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Beige Book Report: Atlanta

January 21, 1993

Overview
According to Sixth District contacts, the Southeast economy strengthened in December and early January. Retailers enjoyed significant increases in holiday sales with claims of double-digit percentage gains over year-ago levels being common. Realtors and home builders saw continued improvement in most single-family markets. Most manufacturers reported modest increases in production and expect expansion in 1993. Bankers indicated that consumer and business loan demand is picking up. Except for some construction materials, wholesale and retail prices have remained stable and wage gains modest. Contacts across the District suggested that consumer and business confidence is reviving.

Consumer Spending
Retailers reported significant increases in holiday sales over year- ago levels and are generally upbeat about prospects in early 1993. Increased spending was noted across a wide range of consumer goods, from apparel and household textiles to big-ticket items such as electronics, appliances, and furniture. Since less price discounting was needed to move goods and seasonal hiring was conservative, retailers' profit gains have most likely outpaced total revenues. Higher-than-expected sales have lightened inventories heading into 1993, but retailers are generally comfortable with this position. Auto sales reports were more varied, but a number of dealers reported slight increases in December from year-ago levels. They credited year-end incentive programs for the gains.

Tourism remains a bright spot in the regional economy. Contacts reported that holiday air passenger traffic, particularly international arrivals, was significantly above year-ago levels. Through year end, convention attendance exceeded 1991 levels and industry contacts indicated that advance bookings through mid-1993 promise another good year.

Manufacturing
Manufacturing activity has increased moderately in the District since late November. Production, shipments, and new orders continue to increase for textile and apparel producers. However, industry spokesmen warn that production is likely to slow since order backlogs are expected to decline by the end of the first quarter. Improving orders were also noted by contacts in industries producing electronic equipment, chemicals, and packaging.

The nation's home-building recovery and Hurricane Andrew have resulted in gains in new orders for furniture producers, building supply companies, and lumber yards. The District's transportation- related production has benefited from increased light truck and van sales. After struggling through most of 1992, suppliers to the offshore oil industry noted improving conditions at year end.

Construction
After taking into account normal seasonal patterns, nearly all realtors reported continued improvement in home sales. These gains were attributed to attractive mortgage rates, pent-up demand, and increased consumer confidence. Sales remain strongest in the low-to- mid price range but contacts noted increased interest in the trade- up market. Ample inventories of homes for sale kept existing home prices relatively stable, but higher lumber costs are reportedly pushing new home prices modestly higher. Although unseasonably wet weather has slowed housing starts in the District, builders are optimistic for 1993. Multifamily development remains generally weak, although scattered reports of new development in response to rising occupancy rates and firming rents are beginning to surface.

Financial Services
Most of the region's bankers encountered improving loan demand in December and early January. Primarily reflecting increased home sales, mortgage originations were fairly strong for this time of year. Lending for autos was steady and credit card receivables were up moderately as consumers charged some of their increased holiday purchases. Most commercial lenders also reported modest increases in loan demand, including a few business expansion loans during December. Those bankers not experiencing improvement at the end of 1992 were relatively optimistic about the first half of 1993.

Wages and Prices
Few factory contacts reported increases in materials or finished goods prices. Although some manufacturers intend so post modest price increases in early 1993, they are uncertain whether the increases will stick in an intensely competitive environment. There are no reports of increasing wage pressures. In fact, some major employers in the District have recently imposed moderate across-the- board wage reductions or announced plans to significantly trim current employment levels.