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Beige Book Report: Atlanta

August 3, 1994

Overview
The Southeast economy continues to expand, although business contacts in the region have reported modest slowing in scattered sectors. Retailers reported higher sales levels in June and July, and most seem more encouraged about fall sales prospects. District manufacturers reported some moderation in production activity in June, but producers of building-related materials, auto parts, steel, paper, and chemicals all reported expanding operations. Home sales in the District remain good, but homebuilders are expecting a slowing in single-family construction activity in the next few months. Multifamily and commercial real estate activity continues to improve. Sixth District bankers reported that consumer loan demand was mixed but commercial loan activity has increased. Contacts report that consumer prices remain generally stable, but tight labor markets in some areas are pushing up wage rates. Georgia flood loss estimates now run on the order of one billion dollars, although initial infrastructure loss estimates are often revised down. There has apparently been little economic disruption outside the directly affected areas.

Consumer Spending
After slowing considerably in the spring, Sixth District retailers reported generally improving sales of late. Contacts continue to note that strong competition in most areas is holding down prices at both the wholesale and retail level. Apparel sales, which fell off sharply in April and May, rebounded in June and July. However, much of this improvement was said to be due to increased discounting and promotions. Nonetheless, contacts seem generally more optimistic than they were in late spring about back-to-school sales, with most expecting increases of 3 to 6 percent over last years' levels. Retailers are no longer reporting year-over-year gains for sales of home-related products, such as furnishings and appliances, in conjunction with the maturing housing cycle. Auto dealers in the District continue to report healthy car and truck sales, though business customers note that the cost of new autos is rising.

Manufacturing
Manufacturing activity moderated slightly in the Southeast in early summer, reflected by slowing shipments and orders for some producers. However, most factory contacts remain optimistic about the near-term outlook. Producers of construction equipment are expanding in overseas and domestic markets aided by the lower dollar and growing commercial construction activity. Production levels remain high for carpet producers, and some apparel fabric manufacturers are encouraged by a recent strengthening in demand. The chemical industry, steel producers, and auto parts manufacturers are expanding operations and adding jobs. At the same time, mergers and consolidations continue to cause layoffs in Florida's aerospace industry, and other large companies continue to trim payrolls in the region. The demand for paper is said to be rebounding in foreign and domestic markets, and prices have started to trend upward.

Tourism
Tourist activity remains healthy in most of the region. Overseas travel to Georgia has surged since Atlanta was named the site for the next summer Olympics, and tourism and trade officials expect the trend to continue. Miami's cruise industry reports that bookings have been good. Despite the temporary uptick provided by World Cup visitors, tourism is still off in central Florida. Hotel occupancies are down from a year ago due in part to fewer British and German tourists. Casino gambling continues to attract a record number of tourists to Mississippi's Gulf Coast, and the summer convention trade in New Orleans is at an all-time high.

Construction
District realtors reported brisk home sales in June and July. Most contacts noted that despite higher mortgage rates, home sales this summer have equaled last year's very strong level. Starter and mid- priced homes continue to sell well, but there have been some reports of first-time home buyers being squeezed out of the market by higher mortgage rates. Luxury home sales continue to improve. Demand for new homes remains strong, but many realtors and builders are expecting a gradual slowing in building activity in the next several months, with some regions reporting the slowing already occurring. However, an unseasonably wet summer has delayed building in many areas of the District, and it may take builders some time to get caught up on planned building activity.

Commercial and multifamily real estate contacts continue to report improving conditions in their markets. Multifamily occupancy and rental rates are rising in most areas of the District, and many cities are seeing new multifamily development underway. In addition, commercial realtors are also reporting improved leasing activity and falling vacancy rates. While almost all new commercial construction in the District is either public or build-to-suit, some contacts have noted that they anticipate some speculative building in selected areas within the next year.

Financial Services
Bankers around the region reported that overall loan demand was steady or up moderately in June and July. Consumer loan demand was mixed from bank to bank. Mortgage lending has picked up a little in the summer months, but the loan pipeline seems to be emptying in many areas. Commercial loan activity was consistently reported as stronger, although in a very competitive market. Several bankers reported seeing more real estate deals, while one reported experiencing double digit growth on the commercial side.

Wages and Prices
Labor markets are tightening in parts of the District. In Tennessee, clerical support and skilled laborers are reported to be in strong demand pushing wages upward. In New Orleans, the demand for temporary workers is said to be the highest it has been in four years. Price increases have generally held steady since the last report, although some contacts in the paper- and construction- related industries report larger but sporadic gains. Some apparel producers note increasing raw material prices, but retail prices remain flat.