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Beige Book Report: Atlanta

August 9, 1989

Overview
A number of contacts at businesses headquartered in the Southeast have revised their expectations of business activity downward in light of either reports of a general economic slowdown or an actual slowdown in their sales. Few have indicated that they were going to change their capital investment plans as a result. Businesses related to the housing and construction industries have reported significant slowing, and the trucking industry also reports that business is down. Recently, oil and gas exploration has been showing some strength, and this has in turn been helping suppliers to this industry. There are a few reports of localized pressure on wages, particularly for unskilled workers. Input prices are being reported as stable, and in a few eases, failing slightly.

Reports of Business Activity
Although economic activity continues to expand in the Southeast, several areas of softness have become apparent. The slowdown in residential, office, and retail construction continues, and the effects are now being felt in several related industries. A furniture retailer notes that sales have slowed recently and that he expects some further slowing. A supplier of building materials reports that sales in Florida are down and that his firm is introducing lower-priced materials for cost-conscious contractors. Some slowing in the paper and pulp industry is also apparent. Several contacts report that order backlogs have decreased recently. A warehouse operator reports that most goods continue to move through normally but certain items, especially paper goods, are said to be accumulating. The transportation and freight industry is reporting a general slowdown in business. Several large trucking firms report that their volume of shipments has decreased, in some instances dramatically. Two operators, one in Florida and the other in New Orleans, note that shipments of building materials have been off substantially. Although rail sources have not revised their business expectations downward any further, truck operators report that in general their outlooks have been revised down recently.

Several industries, however, have stated that their business is starting to improve. Oil and gas drilling is up. The increase has been strongest in natural gas exploration in the Gulf, but one contact says that the recent stability in oil prices has begun to restore some confidence among oil drillers. This is showing up in increases in orders for drilling equipment from Louisiana suppliers. A manufacturer of air conditioning equipment reported that his firm has been running close to capacity recently with no sign of slowdown anticipated. He attributed the strength in orders to remodeling and replacement rather than to new building construction. Producers of communications and electronic equipment in Georgia state that business is still strong and that they do not expect much, if any, slowing in their industry. The one weak spot in communication and electronic equipment sales has been in federal government orders.

Several financial institutions pointed out that because of growth in home equity lines of credit, consumer loans have increased recently. Two lenders noted that there has been some increase in ARM mortgage lending, although they remain somewhat cautious in their outlook. A few other bankers noted, however, that borrowers seem to have become more hesitant to take out new loans in light of general reports of a slowing economy. Auto loans are widely reported being down.

Wages and Prices
Reports of tight labor supplies and greater than expected wage pressures are rare in the Southeast. Five percent seems to be the upper limit to reported wage increases, although the cost of benefits, particularly medical care, is still increasing more rapidly than wages. A hotel chain operator reports that it is still difficult to get workers at or slightly above minimum wage and sees few signs of slowing business activity. A spokesman for a ship repair yard in Louisiana said that pressures on crew wages and charges for repair work have been building with the increased demand for offshore drilling. Several manufacturers said that materials prices have been essentially steady. Rolled steel and copper prices have remained constant for the past few months, and prices for some grades of paper have actually come down recently.

Feed costs have remained stable owing to recent rains in the Midwest, although District fertilizer demand and costs have fallen because heavy rains in the Southeast have reduced planting substantially.

Inventories and Investments
Even though several businesses reported that they had revised their economic outlook down, few have reported any changes in planned inventories or investment plans. A furniture distributor intends to reduce already low inventories because of expectations of further slowdowns in sales. On the other hand, several chemical producers in Louisiana announced plant expansions recently. A number of automobile parts producers in Tennessee have recently announced large expansions or plans to construct new plants altogether. The firms produce parts for domestic auto-makers. A paper and lumber producer noted that several new plants currently under construction will bring substantial capacity on line in the next two years during a period in which he is now expecting slowing sales. An assembler of offshore drilling equipment and rigs has opened a previously idle factory.