Beige Book Report: Atlanta
June 22, 1994
Overview
According to business contacts, the Southeast economy continued to
expand through May and early June, but at a more subdued pace than
earlier in the year. Most retailers reported an unseasonably large
drop in May sales, although some noted a rebound in consumer
spending in the first week of June. Auto dealers also noted a
slowdown in sales in May. While home sales slowed modestly in the
last month, contractors report that single-family home building
remains brisk. Multifamily and commercial real estate markets
continue to improve, with several new apartment and commercial
developments being announced in the last month. Bankers, however,
generally report that business and consumer loan demand was flat in
May. Wages and prices were reported to be stable for the most part,
although several manufacturers said that they have begun to pay
higher prices for raw materials.
Consumer Spending
After posting strong gains in the first quarter, retailers
throughout the District reported disappointing sales in late April
and May. However, most contacts noted an upturn over the Memorial
Day weekend and stronger sales in the first week of June. Women's
apparel sales, which had improved earlier this year, softened in
May, and sales of men's and children's apparel also slowed. As a
result, several retailers reported that they have had some
unintended inventory accumulation. According to contacts, pricing at
both the wholesale and retail level remains very competitive, with
several merchants reporting deep discounting. Although retailers
generally have revised downward their projections for sales through
the summer and early fall, many remain hopeful that back-to-school
shopping will be relatively strong this year.
Manufacturing
According to factory contracts, industrial production rebounded
slightly in May after slowing modestly in April. Suppliers of
building materials continue to report increases in production and
new orders, although rising interest rates have led some producers
to adjust downward their long-term demand projections. Suppliers to
the auto industry continue to receive a steady stream of new orders,
and several firms reported that they have begun to invest in new
plant and equipment in order to meet expected future increases in
demand. Producers of industrial equipment and machinery noted that
they have extended their avenge workweeks to meet recent increases
in the volume of new orders. District carpet producers report that
order backlogs have risen, while strong demand for bedding and
healthcare textiles reportedly has stimulated new hiring at several
firms in this industry. On a less positive note, NASA and Defense
Department budget cuts continue to produce layoffs at regional
aerospace and defense electronics firms, particularly in Florida and
Alabama.
Tourism
Reports from tourism industry contacts were mixed in May. In
Florida, contacts said that tourism has been flat in key market
areas, largely because of competition from other vacation
destinations and negative publicity about crime. Convention business
in the state, however, has been better than anticipated, and is
expected to remain good through the end of the year. Similarly,
convention business in New Orleans and Atlanta has been unexpectedly
strong this year. Casino gambling along Mississippi's Gulf coast
continues to draw large numbers of visitors to the area. Tourism in
the state of Alabama also was reported to be up significantly over
year-ago levels.
Construction
According to District realtors, May home sales were down slightly
compared with last year's relatively strong levels. Although they
said that rising mortgage rates initially stimulated an increase in
home buying from fence sitters' pushed into the market, more
recently they have begun to put a brake on single-family home sales.
Nevertheless, most contacts continue to characterize current sales
levels as very good. Mid-priced homes have replaced starter homes as
the most popular sellers, while sales of luxury homes also have
improved. Although District building contractors have noted a
decrease in traffic through new subdivisions, the pace of new home
construction remains brisk. The rising cost of home building
materials continues to push new home prices higher, but most
realtors and builders remain optimistic that new and existing homes
will continue to sell well into the fall.
Contacts in commercial and multifamily real estate markets report sustained improvement in these sectors. Multifamily occupancy rates continue to rise, and rental rates also have been increasing. New apartment developments have been announced recently in many areas of the District. Commercial real estate agents report that falling vacancy rates and rising rental rates have led to the possibility that some speculative building may occur within the next year. Currently, most construction continues to be build-to-suit and public buildings, although the number of these projects has increased in the last few months.
Financial Services
According to District bankers, overall loan demand remains flat in
the Southeast. While some reported that business loan demand
improved slightly in May, others noted that consumer lending,
particularly auto loans, had weakened. Residential mortgage
refinancings have dried up completely, while mortgages for home
purchases were down slightly compared with month-ago levels.
Wages and Prices
Reports of increasing wage pressures continue to be limited to those
areas where skilled construction workers are in great demand.
Although some manufacturing contacts have reported price increases
for raw materials, competitive market forces have made it difficult
for firms to pass these costs on in terms of higher prices for
finished goods.