Beige Book Report: Atlanta
May 1, 1991
Overview
Although the positive signs observed last month have been
reinforced, reports from businesses contacted in April continue to
give a mixed picture of the southeastern economy. Retailers and
realtors report that the post-war sales pickup has been maintained,
but most are concerned that recent improvements are linked more to
"catch up" spending and good spring weather rather than to any
sustainable improvement in the economy. Sales of homes continued to
improve, but builders are skeptical about whether the recovery is
sustainable. While manufacturing levels were, on balance, below or
barely equal to those seen a year ago, most producers of home
furnishings have seen a recent pickup in orders. Freight haulers say
that April shipments are up across-the-board, suggesting evidence of
a possible turnaround. Meanwhile, reports from bankers mirror those
of businesses, indicating a slight increase in credit demand and
some easing of credit conditions in recent weeks. Reports on prices
indicated declines in several categories of materials.
Retail Sales
Retailers reported a significant improvement in March and early
April sales from earlier this year, although volume remained below
or only equaled year-ago levels. However, they attributed much of
the improvement to normal seasonal patterns. Several contacts also
expressed fear that the sales improvement during recent weeks may be
only "catch up" spending without any permanence. Most merchants
continue to keep inventories lean, waiting until there are further
signs that recent improvements will be sustained. However, bankers
indicate that some retailers, acting on sales expectations, are
requesting a temporary increase in their lines of credit for planned
additions to inventory. Auto dealers reported that the sharp postwar
sales pickup has been maintained through March and early April,
although units sold were still below year-ago levels. On a brighter
note, the tourism and convention businesses have shown signs of a
rebound with foreign visitors returning after a war-related
reduction.
Manufacturing
Although construction materials manufacturing has continued to slip,
home furnishings producers have seen significant improvements from
their depressed orders of recent months. The household fabrics
segment of the textile industry has reportedly posted increased
orders that have resulted in extended mill operating schedules over
the past few weeks. A manufacturer of replacement air conditioners
and parts has received several sizable orders as distributors
rebuild inventories depleted in recent days. Indicative of a more
general turnaround, a packaging manufacturer reports a slight
increase in orders recently and has responded by rebuilding
inventory levels. Reports from truck and rail transporters give
further evidence of an upturn, showing a recent pickup in total
shipment volume and noting that industrial chemicals are especially
strong. However, this increase was, in part, attributed to stock
building because of railroad strike worries.
Other producers, however, report continued declining or flat sales and persistent soft orders for March and early April. A telecommunications company reports no letup in its overall business decline and anticipates additional layoffs of a work force already reduced by 20 percent over the past nine months. Steel producers, auto-related manufacturers, apparel, and some apparel fabric producers have also responded to continuing bleak sales with further layoffs and have indicated there are no plans to step up output at this time. Paper, pulp, and linerboard producers also report continuing slow sales and are delaying capital expansions until economic conditions improve. A slowdown is reported in exports of poultry, grain, and coal, although phosphate exports show strength. District banks verify that current production levels in several industries are flat to down. However, bankers report that most manufacturers have dropped their "doomsday" scenarios, and, as a result, have stabilized or slightly increased inventory levels in recent months.
Financial Services
Business and consumer loan demand is reported by bankers to remain
weak, although some observed improvements recently. One banker
reported a slight pickup in overall loan demand while another
reports that retail business loan demand has improved as a result of
retailers' increased sales expectations. Some contacts report easing
of credit standards, particularly for small business with good track
records, but most feel that tight lending conditions continue to
restrict loan growth. Business contacts confirm this result,
reporting that a number of large suppliers continue to serve as a
'credit line" for customers by extending accounts receivables
maturities and cosigning bank loans for clients.
Construction
Realtors indicate that the rise in both existing and new home sales
reported earlier this year has continued through March and early
April. Although builders that were contacted have responded with
modest increases in residential building, they remain skeptical
about the strength and sustainability of the housing recovery. This
skepticism is reflected in reports from building materials suppliers
and manufacturers whose sales continue to decline.
Wages and Prices
Most contacts reported subdued wage increases. However, shortages
and wage increases in markets for certain types of workers in oil
producing areas and health services are said to continue. Businesses
report lower input prices for linerboard, boxes, and newsprint,
while steel prices have dropped dramatically in response to the
reduced demand from building and auto industries. Natural gas prices
have plummeted to a five-year low causing some producers to scale
back production and to review exploration plans.