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Beige Book Report: Atlanta

June 19, 1991

Overview
Business contacts in the Southeast indicate a slight improvement in economic activity in May compared with both year-ago and recently- increasing monthly levels. Home sales are said to be remaining on an upward trend. Reports on retail sales and manufacturing suggested scattered improvements, though the majority of contacts indicated softness. The export sector, which is comparatively small in the District, displayed continued strength. Heavy rains in the Southeast have cut into the sales of several agribusinesses and limited crop plantings of cotton, soybeans and peanuts.

Retail Sales
Reports from most retailers indicate that the consumer spending increases posted in recent months have stalled, not meeting their previous expectations. Contacts report that they have seen no real improvement in May sales from recent months and posted only marginally higher sales from weak year-ago levels. About three out of four retailers reported that May durable goods sales were at best even with last year's levels, with the exception of slight increases in appliance and automobile sales. Overall, they still anticipate increases in activity, although they have become less confident about these expectations. As a result, most merchants continue to keep inventories lean.

The travel and convention industry is providing some boost to retail and service sales. Industry contacts in Atlanta, New Orleans, and Orlando all report continued increases in bookings and visitors from recent months and year-over-year. Increases in the number of tourists from foreign countries were also noted. A Georgia contact said that restaurant sales and other travel-related services account for most of a recent slight pickup in retail sales.

Manufacturing
Over half of District producers contacted in early June indicated continued flat or declining sales and persistently soft orders. Auto- and auto-related producers, business supplies manufacturers, poultry processors, and producers of bed and bath fabrics report particular weakness. All have responded with further reductions in inventories, although less than half report additional layoffs. Excessive rains in the Southeast have exacerbated conditions for agribusinesses providing farming equipment and supplies, fertilizers, and lawn care. Contacts do not expect to make up these lost sales later in the season.

Other producers indicate that orders in May picked up from the depressed levels of recent months. Orders for home-related merchandise remain firm, and according to industry contacts, apparel and apparel-related textile production and employment levels turned up slightly in May in response to recently increased orders. Over half the container producers contacted reported increases in orders for paper and some types of plastic packaging. Several other manufacturers have reportedly expanded hiring in response to the improvement in business volume over recent months. A trailer manufacturer has recently hired additional people in a move to expand Georgia operations, while a refrigeration unit producer called back laid off workers during the past two weeks. In addition, lumber contacts said that exports have recently picked up from their previously depressed levels. Export tonnage of pulp, paper and citrus products continue to increase in the District.

Financial Services
The majority of bankers report that consumer and business loan demand remains anemic overall, with the exception of strong residential mortgage lending. Despite generally weak business loan demand, bankers did note that some service industries such as health care and telecommunications have shown increased borrowing needs. One also said that recent gains in tourism in New Orleans are leading to expansion in related service industries. Bankers report that loan quality is stabilizing or improving slightly. Although no bankers indicated changes in credit standards, several business contacts said that their borrowing terms have become more favorable recently.

Construction
According to most realtors, new and existing home sales continued to rebound in April and May, although about half noted that home sales have fallen back slightly in recent weeks. Builders reported that improved home sales have led to increased construction activity, and a few Alabama builders are now even starting to talk about building speculative homes. However, three out of four homebuilders report that tight lending conditions are still restricting a rebound. Nonresidential construction remains weak although the pace of decline has slowed. Contacts attribute this easing to rising public construction and the start of several large commercial construction projects that had been able to bypass tight lending conditions.

Wages and Prices
Contacts say that they are not having any trouble hiring workers or recalling laid off employees. Wage demands have subsided considerably in Louisiana's oil industry. An expected abundant beet crop has depressed sugar prices while high cotton prices are adversely affecting textile industry profits. Waterlogged fields have limited planting of cotton, soybeans and peanuts this spring. Some contacts expect reduced crops and higher prices to result. Linerboard, pulp and corrugated packaging prices are all currently depressed as a result of short-term oversupply conditions in the industry.