Beige Book Report: Atlanta
January 28, 1987
Economic growth in the Southeast continues at a moderate pace. Service employment gains are strong. but manufacturing job gains are weak. Holiday spending was checkered because oil patch weakness somewhat offset gains in areas benefiting from strong population and income growth. Home building's momentum may be slowing, and weakness in office building is causing overall commercial construction to shrink. Tourism continues to boost the regional economy. In agriculture, bountiful crops depressed vegetable prices and grower profits but raised revenues for citrus producers.
Employment and Industry
District labor force growth outpaced employment growth in November,
and the region's unemployment rate edged upward to 8.1 percent. The
unemployment rate has hovered near 8 percent since April. Job gains
in services maintained the momentum of previous months as business
and health services posted especially strong employment gains over
the past year. Employment in the real estate sector also has
continued to expand.
Manufacturing activity has registered little overall change for most sectors since September. Although textile and apparel imports were at record levels in 1986, mergers, consolidations, and the closing of inefficient mills have resulted in a more productive and competitive domestic textile industry. Mills are running at 92 percent of capacity, up 9 percent from last year, and textile employment has turned up. Labor-intensive apparel producers are bearing the brunt of import competition; apparel employment is down by 7,900 workers just in the last year.
Appliance producers report record levels of shipments due to the strong housing market. Printing and publishing companies have been adding to job rolls as savings and loans, brokerage houses, and banks offer new financial services that require checks and documentation. The transportation equipment sector continues to add jobs on the strength of auto sales and aircraft parts production. Weakness in energy drilling activity continues to batter Louisiana; employment in oil and gas extraction fell by about 22,600 workers last year.
Consumer Spending
Holiday consumer spending was sluggish in Louisiana and Mississippi,
while retailers elsewhere in the region posted moderate sales gains
that generally met expectations. Because of limited markdowns, most
retailers expect their 1986 profit performance to be somewhat better
than in 1985. Merchants reportedly were very satisfied with
inventory levels at the end of their fiscal year and were generally
optimistic about the outlook for 1987 despite fears that some buyers
may be overextended.
District car sales rebounded sharply in December from the sluggish pace of October and November, largely in response to the well- advertised sales tax deduction advantage of purchasing a new vehicle before January 1987. Ford Motor Company's sales in the Southeast soared 45 percent in December, matching the company's strong car sales growth nationally. For all of 1986, Ford sales in the Southeast and the nation were off 3.3 and 0.2 percent from 1985 levels. Because fewer incentives are available to maintain consumer interest, the 1987 car sales outlook is uncertain.
Construction
November marked the second successive monthly decline in single-
family building permits, perhaps foreshadowing a construction
slowdown in the region. However, single-family houses in the medium
price range of $80,000-$120,000 still are selling very well, and
rising land costs, coupled with improved home affordability, have
prompted some builders of lower-priced homes to move into the
medium-priced housing market.
Although overall commercial construction is slowing, retail construction has continued at a healthy pace, spurred by continuing population in-migration. Occupancy rates are high at new shopping centers in Birmingham and Atlanta, and few lease rate concessions are being given. In Tampa, a slowdown in retail construction has helped boost occupancy rates and effective lease rates, while new store openings have caused a glut in New Orleans. Industrial construction over the past year has been strongest region-wide in the high-tech office and warehouse space segment.
Financial Services
Loan growth at large regional commercial banks continued to edge
downward in November as consumer lending experienced its largest
drop-off since July. Increased competition from non-bank
institutions and slow economic growth have contributed to the
consumer lending performance. Real estate lending has remained firm.
The market for home equity loans continues to surge at about the
same fast pace reported for the nation. December automobile loans
undoubtedly grew sharply with the year-end acceleration of car
sales.
Tourism
Travel to the Southeast, particularly by auto, remained strong in
November; hotel/motel tax receipts for most of the southeastern
states posted double-digit year-over-year increases. Hotels in parts
of Florida experienced occupancy rates near capacity during the
holiday season. Moreover, advance room bookings in Florida are up 4
to 5 percent from last year. To date, the fifteenth anniversary
celebration at Disney World has been a huge success and is expected
to continue to boost attendance through next October. Convention
business also is posting favorable gains throughout the Southeast.
Agriculture and Mining
Regional coal production fell 15 percent in 1986 from 1985's
depressed level; Alabama's production decline was much greater than
Tennessee's. Strong competition from cheaper oil and natural gas led
to lower coal prices, reduced production, and losses for mining
operations. Oil price stability stimulated well drilling in the
District even before the current price rise. The number of oil rigs
operating at year's end was the highest since last May and 23
percent more than last summer.
Extremely favorable weather in late 1986 over much of Florida's vegetable producing area has resulted in a bountiful winter harvest, especially of tomatoes. Unfortunately, vegetable prices reportedly are below production cost for many growers. Florida's citrus farmers are faring better with a larger crop than last season because prices are holding up better.