October 11, 1977
The employment situation is the only real weak spot in the current status or fourth quarter outlook of the District economy. There's little to look forward to in the way of job growth this year. Louisiana energy industry activity is really boiling, but, paradoxically, that state may be the only one in the District to suffer serious natural gas shortages this winter. Consumers have maintained high spending levels; loan demand continues brisk at District banks while deposit growth has picked up. Residential construction has begun to encounter inhibiting factors, but nonresidential construction is coming on-stream.
A general strike by New Orleans longshoremen has shut down that port (while selective strikes against containerized ships are slowing trade at other ports), costing the city about $2 million a day and forcing some ships into other ports. But in Atlanta, Lockheed workers stayed on the job despite a walkout at that company's California plant. In general, District job growth has been stalled, and there are indications that no significant extra-seasonal gains will occur during the remainder of the year. A number of recently announced plant closings or layoffs (outside the steel industry) will offset expected increased hiring by some manufacturers.
Barring abnormally severe weather, natural gas supplies will be more adequate this winter than last in most areas. Due to expanded underground reserves and new pipelines, Southern Natural Gas expects to meet demands of all first-priority users. The FEA lists Alabama, Georgia, and Tennessee among 18 states where milder weather, fuel switching, and conservation effects will reduce curtailments. But an FPC recommendation that would divert supplies from Louisiana consumers to northeastern states could result in losses of as much as $500 million and 40,000 jobs from plant closings and setbacks to the sugar industry.
A recent discovery of a large gas field in central Louisiana added impetus to already booming energy industry activities. One oil company's plans to produce 21 rigs and supply the required crew and supply vessels for Gulf drilling should ease the severe strain on the supply of rigs. Otherwise, the industry expects no shortages of materials; operators foresee at least five years of uninterrupted activity.
Rapid inflows of time and savings deposits have boosted deposit growth at District banks. Lending continues strong, but slightly off the earlier pace, with good gains in all loan types. Tennessee banks appear relatively unaffected by last month's usury enforcement; the installment loans of seven weekly reporters rose about half as much in September as they had in August. Louisiana banks are enjoying heavy loan demand from oil-related firms.
Retailers seem generally satisfied with the sales pace and consider holiday season prospects excellent. Durable goods and home furnishings continue to dominate spending. 1978 model autos have been well accepted in most areas. Directors' reports on soft goods sales have been mixed.
Uncertain about the outlook, producers continue to manage inventories carefully. There have been some slight accumulations in raw material stocks, while finished goods inventories tend toward some liquidations. Export demand has allowed Florida phosphate producers to whittle excess stocks. Retailers are beginning preholiday stock building. Auto stocks were nearly negligible as 1977 models cleared and dealers expect to hold rather short supplies through the fall.
Wet weather has slowed harvests, and floods have damaged some crops in the western range of the District. Louisiana's sugar and cotton crops sustained some hurricane damage. Profit margins are improving for livestock, poultry, egg, dairy, and hog producers as prices are stable to slightly higher and feed costs are declining. Gains in fed cattle prices may be restrained by rising pork supplies; heavy marketings of stocker calves continue to depress prices.
A steady stream of announcements of new plant and commercial buildings promises solid gains in nonresidential construction. The mixed current situation is illustrated by two comments from the Birmingham area. A materials producer, who supplies the Chicago and Texas areas as well as the Southeast, attributes recent demand strength to nonresidential construction (whereas housing and highways boosted revenues earlier in the year) and notes particularly heavy purchases by District customers. But a producer of welding equipment sees in his sales mix an indication that producers are trying to make do with current capacity rather than investing in new plants.
Though high activity levels should prevail until early next year at least, the rosiness of the residential construction outlook has started to fade. Shortages of an expanding variety of materials are delaying building in some areas; some South Florida builders are protecting themselves from climbing costs by refusing to take contracts that cannot be completed in six months or less. One director suspects overbuilding of more expensive homes in the Jacksonville area, where builders are holding off on options to purchase land. It appears that multifamily projects will account for a growing share of new housing as single-family home prices soar, especially in Southeast Florida where population growth is accelerating, single-family lots are growing scarce, and a 40-year supply of multifamily zoned land remains.