Beige Book Report: Atlanta
September 18, 1991
Overview
Economic recovery in the Southeast continued during August, but at
an unsteady pace. Manufacturers' reports are mixed with nondurable
goods orders expanding more rapidly than durables. Realtors suggest
modest recovery in residential sales, reducing existing inventories.
However, builders are unwilling, or unable, to renew significant
development. Retailers were disappointed with August sales after two
months of higher activity. No improvement in commercial construction
is expected this year. Regional convention bookings and tourism are
up modestly from year-ago levels. Bankers report some improvement in
loan demand from earlier in the year, but borrowers continue to feel
constrained by strict credit guidelines. Aggressive competition,
soft commodity prices, and ample pools of job candidates are
yielding product price stability and restraining wages pressures.
Consumer Spending
August retail sales were generally below expectations and year-ago
levels. Confirming lackluster consumption and lean retail profit
margins, advertising expenditures across all media remained at
reduced levels recorded early this year.
Durable goods have shown little improvement, with home furnishings especially weak. General department store traffic declined modestly from this spring and early summer. Upscale department stores report lower back-to-school sales from one year ago. However, sales at stores emphasizing discount pricing expanded, as consumers continued to substitute away from more expensive selections. Retailers are expecting little, if any, increase in holiday sales from last year.
New car sales weakened in August after moderate improvements over the summer. However, used car sales continued to strengthen; contacts attributed this to consumer cost-consciousness and credit constraints. Dealers have been conservative in ordering 1992 models. To counter announced price increases and expected consumer reluctance, rebate programs are reportedly under development.
Tourism in the region improved moderately during August compared with year-ago levels. Modest increases in convention bookings and visitors were reported in Atlanta, New Orleans, and Orlando. Based on advance bookings, convention attendance should continue to improve through the fail.
Manufacturing
Manufacturing activity remains mixed, with little change from the
last reporting period. Textile contacts expect increasing shipments
of denims and fleecewear through the end of the year, while
producers of household textiles, such as draperies and linens,
expect sluggish demand through the fall. Increasing paper mill
shipments reflect continued strength in paper-related production.
Other manufacturers expect little improvement until next year. Automobile and building materials shipments continue to slump. Weak commercial construction continues to adversely impact the region's structural metal production. Sluggish construction and auto activity is expected to restrain demand for related chemical production through early next year. New layoffs continue to be reported at electronic equipment producers affected by declining defense contracts.
Financial Services
Most banking contacts reported improved demand for consumer and
mortgage loans in August from June and July. However, loan demand
for capital expenditures is unchanged from earlier this summer, and
below year-ago levels. Some auto dealers and developers maintain
that credit terms have continued to tighten.
Construction
Southeastern housing markets continued a moderate recovery in July
and August. Except for Florida, single family permits in July pulled
ahead of year-ago levels; multifamily permits remained weak. Most
realtors reported modestly improved homes sales in August from June
and July. However, the Atlanta market appears to have faltered.
Regionally, home sales in the mid-price range (trade-ups) are
strong. Despite lower interest rates, first-time buyers of lower-
priced properties are being constrained by higher FHA down payment
requirements. Sales in the luxury market are stagnant.
New home inventories are declining, but builders report that modest demand and tight credit standards continue to limit speculative development. Contacts expect no improvement in nonresidential construction during the remainder of this year.
Wages and Prices
Most contacts report stable product prices and no acceleration of
wage pressures. Stabilizing fuel prices and vigorous competition
have pushed shipping rates below year-ago levels. Natural gas prices
firmed in the last month but remain below levels required to induce
new drilling. A producer of air conditioning equipment reports that
materials and parts prices are holding steady in a very competitive
market. Regional housing prices have yet to rebound in response to
moderately increased demand. Building supply companies remain under
downward price pressure. Prices of the region's lumber products,
however, have risen in response to firming domestic and export
demand, as well as supply constraints on Northwest lumber.
Generally, labor availability is not a problem. Our contacts anticipate no acceleration of wage pressures over the next several months. Budgeted wage gains are equal to or slightly below those seen last year at this time. The major exception continues to be health services. According to one contact, new medical technology requires more highly skilled labor and a relative scarcity of skilled technicians continues to exert pressure on wages in that sector. Escalation of benefits costs continues to trouble employers, who are implementing increasingly aggressive policies to curtail these costs.