September 6, 1988
The Sixth District economy continued its spotty expansion in mid-summer with key manufacturing industries very strong, but services moderating and construction weak. Strength elsewhere in the U.S. economy appears to be dampening migration, especially in Georgia and to some extent in Florida. Retail sales have shown renewed sluggishness, though recent dealer incentives have sustained auto sales. Homebuilding remains soft and nonresidential construction has been declining in major regional markets, where inventories of space are high. Recent rainfall has improved prospects for crops and livestock in many areas earlier affected by the drought. Selected industries are producing at capacity and raising prices but wage increases are modest.
Employment and Industry
Industrial activity appears to be generally healthy, with several
export-related industries operating at capacity levels. In textiles,
demand for carpet is strong; demand for apparel fabric is down, but
producers expect that dampened imports will lead to stronger demand
for domestic products. The wood products industry continues to do
well, with both domestic and foreign demand expected to continue
growing into next year. Paper and packaging materials producers,
operating essentially at full capacity, report that they can easily
pass on price increases. Increased foreign demand is expected to
offset slower domestic growth for commodity chemicals; producers
have been expanding facilities, and a new chemical plant was
recently announced for Louisiana. Producers of specialty chemicals
used by the paper and electronic industries also are doing well and
are raising prices. Manufacturers generally are not experiencing
tight labor markets or significant upward wage pressure.
The electrical equipment industry continues to benefit from the manufacturing revival as firms add production lines and build new factories. The electronics industry is being boosted by demand for personal computers and defense-related electronics.
Ship building has benefited from major new U.S. Navy contracts, which have also boosted demand for regionally-produced steel plate and increased employment rolls in Alabama and Mississippi. Steel mini-mills are prospering from new business stimulated by the weaker dollar, and Increased demand for can sheet has led to the expansion of a Tennessee aluminum plant.
Consumer Spending
Retail sales in the Southeast slowed in August following a mild
rebound in July; revenue was off from last year for several
retailers. Although back-to-school sales in the region have not met
retailers' expectations, the hope persists that fall sales will
accelerate when the weather cools. In fact, retailers are fairly
optimistic about the fall season, especially compared to their poor
experience last year. Few expect a big jump in sales and they
continue to order conservatively.
Car sales were brisk in August, helped by moderate model clearance incentives. The August volume was lower than a year earlier, when bigger incentives strongly boosted sales. Truck sales continue to post healthy year-over-year gains. Though Georgia and Florida account for about half the region's volume gain, Louisiana and Mississippi are pouting the largest percentage gains.
Construction
Overall, nonresidential construction was declining in mid-summer and
was at its lowest level since last winter. Even the Georgia market,
which has been posting the highest year-over-year percentage
increases, has softened. South Florida's office market is notably
weak, but industrial park construction has picked up as export trade
booms. Elsewhere, Tampa's huge wave of new construction and
absorption has begun to subside. However, hotel construction in
Orlando is booming and the office market has been a bright spot in
Nashville.
Residential construction dropped one-fifth in July from June's level, mostly from a slowdown in single family construction. Reduced migration continues to exert a drag on housing demand. Multifamily housing remains overbuilt in several major cities, including Jacksonville, Miami, Nashville, and New Orleans. In Atlanta, multifamily building permits and construction are up sharply from last summer's low levels; there also is evidence of an apartment price war. Tampa's condo market is expanding.
Financial Services
Business loans continue to exhibit strength, while real estate
lending is flat because of the slowdown in home sales and the end of
the refinancing boom. Consumer lending in Louisiana and Mississippi
is showing strong growth as a result of vigorous car sales.
Beginning July 1, legislation permitted commercial banks in
Mississippi to acquire or be acquired by banking companies in
Alabama, Louisiana, or Tennessee; the first inter-state deal was a
proposed acquisition of a Mississippi bank by a Memphis bank.
Tourism
Tourism has been one of the best industry performers this summer
even though there has been little growth over last year. Despite
reports that travelers are cutting back both on length of stay and
discretionary spending, Florida anticipates record-breaking fall and
winter seasons. in Central Florida, the Space Shuttle Discovery is
providing a strong boost to attendance at the Kennedy Space Center.
Traffic at Orlando International Airport continues to grow rapidly,
but the Tampa and Miami airports have reported significant declines
this summer, primarily the result of flight cutbacks by Eastern
Airlines. Also, New Orleans expects a drop in visitors and reduced
hotel occupancy this fall following the spurt accompanying the
Republican National Convention.
Agriculture, Forestry, and Mining
Most of the Southeast received badly needed rains in recent weeks;
the moisture came in time to help a majority of crops. The forestry
industry continues to experience a roller coaster year as prices of
many common lumber products have fallen about one-fifth in recent
weeks after earlier advances. The summer drought improved logging
conditions and allowed lumber supplies to outrace demand. Fewer home
starts are limiting demand and enhanced competition from Canadian
producers, caused by reduced rail rates on Canada's nationalized
railroads, may also have contributed to price weakness.
Coal production remains stable while oil production is down moderately from last year's level. Oil exploration in the region has yielded new discoveries in Alabama and Mississippi.