June 15, 1977
Decreasing momentum is evident in parts of the District economy. Despite a rapid pace of single-family home construction, there are few signs of unusual speculative activity in the Southeast. Normal construction and financing practices are being pursued on the whole. Retail sales gains have become spotty. Auto sales still lead the consumer sector in strength, despite increased uncertainty concerning size preferences. Tourist traffic has slowed. Shortages and government actions are disrupting plans for offshore oil exploration. Dry weather is curtailing the District's production of cotton, corn, and soybeans and is worsening herd depletion in the dairy and cattle businesses. Florida and Georgia continue to attract increasing interest as centers for international banking.
In reports from the 44 directors of the Atlanta Bank and its five Branches, only one report from central Florida finds any concern over actual excesses in subdivision development. This development is being financed with funds obtained from a state in another region.
In the Miami area, a decrease in speculative purchases is noted. One director notes that speculative activity has been dampened by land use plans, restrictive zoning, and development restrictions. Elsewhere in South Florida, an increase in speculative activity simply reflects a temporary rush of property development to avoid tighter requirements for flood insurance, stiffer density restrictions for multifamily housing, and more stringent insulation requirements under the National Energy Program.
Neither is there any evidence of increased speculation in commercial or farm property, although normal speculative purchases of land for property development are taking place. Banks are limiting the size of purchased tracts to limit risk exposure and are monitoring the activities of builders to forestall excessive accumulations of unsold homes.
Financing practices are entirely normal, according to most reports. Still, some conditions are noted which may require continuing attention, including: extremely easy availability of mortgage financing; the possibility that builders may avoid lenders' limitations on the number of homes they construct by borrowing from a number of sources; inducements to purchase condominium units, including low prices and extremely accommodating terms of credit; and advertising campaigns designed to stimulate home sales by playing on the customer's fear of future inflation. A billboard, part of an advertising campaign being conducted by local realtors, inquires: "Do you want to buy a $30,000 home for $40,000? Wait 'til next year."
An inquiry at the Federal Home Loan Bank of Atlanta confirms the absence of unusual real estate speculation in the Southeast.
Retail sales activity has been uneven in recent months. Most areas report fairly steady but unspectacular gains relative to last year. Softening has occurred recently in some areas, while others continue to enjoy unexpected strength. Some retailers attribute slowing gains to the withdrawal of the $50 tax rebate.
Auto sales also vary greatly in strength but are more robust. Most areas have either noted an increase in sales in May or are holding even with previous gains. Some had expected greater strength, and a few report weaker sales. Local television spot advertising sales have been very strong in recent weeks, primarily because of heavy advertising by auto dealers. Some dealers report changes in size preferences, with a shift from large to intermediate cars for new car purchasers, and a strong preference for small used cars. Small foreign cars are selling rapidly.
Tourist traffic has receded in central Florida, according to tourist attractions and motels. Improved employment levels and more hours of work per week have reduced the time available for vacations, according to observers. Gains in tourist activity are reported in New Orleans.
Although Louisiana's oil and gas industries are experiencing heavy activity, an otherwise optimistic outlook has been tempered by shortages and government actions. Expected increases in drilling activity may be restrained by shortages of labor, barges, and rigs. Recent Carter Administration actions with regard to outer continental shelf lease sales and gas prices have caused cancellation of drilling permits or plans involving drilling costs of $31 million. Local exploration offices and investors fear running out of drilling prospects. But both Standard and Continental Oil Companies have announced 1977 capital spending and exploration budgets substantially greater (23-30 percent) than last year's, and Shell Chemical Company will expand its Louisiana facilities.
Drought is taking a toll in some portions of the District. Cotton and soybean plantings have been hampered in Mississippi; dry soil has already spoiled part of the cotton crop that had been planted. In Louisiana, soybean growers face the possibility of a serious seed shortage, as drought threatens plantings and replantings of a record acreage; seed prices have already risen dramatically. Direct losses of the corn crop in South Georgia and Alabama may reach $227 million, and the surviving crop will probably provide a low yield. Many corn growers are replanting their land in soybeans. Drought damage to nonirrigated crops in North Florida may run $4-5 million.
Mississippi and Florida dairymen face poor profit prospects and are reducing their herds. A shortage of forage crops due to dry weather continues to force beef cattle to market at low prices. With pastureland being converted to soybean production and cattle supplies dwindling, price increases are anticipated.
The international scope of District banking is widening. A newly enacted Florida law removes barriers to transactions of foreign-owned banks and lifts the documentary stamp tax on all foreign transactions. Foreign banks will not be permitted to compete for local deposits or loans, however. Several foreign institutions reportedly are considering Miami, which already claims ten Edge Act banks. The Toronto-based Bank of Nova Scotia will soon open an agency in Atlanta, the third foreign bank office for that city, and the Bank of Tokyo is said to be considering an Atlanta facility.