a 17
percent rise in Florida farm loans. The difference in lending
behavior reflects the lesser financial distress of Florida's farm
sector. Regional farm cash receipts are trending 13 percent lower
than In 1985, but farm income will be supplemented by heavy
government payments to cotton and grain farmers.
Southeastern coal production for the first eight months of 1986 fell approximately 8 percent below the same period in 1985 as a result of Alabama mine closures. With modest oil price increases, the Louisiana petroleum industry is showing renewed signs of life. Since reaching a low of 92 operating rigs in early August, the state rig count has climbed to 120. Reports from primary industries indicate a recent improvement in export volume.