Beige Book Report: Atlanta
January 27, 1988
Unfolding national economic trends also are evident in a reading of business conditions in southeastern states. Manufacturing activity is strong in many foreign trade related activities such as agriculture, paper and chemicals. Producers in housing and consumer goods industries are becoming concerned about soft demand. Holiday spending, while not great, turned out to be better than retailers expected in the immediate aftermath of the stock market crash. Although construction activity continues to slow, the regional economy is comparatively healthy on balance.
Employment and Industry
Manufacturing activity remains brisk for most industries. There is
no evidence of significant cutbacks in capital spending or orders
for major regional industries, but consumer goods producers are
edgy. Textile producers continue to operate at high utilization
levels, with carpet producers reporting tight labor conditions.
Increases in prices of imported and domestic clothing plus softening
demand is resulting in an unwanted apparel inventory buildup at the
manufacturing level, possibly signaling a production slowdown this
year.
The chemical and paper industries are benefiting from higher prices, improved domestic and foreign sales, and lessened import competition. Strong textile markets also have helped segments of the chemical industry, and the cheaper dollar has encouraged foreign paper mills to buy U.S. wood pulp. New paper mills and plant expansions have recently been announced.
Defense related government contracts continue to benefit the region; in Huntsville, the new space station contract will eventually add 2000 new jobs to payrolls. In metals, more than 500 steelworkers in Alabama are expected to return to work earlier than originally planned and an aluminum smelting plant is returning to full production in Tennessee. On the other hand, home appliance manufacturers are concerned about scaled-back consumer spending, lower housing start levels and rising raw material prices.
Consumer Spending
Major department stores made slight-to-moderate real gains in
holiday sales over the previous Christmas but sales at specialty
stores such as women's fashion shops were disappointing. Retailers
boosted sales volume by promoting heavily and reducing gross profit
margins in the process. Efforts to clear excess merchandise in
January have been hampered by poor weather. Orders and inventories
for spring sales are conservative and expected to be about the same
as last year's levels. Many retailers expect to see more discounting
this spring than last year and a more highly promotional
environment, particularly in products experiencing the sharpest
slowdown in spending such as women's sportswear and electronic
items.
Auto dealers feel that December's sales compared rather well with year-end 1986 considering strong tax incentives at that time. Light trucks continue to be the star performer offsetting some weakness in domestic car models. The geographic pattern of vehicle sales in 1987 mirrored the overall consumer spending pattern in the District— activity in the eastern part was stronger than that nationally, while the western part lagged behind the nation's performance.
Construction
The winter slowdown, coupled with continued economic uncertainty,
has reduced housing sales and construction. Markets in Louisiana and
Mississippi are hampered by distressed local economies and
outmigration as well. Activity is mixed in Tennessee—Nashville has
become overbuilt in both single-family and multifamily homes while
Knoxville's housing market seems to be building momentum. The huge
Florida and Georgia markets, which were fairly stable in 1987, are
expected to soften in 1988.
Analysts expect the widespread commercial construction and leasing slowdown to continue this year. The office market, in particular, remains overbuilt in most of the large markets. A notable exception is Orlando, where high absorption and a cutback in development in 1987 caused its office vacancy rate to drop significantly. According to recent reports, foreign investors' interest and participation in Atlanta's commercial real estate market is growing. The Japanese have been the most active, but European investors' activity is also growing.
Financial Services
Consumer and real estate loan growth fell in December, with consumer
borrowing actually declining in Alabama and Louisiana. The slower
expansion of consumer credit in the other states reflects a smaller
increase in borrowing for car purchases. Homeowners also are
reported to have drawn down home-equity lines to finance Christmas
purchases. Other residential mortgage financing is sluggish due to
seasonal factors and low volumes of refinancing relative to late in
1986. Regional banks are requiring commercial developers to pre-
lease more space to qualify for loans.
Tourism
The U.S. cruise industry is growing at a fast clip. Ports such as
Miami—currently the world's most used cruise liner port—Fort
Lauderdale, Tampa, and New Orleans should benefit from this
increased traffic, which peaks during the winter. The airline
industry has yet to note any negative impacts attributable to the
stock market's crash, and the dollar's most recent decline has not
spurred any noticeable trends in air travel. Airline officials
anticipate an eventual increase in tourists to the southeast as a
consequence of the dollar's decline. The air fare war now going on
in Atlanta and Florida was designed to fill more seats during the
slack winter quarter. In Georgia, Florida, and Louisiana, business
travel to attend conventions and meetings during January is running
ahead of last year's performance.
Mining, Agriculture and Forestry
The kaolin industry is prospering as export activity increases and
demand from paper companies remains strong. In dairy expansion
projects, prompted by favorable short- and long-tern prospects, are
underway in Georgia. The phosphate industry continues its recovery
after several years of poor performance, aided chiefly by a fast-
growing export market.
Southeastern crop farmers are enjoying higher prices. Florida's citrus industry is especially benefiting from a larger crop and stable to higher prices. Forest industries are continuing to prosper, with a bright outlook for 1988.