Beige Book Report: Atlanta
August 2, 1988
The Sixth District economy showed signs of moderate expansion in June. Expansion in key manufacturing industries was tempered by layoffs in other sectors. Retail sales have picked up and recent dealer incentives have boosted auto sales. While residential construction has slowed, nonresidential construction and home sales are strong in major regional markets. Tourism is benefiting from increased convention activity throughout the region. Recent rainfall has improved prospects for crops and livestock in many drought- affected areas.
Employment and Industry
Industrial activity has been mixed since the last reporting period.
While the fabricated metals sector is experiencing a surge in
exports, orders for energy-based equipment remain sluggish and the
drought has hurt the sale of agricultural equipment. Appliance
producers expect a noticeable falloff from last year's record
setting pace as a result of the slowdown in housing starts.
Layoffs continue in the region's auto assembly plants, as well as at a large producer of military aircraft, and at Tennessee Valley Authority. Although defense spending remains under pressure, regional companies producing defense related electronic equipment continue to report favorable business conditions.
Plant expansions have been announced for the region's tire manufacturing industry as a result of strong demand. The carpet industry is doing particularly well in the replacement market. Carpet makers are concerned, however, that the drought may force them to cut back on their water intensive processes such as dyeing and finishing, possibly causing temporary layoffs.
Consumer Spending
In June and early July retailers in much of the Southeastern region
experienced a pick-up in department store sales. Merchants surveyed
mentioned the warm weather, renewed consumer confidence, and more
emphasis on marketing as factors boosting retailing of summer items.
Retailers expect that the improvement in sales will continue through
the fall and into the Christmas season.
Car sales continued to strengthen in the District in June and early July, boosting prospects that 1988 sales will be significantly better than expected earlier this year. Renewed incentives offered by domestic manufacturers have contributed to the improved sales experience, and disappointing import sales are intensifying competition across the board. Through May 1988, new vehicle registrations in the Southeast were up 6 percent over the comparable period in 1987, matching the gain in registrations nationally.
Construction
Nonresidential construction in the Sixth District remains healthy,
increasing by 5 percent through May over the comparable period in
1987. However, residential construction in the Southeast region is
down 11 percent for the year and continues to lag behind national
levels. Atlanta has seen a surge in office building construction in
the northern sector of the city. High-rise office construction in
Tampa is booming, spurred by a downtown office vacancy rate that has
dropped nearly 10 percentage points in three years. Interestingly,
this expansion was fueled by existing downtown tenants, rather than
relocations.
Declining values in residential construction in the District have been associated with moderate to strong home sales. Miami and Atlanta report strong existing home sales in June and early July, spurred mainly by consumer expectations of further rises in interest rates. In Louisiana and Mississippi, soft demand coupled with intense scrutiny of loan applications is making business difficult for homebuilders.
Financial Services
Overall loan growth in the District edged up ward in June, largely
as a result of an uptick in the rate of growth of business loans.
Contacts in Florida and Georgia attribute the improvement in
commercial loan growth to a surge in export sales and the growing
emphasis on middle market companies. Bankers in Alabama and
Tennessee reported that consumer installment and indirect retail
lending were very strong during the quarter just ended, as were
residential mortgage and home equity lending. Several commercial
mortgage lenders are noticing a definite slowdown in the number of
new deals added to their pipeline.
Tourism
The number of visitors to the Southeast has increased marginally
over last year. However, convention activity should get a boost this
summer. The Democratic Convention in Atlanta hosted over 30,000, and
New Orleans is expecting 45,000 for the Republican convention. Hotel
occupancy in the region is holding steady with the exceptions of
Jacksonville which is experiencing a 10 percent drop from last year
due to overbuilding, and New Orleans which showed a 5 percent
increase in April due to heavy convention activity.
Agriculture, Forestry, and Mining
The drought has arrested crop growth and curtailed the expansion of
southeastern livestock production. An increasing frequency of
showers has been noted across much of the region since early July.
Soybeans, cotton, peanuts and grain sorghum can still recover with
the resumption of adequate rainfall. However, most of the early corn
crop is beyond help. Crops in the southern portion of the region
including rice, sugarcane, citrus and vegetables, have received
near-normal rainfall and are showing good prospects. Pastures and
forage crops are reviving where recent rainfall has occurred and
most cattlemen have held on to their herds by supplemental feeding.
Demand has weakened in the forestry industry during the past month and prices have softened. The uptick in interest rates has slowed building activity but the home repair boom and increases in lumber exports to South Korea and Japan have provided some offsetting support for the lumber market. Coal production continues to rise but oil production has slipped 7 percent from the same period last year.