November 9, 1977
The District economy appears to be on pretty solid footing despite a preponderance of strikes and continuing weakness in the farm sector. Consumer spending continues to advance. Lending activity is heavy; and deposit inflows have been moderate but slowing. Nonresidential construction shows spotty strength but the promise of strong gains. The tourist industry is flourishing in some unexpected areas.
At least 13,500 workers (in addition to the longshoremen) have been striking major District employers, keeping hundreds of other employees off the job as plants ceased operations. Lockheed-Georgia's 5,000 machinists joined California counterparts in a walkout that closed the Marietta plant. A dispute over production standards evolved into a 4,500-man strike at GM's Doraville, Georgia, facility. The Port of New Orleans reopened in mid-October as the general strike ended. Longshoremen are now working conventional cargoes but still striking containerized vessels. Grain exports have been caught in the bottleneck. The Savannah port, where shipments were already sluggish, is operating at 40 percent of capacity. Most Florida ports have been only slightly affected by the strike because of the low proportion of containerized shipping. The Tampa port, however, has been badly congested, largely because of increased phosphate exports.
As yet, disintermediation has not been significant at District financial institutions. Savings and loans' net savings inflows are off only slightly from near-record levels. Nonpassbook time deposit inflows have slipped at member banks, but total deposits maintain moderate growth. However, our Fiscal Agency Department notes increasing security sales, a rising proportion of tenders of checks drawn on savings and loans, and a jump in telephone inquiries about rates.
Loan demand continues brisk. One Atlanta bank attributes rapid growth of credit card loans to a voluntary willingness of consumers to carry more credit card debt. In Tennessee, the most recent reports from large commercial banks indicate that uncertainty over usury enforcement has sharply reduced extensions of consumer installment credit, particularly direct auto loans. But a heavier volume of single-payment loans may be offsetting reduced installment credit. An economist from the Atlanta Federal Home Loan Bank expresses concern that high mortgage demand has caused associations to overcommit, even on the basis of current inflows. A director reports that some S&Ls in southwest Florida have extended their maximum allocations of commercial loans.
A regional commercial developer points to backlogged demand as the stimulus for heavy current and near-term leasing activity, particularly of warehouses and offices. He notes keen competition for rather scarce high-quality, developed, income-producing properties, but expects only moderate commercial construction until rents rise enough to produce adequate investment returns. An increasing number of his customers for new developments are local governments or private coalitions of investors interested in the renewal of downtown areas. Office space is becoming scarcer in Atlanta and Miami, two cities previously plagued with extensive vacancies.
As for industrial investment, opinions of directors and other business leaders about current activity and prospects are widely mixed. A Tennessee director surmises that low stock price/earnings multiples have made acquisition of small existing companies a more economical means of expansion than investment in new facilities. One large construction firm which specializes in pulp, paper, and energy boasts a record backlog of contract work. The Southern Company, which supplies about half of the District's electrical power, complains of a lack of new industries but (reluctantly) plans capital expansion of its own to help meet surging residential demand and the more moderate additional requirements of expanded existing industrial facilities. One director notes that small projects are keeping many contractors busy in the Jacksonville area, but the paucity of large projects threatens the existence of large-project construction firms. In central Florida and Louisiana, announcements for both new industries and expansions of current operations continue very heavy. Plans for several huge electric-generating plants have boosted District nonresidential construction contracts to record levels three times this year.
Most areas continue to enjoy strong retail sales, with auto sales showing substantial year-ago increases and many dealers still complaining of low inventories. Clothing sales have been quite good in places. One director contrasts recent local increases in television advertising volume with the apparent hesitance to make ad commitments at the national level. Though we have seen no evidence as yet of a slowing of the overall sales pace in Tennessee, the credit slowdown has cut into used car sales rather sharply and swelled dealer inventories.
Harvests have been nearly completed despite unfavorable damp weather. Field losses have been large. Cotton quality has been reduced and yields disappointing. But the tobacco marketing season closed with huge volume and record price. Citrus processors have bid up the price of the scanty Florida orange crop sharply in "panic buying." Gains in the hog market continue to surpass expectations. Wider profit margins are stimulating broiler and egg production.
Tourist traffic has been lighter than usual in the off season of Atlantic Coast beaches and only slightly heavier at central Florida attractions, with little extra-seasonal gains expected this fall. However, a rising stream of Latin American visitors has shored up tourism and trade in some parts of the state, particularly downtown Miami. On the Gulf Coast beaches, especially in Mississippi, and in the inland areas of Georgia, Alabama, and Tennessee, solid gains in tourism have been reported. Upcoming conventions should boost this industry's revenues in Miami, New Orleans, and Biloxi.