July 13, 1977
An unsettled pattern dominated the Southeast's midsummer economic climate, reflecting current or past aberrations in weather. Agricultural production continues to suffer ill effects from the drought. Tourist traffic made a late start this year; and retail trade presents a mixed picture. Rapid gains in residential construction continue, while commercial and industrial building activity is accelerating. Certain hard goods producers have experienced increased demand. Some manufacturers are attempting to insulate themselves from impending energy shortages. Prices for Florida citrus fruit and lumber are rising. Savings and loan association activity continues to increase.
The drought has taken an increasing toll on District farm revenues, depressing sales in stricken areas, though late June showers gave hope for recovery of some late-planted crops. Projections of this year's crop losses have mounted to several hundred million dollars. The corn crop is nearly a complete failure. In some areas where corn has withered, herbicides applied to aid the corn crop now prevent replanting in soybeans because rainfall has been inadequate to dissipate the chemicals. Extensive damage to hay raises the possibility of a serious shortage this winter. Forced liquidation of cattle continues to depress prices. Peanuts and tobacco are seriously threatened, as are soybeans in some areas. The cotton crop is holding up well; however, rice, sugarcane, and some vegetables appear to be relatively unaffected. One hundred and thirty Georgia counties are receiving Federal disaster assistance; thirty-five of these were already in an emergency state because of worm infestations which plague the cotton and tobacco crops.
Florida's tourist traffic improved noticeably during June, following a series of below-average months. Sources indicate that the extended school year in northern states caused by severe weather delayed the normal seasonal influx.
In contrast to its uniformity during the earlier months of this year, consumption spending now exhibits wide variations in strength. Auto sales remain generally strong, but exceptions have grown more numerous. Some areas report flatness, and some note actual slippage, except for imported models. Used car sales, particularly of large models, are poor in parts of Florida. In a drought-stricken area of Alabama, new car sales are suffering; used car sales are up in number, but profits have fallen. The same spottiness is found in department store and apparel sales. Again, the greatest weakness occurs in hard-hit agricultural areas. Elsewhere, yearly gains range from 6 to 12 percent. Sales of retailers, particularly pleasure boat dealers, in parts of Florida have flattened; this trend may also reflect the late-starting tourist season. Reports on consumer borrowing are mixed in tone. One source reports that collections are slow, while another reports declining repossessions.
Rapid gains continue in residential construction, according to directors' reports from. many areas of the Southeast. Single-family home building is up 25 to 60 percent from year-ago levels for the first half of this year. The most rapid gains are in the previously depressed Florida market. In Alabama, lots are being sold from plats before roads are built; homes are also being sold before completion. Some sources regard the sales pace as unsustainable; in Tennessee, sales resistance to high home prices is noted. Multifamily residential construction, the core of Florida's oversupply problem, is also reviving. Apartment vacancies have fallen significantly and rents are rising. Absorption of condominiums in South Florida has accelerated. Construction of new condominium units is being started, and some apartment units are being converted successfully to condominiums. But in other areas, there remain condominiums where no units have been sold.
Commercial and industrial construction activity is also on the rise. In parts of Florida, small building construction is keeping contractors busy and inquiries about future projects are increasing. Commercial and industrial construction activity in rural Tennessee is showing considerable strength.
Some hard goods producers such as manufacturers of castings for the auto and farm implements industries are enjoying strong demand. A large manufacturer of railroad equipment anticipates a sharp increase in business during the second half of the year, barring problems in upcoming labor talks. However, pipe and structural steel fabricators still face slack demand conditions. Pulp and paper industry conditions are stable, despite a continuing surplus of pulp inventories. The severance tax on Florida phosphate producers has been increased from 5 percent to 10 percent of the value of extracted minerals; some firms report losses of sales to foreign competitors. Manufacturers in several parts of Tennessee are bracing for another winter of energy shortages; they anticipate natural gas cutoffs as a result of reduced deliveries from producers to local distributors. Stand-by energy systems are being installed; but for some companies, capital costs are a deterrent to such investments.
Futures prices of citrus products have risen as buyers, fearing that last winter's freeze damage may reduce next season's crop, attempt to guarantee their supplies. Growers caution that many buyers may hold contracts and take delivery; they feel that the number of contracts outstanding should be watched closely to preserve an orderly market. Citrus juice price increases have not immunized Florida growers from financial losses. Substantially lower juice yields, stemming from the effects of last winter's freeze, have resulted in higher unit costs of harvesting, processing, and transportation.
Elsewhere in Florida, reduced demand for ground coffee as a result of high prices has resulted in a layoff of one-quarter of the work force at the nation's second largest coffee plant. Full production is expected to resume in late summer. Lumber prices continue to rise, reflecting the strong pace of construction activity.
Savings and loan associations' activities continue to expand. During July, a Florida association will open an office contained in a supermarket, the first facility of its kind in that state. Savings inflows and loan demand are generally strong. Two savings and loan associations in Alabama have raised their real estate loan rates to 9 percent. Banks in Tennessee have benefited from an increase in the spot price of coal, which has permitted payment of delinquent loans and thereby reduced loan losses.