February 11, 1976
Continued gradual economic recovery characterizes the Southeastern economy. A survey of retailers in the Sixth District reveals no ebbing during January of the strength of retail sales. Inventory rebuilding continues in some areas at rates in anticipation of ongoing sales increases. Some stores have begun selective price increases, and profits are improving. Still, financial difficulties continue to surface in retailing and real estate businesses. Labor market developments include the termination of a protracted strike as well as the recall of furloughed workers. Tax law provisions affecting state revenues may constrain state government spending in many areas. International trade is growing in importance in the Southeast.
An early February survey conducted by the Federal Reserve Bank of Atlanta, confirmed by recent reports from directors, indicates that the resurgence of consumer spending at department stores has persisted. With very few exceptions, retailers' earlier concerns that there might be a downturn following the holiday season have not been realized. January sales reflect a normal seasonal decline, with the result that impressive percentage gains from last year's results are being maintained. Most merchandise categories appear to be participating in the sustained strength of sales.
Retailers report ongoing price increases on goods they are purchasing, but no unusually large jumps are reported in particular merchandise categories. Goods, in general, are readily available from manufacturers, with the exception of especially popular products such as prewashed denim apparel and Citizens' Band radios. (Mood rings have sunk into a deep depression; pet rocks are on the endangered species list.) Most department stores are reordering in line with the increasing trend of sales. Some, in areas where sales improvements have been particularly strong, anticipate continuing increases and are placing orders in accordance with this projection. Nevertheless, restraint in building inventories continues to be a primary consideration.
Some retailers have begun selective, gradual increases in their prices but are proceeding with care. None of these merchants report encountering resistance from customers. Several stores mention a very gradual increase in the percentage of goods purchased on credit, although the percentage of cash purchases remains above pre-recession norms. One report was received of an effort to encourage new credit accounts as well as greater use of existing ones.
Other comments from retailers indicate that the solid sales gains achieved during and after the holiday season were attained without markdowns and heavy promotions which characterized retailing in late 1974. The profit outlook is, therefore, much improved. Retailers note that, as a result of reduced manufacturers' inventories, goods obtained at low prices for use during promotions are very scarce. In general, the best sales increases are reported by top-of-the-line department stores which suffered greater sales erosion a year ago.
Information of a less positive hue is largely limited to reports from Florida, where January sales in some areas have produced much less impressive increases than those of December. However, independent variety stores in Florida are reportedly reordering in line with sales following a very successful Christmas season. Concerning trends by type of merchandise in the Southeast, it is reported that furniture and carpet sales are encouraging but appliance sales in certain areas remain subnormal. Kennedy and Cohen, a large electrical appliance chain headquartered in Miami, was forced by financial difficulties to close 17 stores located in several major cities and to release over 650 employees. The organization subsequently filed for protection under the bankruptcy laws.
Reports of financial difficulty also appeared in the troubled real estate industry. Control of a recently completed 35-story office building in downtown Atlanta has been acquired by a large out-of-state bank and an insurance company which had supplied construction financing. The building presently has only about six tenants, despite the very liberal leasing arrangements being offered. This case exemplifies the severely overbuilt condition of the office space market in Atlanta. Lessors are engaged in a bidding contest for occupants because anticipated rates of entry and expansion by firms have not been realized. One real estate consultant reports that general office space in the downtown area is about 28 percent vacant, with six major new projects only 23 percent rented. A carpet supplier notes that about 20 percent of a recent mailing addressed to smaller carpet specialty shops and decorators was returned, indicating that many of these small businesses have been unable to weather the recession in the construction industry. Concern is voiced by some branch directors that disclosures of "problem" loans in testimony before congressional committees may precipitate financial pressures sufficient to force business firms into bankruptcy, thereby jeopardizing the employment of many workers.
A brighter note about construction activity concerns three new hotels oriented toward convention business which have recently been completed in Atlanta. A total of 2,850 rooms have been added to the city's hotel accommodations, all of which are near the downtown area. The negative aspect of reduced construction employment is offset by increased services employment produced by the opening of the three hotels.
Additional developments in Southeastern labor markets include the end of the 126-day strike of flight attendants against National Air Lines during early January. One community served by the carrier is reportedly seeking to obtain more reliable service by having its route transferred to another carrier. Also, 1,800 workers who were laid off two years ago, were recalled by the General Motors plant in Atlanta as a result of improvements in new car sales; an additional 500 new jobs have been created. The plant payroll during 1976 is expected to double that for last year.
A fiscal problem has surfaced in Georgia which may also be affecting other state governments. Tax revenues are not expected to increase in proportion to increases in income, owing to provisions allowing previous years' losses to be carried forward in computing corporate income taxes. Carrying forward of losses is expected to place a restraint on expenditures by the state government.
The role of the Southeast in international trade appears to be expanding. Southwire Corporation has entered into an agreement with the Soviet Union to market Russian chemical and metallurgical technology in the United States. Coca-Cola has contracted on a trial basis to supply Russia with lemons from Florida. In addition, a new duty-free foreign trade zone is being established south of Atlanta. Manufacturing and assembly areas will be provided in addition to warehousing and distribution facilities.