Beige Book Report: Atlanta
March 14, 1990
Overview
Contacts continue to report generally slow growth throughout the
Southeast, with little change reported in comparison to the last
report. They report weakness in some raw materials prices and wage
increases similar to the current inflation rate. Manufacturers
indicate no further weakening except in the auto related industries.
Retailers report some gains in sales relative to last year, although
demand for durables remains weak. Contacts in the construction
sector continue to cite overbuilding in most markets. Exploration
for natural gas in the Gulf is reported to be increasing. District
lenders and borrowers are reporting a tightening of credit standards
for real state.
Wages and Prices
A number of industrial contacts have indicated that the prices of
some raw materials have been falling recently. One said that
aluminum and copper prices have been dropping, in contrast to the
tight markets seen last year. Several pulp and paper producers have
commented that the prices of input chemicals have remained unchanged
or have been weakening. A producer of polyester fibers notes that
slowing carpet demand has recently resulted in falling prices for
synthetic fiber.
Most employers reported that wages have been rising at roughly the rate of inflation. A few shortages of skilled workers were mentioned. A builder in the Jacksonville area said that skilled construction workers were in short supply. Several contractors and oil-rig operators in Louisiana also continue to report shortages of skilled workers.
Most retailers said they were having no trouble with deliveries from their suppliers. Several added that their suppliers had been giving them a better selection of products at lower prices.
Manufacturing and Employment
Several automobile plants in the Southeast are laying off workers or
closing completely. A number of contacts noted that the slowdown in
auto production is also hurting suppliers. Several producers of
parts and tires have closed or are laying off workers in Alabama and
Tennessee. A fabricator of aluminum auto parts says that the demand
from domestic auto producers has softened recently.
Textile and apparel producers report no further weakening from last month, while paper producers report that business is up somewhat compared to a year ago. One contact revealed that his backlog of orders currently is up 30 percent over the same period last year. Another reports continued strong shipments of boxes and linerboard. Two producers in Mississippi noted that their firms have recently modernized and increased efficiency. One felt that the improvements would help their competitiveness overseas.
Retail Sales
Retailers in the District are generally reporting small increases in
the inflation-adjusted value of sales in February compared to a year
ago. Although they felt that sales in January and February were
encouraging, they remain uncertain about the rest of the year.
Several contacts noted that women's apparel and electronic products
were selling well. A few retailers said, however, that sales of
consumer durables, particularly furniture, continue to be below
year-ago levels, and they do not expect much improvement soon.
Several auto dealers explained that the uptick in sales in January was unexpected and that sales in February were again weak. Most dealers said they do not expect much improvement for the rest of 1990. Almost all dealers indicated that excess inventories have been successfully worked down and now stand at levels lower than last year at this time.
Real Estate and Construction
Contacts continue to report a slow commercial construction market.
They cite previous overbuilding and slower employment growth as
reasons for weakness. Several developers have noted that while the
demand for speculative buildings is down, the demand for owner-
occupied or signature type buildings and public buildings is still
quite strong.
Residential construction was strong in January, but several builders said that this was due to unseasonably warm weather and are expecting declines in new starts and building permits. Many contacts are reporting that desired reductions in inventories of residential units are just beginning, particularly in Tennessee and Louisiana. They do not expect construction to pick up much until 1991.
The disposition of the RTC's residential assets was frequently mentioned as adding to uncertainty in real estate markets. Several developers stated that it is now more difficult to get bank financing, and they expect that new capital requirements and limits on how much a particular savings and loan can lend to a developer will keep the supply of loans tight. They added, however, that most of the tightness in lending has so far been the result of overbuilt markets rather than of the savings and loan problem.
Financial Services
Several bankers noted that overall growth in consumer loans has
weakened in the past several months, although home equity loans are
still increasing. A few bankers asserted that consumers appear to be
paying off some of their outstanding debt. Other bankers added that
problem real estate loans have caused a tightening of real estate
credit standards. Problems associated with real estate loans are
expected to persist in 1990 but at a level somewhat lower than in
1989. Several contacts in Louisiana expect a pickup in commercial
and residential lending, although they will be starting from a very
low level of activity.
Agriculture and Natural Resources
Agricultural contacts are reporting that the post-freeze vegetable
crops in Florida are doing well and that prices may be back to
normal by mid-March or early April. They expect prices of citrus
products to remain high throughout the year.
Oil drilling continues to expand slowly. Domestic producers are reporting that they are shifting their exploration budgets more towards natural gas.