Beige Book Report: Atlanta
November 1, 1989
Overview
Although economic activity in the Southeast has moderated in the
past few months, there are few indications of any further slowing
and most contacts expressed optimism for the remainder of the year.
Manufacturing is continuing to show signs of strength in textiles
and apparel, petrochemicals, and paper, while transportation
equipment, construction and construction materials remain weak.
Consumer spending remains relatively stable with most contacts
indicating increases smaller than earlier this year and smaller than
for the same period last year. Sales of household durables,
especially furniture, continue to be soft with no improvement
expected. While our contacts continue to mention substantial
increases in the cost of health care benefits, most reported only
modest wage or price pressures. Exporters, importers and port
representatives agree that the recent rise in the value of the
dollar has had and is likely to have little impact on economic
activity.
Prices and Wages
Contacts indicate no generalized wage pressures although a few cases
of upward pressure for entry-level workers were mentioned. A survey
of Nashville manufacturers revealed that some labor supply problems
are beginning to appear for quality skilled workers, but they do not
appear to be serious and have not resulted in wage pressures. A few
manufacturers, however, indicated that the key to obtaining new
workers seems to lie in the fringe benefits offered. Several
contacts report trouble in finding skilled workers in trucking and
engineering. In settling recent labor contracts, several firms
reported that the cost of health care benefits remains high and is
still increasing rapidly. They do not expect any slowing soon.
Several manufacturers are reporting falling prices for inputs such as freight charges and raw materials. The price of resins used in plastic goods has fallen steadily this year and continues to decline. Other producers, specifically producers of paper products, are indicating stable input prices and note no change in the price of their final product in the past six months, with none expected for the rest of the year. In contrast, several land and air freight firms report a recent rise in fuel costs. An air freight firm revealed that jet fuel prices have risen unexpectedly recently, and several trucking firms noted increased fuel costs. Even so, major carriers and independents alike still feel compelled to offer discounts on freight rates of 30 to 40 percent. Price competition among freight carriers is reported to be fierce.
Financial Services
Several bankers have reported that both consumer and business loan
demand remain slow but slightly up from last month. Real estate and
auto loans remain weak throughout the Sixth District. One banker in
Atlanta pointed out that the slow commercial loan demand reflects
caution on the part of business given the uncertain economic
outlook. Loan quality seems to be improving as banks establish
tighter loan standards, particularly for real estate development.
Consumer Spending
Retail sales in Alabama and Tennessee are holding up well, and
Florida retailers report that sales are quite strong. Strength is
apparent for apparel and nondurable goods; demand for big ticket
items is slow. A furniture retailer reports that sales have fallen
recently and are down seven percent from a year ago. This is unusual
because October is normally a strong month. Smaller retailers in
Miami, however, say that sales were slow all summer and remain so.
Auto sales have been weak for the past several months across the
Southeast, and while some dealers said that sales recently were
unexpectedly strong because of rebates and other incentives, they
added that these additional sales had probably come at the expense
of sales next year. A few dealers noted that sales of domestic autos
had been stronger than of foreign autos.
Construction
Office and residential construction has been slow across the
Southeast for most of this year, and builders expect no pickup soon.
Bankers report that real estate loans have been growing slowly.
Builders in Nashville report a five year supply of houses, although
they say that vacant office space is being absorbed and the supply
is now below two years. Although the housing market is also slow in
Florida, demand for homes above $500,000 is still very strong. A
builder in Birmingham pointed out that most industrial buildings are
full and that he is planning to build several on speculation.
Manufacturers still are willing to expand capacity in the Sixth District. A large paper firm in Louisiana has announced a substantial modernization program to begin next year, while a new textile plant will be opening on the site of a plant abandoned in 1986. Several chemical firms in Louisiana and Florida have recently announced plans to expand existing plants next year. Although the oil and gas industry has started to turn around, firms supplying drilling equipment are still delaying plans to expand capacity until the strength of the industry's recovery becomes clear.
Exports, Imports, and the Dollar
Few contacts have reported that the recent fluctuations in the value
of the dollar have affected their businesses much. A shipper of
grains and soybeans noted that foreign subsidy programs had more
impact on trade than did changes in the value of the dollar. A
dealer in chemicals and fertilizers added that foreign restrictions
on trade were more important in determining his volume of exports
than were exchange rate fluctuations. An exporter of sugar said that
the dollar's appreciation has had no effect on his volume of trade.
A producer of plastic containers does not expect the higher dollar
to affect his business.