May 10, 1978
Business activity has been quite strong since last report. The pace of retail sales has remained healthy, though perhaps a shade less robust than in March. A continuation of exceptional business loan growth has encouraged a rise in local prime rates. S&Ls in a few cities have cut back on new mortgage commitments. Capital spending decisions have broadened the nonresidential construction base. Transportation costs have been pegged as sources of price pressures. The employment outlook is good, and port business is excellent.
Consumer spending continued to show strong year-to-year gains in April, although there are indications that buying activity moderated from the hectic March pace. A slight loss of sales momentum noted by Florida department stores in late April probably reflects the beginning of a seasonal lull after record levels of tourist inflows. Jewelry and hard goods sales have been described as brisk. Auto sales edged down during the month, but dealers are generally quite pleased with the improvement from the April 1977 pace.
Business loans continue to surge at District banks, with trade and manufacturing firms borrowing especially heavily in the latest weeks. Several of the larger banks raised their prime rates to 8 1/4 percent within the past week. Inflows of household time deposits have been moderate.
With lower levels of savings inflows and higher borrowing costs, S&Ls in Jacksonville, Nashville, and Knoxville have shown signs of backing off from new mortgage commitments. In Jacksonville, the cutbacks are being accomplished via selection rather than rate increases, but some associations in the Tennessee cities have raised rates another quarter point to 9 3/4 percent (for 80-percent mortgages). The higher rates have increased the points that must be given up in selling VA and FHA loans. One director says that Nashville lenders have virtually stopped making such loans, while in Knoxville, homeowners are reluctant to sell to applicants for guaranteed loans. Builders in that city are either not building to FHA specifications or are raising prices to cover the point gap.
Recent plant announcements add variety to the industries and locations included in the Southeast's capital spending gains. Within the past year, announcements of large goods-producing facilities have been largely confined to the electronics and phosphate industries in central Florida, chemical or paper operations, mainly in Louisiana, and tire plants in Alabama. Georgia took the honors last month, as CBS, Oscar-Mayer, and Miller all committed to substantial investments in that state. Trade and distributive industries will provide more of a push to commercial investment (which has been dominated for the last year or so by tourism-related ventures), with a large chunk of speculative office space in the planning stage in Tampa and public and private improvements to ports and airports under way in several cities.
In Florida, rising prices of tires and equipment are squeezing profits in truck leasing and transport, but demand is strong. One director remarked that a truck shortage has driven up the cost of transporting perishables out of state. Truck hauling rates were listed among the major contributors to inflation of construction materials prices by another director; other items were cement, stone, spare parts, rail freight rates, fuel, electricity, insurance, and wages. TVA estimates that coal workers' wage increases will add 6 percent to the cost of its services over the next three years.
Wages won't put much pressure on overall construction costs in North Florida, where contractors have negotiated a 3 1/2-percent increase for each of the next two years with five of seven major construction workers' unions. Ample supplies of nonunion labor allowed the low settlement. Heavy in-migration of semiskilled nonfarm workers is reported to be holding up Florida's jobless rate. There, and throughout the District, skilled labor seems in short supply. Surveys of hiring plans and the labor requirements of new investments indicate that the outlook for District job growth is very good.
The District's ports have been extremely busy. Auto imports generate much of the activity at Jacksonville and are expected to advance 25 percent during 1978. Recent agreements suggest that substantial exports of oranges to Japan will continue; a new ship, built expressly to carry the fruit to Japan and return with Toyotas, is now operating out of Jacksonville. Other developments at the Jacksonville Port include a decline in steel imports, stable coffee imports, and "good" wood pulp exports but virtually no paper exports. The booming phosphate industry accounts for a sizable share of export growth at the Tampa Port and, to a lesser extent, at Jacksonville.