September 13, 1978
Growth has clearly slowed in many sectors of the District economy, and the price outlook remains dim. Consumer spending has decelerated throughout the summer, making many retailers uneasy about sales prospects and stock levels. Loan growth has slackened with a downturn in business loans. Home sales and starts have faltered in some areas. Still, substantial strength remains in many segments. Nonresidential construction is on the upswing, and housing is still booming in the major growth centers. Tourism has been breaking records. Crop prospects are good.
Although talk of advance buying has toned down, the price outlook has scarcely improved. Building supply firms are expecting sharp increases, perhaps double the inflation rate, in materials prices. The Jacksonville port will raise its charges 10 percent on October 1 to cover a wage hike. Prices of fall apparel are at least 7 percent higher than last year. Although they're presently discounting much of the increases away, food processors have lifted list prices. On the brighter side, a steel fabricator expects steel prices to stabilize.
Retail sales are generally regarded as strong, although year-over-year gains have continued to shrink. Big-ticket items appear to be moving slower in several areas; grocery store sales seem to have rebounded. Inventories may be a shade higher than desired. Many major retailers are uneasy about fall sales prospects; others are reported to be buying extensively for the Christmas season.
A slowdown in new car sales has been widely attributed to extremely short inventories rather than a faltering of demand. Late-model used cars are at a premium and are becoming difficult to get. Truck sales continue very good. Auto dealers generally expect moderate sales growth in the 1979 model year.
Large banks' business loans have declined significantly in recent weeks (their first drop since the credit expansion began), but consumer installment and real estate loans continued to advance robustly. Consumer deposit gains have been exceptionally strong; checking accounts, six-month CDs, and other personal time and savings deposits all have increased briskly.
In many of the District's smaller, slower growing cities, housing markets have begun to soften as buyers and builders resist high prices and financing costs. But in the rapidly expanding areas, home sales and residential starts continue at a record pace. Demand for raw land remains strong. Inflows to thrifts have been satisfactory and mortgage rates relatively stable.
Commercial real estate markets are also quite active. A substantial amount of office space is under construction or on tap, and warehouse space is tightening rapidly. Relocations or expansions of out-of-District and foreign firms are contributing significantly to both commercial and industrial expansion in Florida, Alabama, and Georgia.
It looks like a record year for tourism is in the making. Off-season traffic has been unusually heavy throughout Florida; even the long-ailing Miami Beach area has had its best season since 1967. The Mississippi coast and the inland areas of the District have also enjoyed a pickup in recreational visitors. Discount air fares have certainly contributed to the influx, possibly drawing off some highway traffic. An all-night, fast-food chain whose primary locations are highway interchanges blames its recent sluggish business on increased air travel. At destination spots, the restaurant business is booming—but higher wages and food costs are virtually eliminating profits.
Weather conditions have been favorable for crops in most of the region, but dryness has been damaging in some cotton-producing areas. Reductions of the cotton crop there, in Texas, and in California are likely to accelerate the recent gradual uptrend of cotton prices. The latest small declines in feed cattle prices will probably be erased this fall. Harvest of the 1978-79 citrus crop has just begun. The orange crop appears to be of good quality and substantially larger than last year's.