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.