March 15, 1978
With the return of milder weather, business activity generally resumed a moderately strong pace. Used car sales have spurted rather suddenly as new auto purchases have risen falteringly. Fervent housing demand has thinned inventories, aroused speculation (notably by foreign investors), and broadened the rise in mortgage interest rates. Several sluggish industries show signs of reviving. Weather- related supply disruptions and overburdened transport systems may yet result in lost sales, however. If coal shipments are not forthcoming quickly, TVA curtailments will induce massive layoffs in a large portion of the District.
Only from Tennessee and Alabama have we heard reports of significant disruptions of production because of the coal strike. These include shortening of work hours, the closing of a mobile home production plant, and the idling of barges and tow boats. TVA seems to be in the most dire position, holding 1.7 million tons. At one million tons, it will impose mandatory industrial curtailments of 30 percent. Though its recent award of contracts for one million tons of western coal gave cause for hope last week, the drain on its supplies has accelerated and rail transport problems have dimmed prospects for timely deliveries. The 30-percent cutback would result in estimated layoffs of 75,000 workers in 1,200 industries, spreading to 136,000 if it lasts longer than a month. Alabama Power, with a 40-day supply, will curtail service by 10 percent if stocks dip to 35 days by imposing a 20-percent reduction in the operating hours of schools, businesses, institutions, and plants. Voluntary curtailments requested by both TVA and Alabama Power several weeks ago have been rather ineffective. No other District utilities have asked for even voluntary cutbacks in consumption.
Consumer spending has improved with the weather, with most areas recording year-to-year sales gains of 10-15 percent or better. Several directors report that big-ticket sales are outpacing soft goods, but at least one notes strong sales of soft goods, particularly women's apparel, and some weakness in home fashions and appliances. A food chain owner (director) comments on the lack of consumer resistance to higher priced food items. Weather-related production losses have put deliveries of spring and summer apparel behind schedule and could result in lost sales with Easter so early this year.
The new car sales picture is still unclear. Florida directors complain of sluggishness, blaming high prices and downsizing. But demand has revived modestly in areas that were afflicted by harsh weather, and two regional distributors of domestic makes realized rather strong year-over-year advances in February. Except in Tennessee, where usury restrictions have hampered financing, used car sales have been universally described as very good.
Reductions in savings inflows to thrifts are still relatively moderate in the District, but the advance in mortgage rates has spread; many lagging S&Ls have moved to 9 1/4 plus two points. Shrinking demand deposits have accounted for all of a recent slowing of bank deposit inflows. In a constitutional referendum, Tennessee voters elected to turn over the fixing of interest rate ceilings to the legislature. More flexible statutory limits should permit finance companies, who have virtually ceased lending in the past six months, to operate profitably in the state.
Recent rapid rates of housing construction have not been able to keep pace with demand. Home inventories are generally thin throughout the District. In Broward County, Florida, a scarcity of rental housing may force prospective renters to buy and thus deplete stocks of midpriced condominiums to shortage levels by midyear. Speculative buying of land and homes has accelerated sharply in South Florida. Foreign buyers, largely Canadian and Latin American (characterized by one director as "desperate to buy"), have provided a sizable portion of speculative funds.
Business leaders report signs of strengthening in several slow industries. A large steel producer sees a revival of demand this year, with the impetus to come from the oil industry and manufacturers of home appliances. Phosphate shipments should be heavy this spring, as backlogged deliveries to the North augment rising orders, if the rail car shortage permits. Tool and diemakers are enjoying excellent business. Truck sales have been buoyed by a surge in foreign purchases. Three large companies badly in need of work (Offshore Power Systems, McDonnell Douglas Astronautics, Ingalls Shipyards) have been awarded contracts of late. Florida hotels and tourist attractions have been unusually hectic as result of northern storms and ad campaigns.
Job growth continues to be substantial. Complaints of shortages of skilled labor are becoming more common and widespread. However, recently announced layoffs unrelated to either the weather or the coal strike will displace at least 1,500 workers in the region.
Further increases in citrus prices have slowed sales; the Florida Department of Citrus estimates that consumer demand is off from last year by at least one-third. Still, carryover for next year's season will probably be inadequate. The current crop is in very good shape, but harvests are proceeding quite slowly (perhaps deliberately). Strong cotton demand from the Far East has been taking up some of the domestic slack; Mississippi growers are likely to expand acreage by more than the USDA's January planting intentions survey indicated. A director expects demand to support the rising level of egg production despite sharply higher prices.