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Atlanta: March 1994

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Beige Book Report: Atlanta

March 9, 1994

Overview
Business contacts report that Southeastern economic activity continued to expand at a moderate pace in February, and their expectations about the near-term outlook remain positive. The recent severe weather only affected some areas in the District. Merchants generally reported that retail sales are above year-ago levels and that factory activity is increasing for industrial equipment and sectors associated with residential construction and automobiles. However, the energy and defense industries are described as still contracting. Residential housing demand remains strong, commercial real estate markets continue to improve, and, on balance, bankers report stronger than expected loan demand thus far in the first quarter. There have been no reports of increased wage pressures, and while prices of finished goods remain stable, a few contacts again noted rising raw materials prices.

Consumer Spending
Some retailers reported that sales were hurt by bad weather in February. Many stores in Tennessee, Mississippi, and Alabama lost several shopping days in mid-month when severe weather caused power outages which closed the stores. Some of the affected retailers reported that activity has increased since then, but few believe they will be able to recover all the lost sales. In the states not affected by the severe winter weather, most retailers noted sales were up over January and year-ago levels. Women's apparel sales are still slow, but the early Easter holiday is expected to help boost sales of other spring merchandise. Durable goods are still selling well, but activity has slowed slightly from the hectic pace seen at the end of last year. Sales of autos continue to build from last quarter, and most dealers around the Southeast report year-over-year sales gains. In addition, there have been sporadic reports of supply constraints slowing sales, especially for some makes of trucks and sport-utility vehicles.

Manufacturing
Reports on manufacturing activity indicated that it continued to expand, despite temporary problems caused by the ice storms in parts of the region. Overall, factory contacts note moderate increases in production and new orders in most sectors as well as optimistic expectations about future activity. Pent up demand for new cars is reportedly stimulating new orders and shipments at automotive suppliers. Some industrial equipment producers are adding to employment rolls anticipating strengthening sales of capital goods in the near future, and building products producers say they are beginning to reach capacity constraints as a result of strong residential markets. There are also reports that producers of home textiles are expanding or opening new facilities.

Some industrial representatives, however, still note sluggish business activity. Apparel producers comment that in addition to foreign competition, spending on autos and home products is reducing domestic apparel demand. Lower oil prices and stiffened environmental regulations are reportedly adversely impacting energy companies in the southwest part of the District, while manufacturers of defense goods continue to announce layoffs.

Construction
Single-family home sales remain strong throughout the Sixth District. Most realtors reported February sales were up from January and year-ago levels. Inventories are still tight in many areas, and more and more real estate agents are reporting rising home prices. Demand remains strongest for new homes. However, builders in several states have reported unseasonably poor weather has slowed construction of new homes. Nonetheless, most builders remain confident that with improving weather they will be able to increase their building activity and take advantage of an expected strong market this spring.

The commercial and multifamily real estate markets continue to report signs of slow but steady improvement. Vacancy rates are gradually declining, and many areas are experiencing modest increases in effective rental rates, as almost all concessions are gone. While commercial property values are still said to be low, they are rising in many areas, and distress sales have all but disappeared. Additionally, contacts reported some small speculative office projects were underway, and new multifamily projects are currently under construction in several cities in the District.

Financial Services
Bankers around the region reported that loan demand was steady or up modestly in January and early February. Several bankers reported increased commercial refinancing activity, and residential mortgage loan demand remained strong. Refinancings combined with a relatively healthy new home market to keep most residential lending pipelines near capacity.

Wages and Prices
There were no reports of increased wage pressures, and most manufacturers continue to report that prices for finished products and raw materials remain unchanged. Producers of building products and furniture, however, continue to note increasing raw material prices.

Weather
A severe ice storm in the second week of February, characterized by T.V.A. officials as the worst in decades, knocked out power for thousands of residences and businesses in Alabama, Tennessee, Mississippi, and northern Louisiana. Over 100,000 homes and businesses in Mississippi and Tennessee were without power, and about 60,000 residents and businesses in Alabama and nearly that many in northern Louisiana also reported extended power outages. Agricultural experts say that Mississippi's pecan industry was dealt a setback as many trees were damaged by the ice. The state's timber industry also could have a significant amount of damage.

Although many small businesses closed because of lack of power, most major industrial plants reportedly kept their doors open. For example, the Nissan and Saturn plants in Tennessee kept building vehicles, and Bridgestone and Firestone continued making tires.