March 14, 1979
Recent business reports present a mixed picture. Car sales have been strong, but consumer spending for other goods lacks momentum. While housing continues to boom in Florida, residential markets are softening elsewhere. Deposit inflows have been sluggish and loan growth, moderate. Nonresidential construction and real estate are increasingly active, tourist traffic has been at or near record levels, and the agricultural situation is healthy. Tight oil supplies have caused some relatively minor problems in the most vulnerable industries. Other troubles have restrained production in some sectors but look to be temporary, and, in general, manufacturing output and employment are advancing. Inventories appear to be well in hand at all marketing stages.
Retail sales have been steady but unspectacular—slightly above the year-earlier pace in physical volume—and stocks of general merchandise are reported to be near desired levels. Several directors noted that consumers have grown more cautious in the past few weeks, particularly with regard to big-ticket purchases. However, new car sales have improved substantially after a stagnant January. Renewed interest in smaller, fuel-efficient models has brought record business to many import dealers. Except for shortages of some diesel models, auto inventories appear adequate and well- balanced.
Reports on housing markets have been widely mixed. The Florida boom continues virtually without let-up. Sales have been amazingly strong in 1979 to date, breaking records with extravagant gains from the year-earlier rate. Inventories are thin, acutely so for apartments. Condominium projects are sold before completion and command long waiting lists, encouraging speculation.
Realtors continue to comment on the heavy volume of foreign money, particularly Latin American and Canadian, that is flowing into new residential ventures in the state. Permanent financing is readily available to qualified Florida borrowers; since the recent exemption of thrift institutions from a 10-percent usury cap, mortgage interest rates have risen rapidly.
Elsewhere in the District, observers note varying degrees of weakening in housing markets. Demand is holding up well in the Atlanta area, but the gradual decline in mortgage loan commitments is likely to continue until the legislature acts on the proposed liberalization of the interest rate ceiling. In Alabama, Mississippi, and Louisiana, markets have softened somewhat, with slight increases in inventories and continued tightening of financing terms. The availability of funds is more a problem to builders than to buyers, however. Tennessee has seen a rather sharp slowdown in home sales and starts. While its legislature continues to debate the raising of the usury ceiling, which is strictly binding only on savings and loan associations at the present, mortgage money has become rather scarce.
Deposit inflows have been rather weak at both banks and thrifts, with only the most competitive instruments (CDs and money market certificates) showing gains. Loan growth has been moderate, with business credit requests steady and consumer demand for auto loans particularly strong.
Nonresidential construction activity is vigorous, and the list of recent announcements and contract awards is quite long. Demand for commercial properties, particularly retail outlets, has been brisk. All of the District's ports are presently undertaking major improvements, and expansion of tourist facilities is generating substantial construction revenues.
Another record winter tourist season appears to be in the making. All parts of Florida report no vacancies, heavy advance bookings, and saturation of tourist attractions. Vacation spots in Louisiana and Tennessee are enjoying substantial increases in numbers of guests. The industry's outlook, however, has been clouded by uncertain fuel supplies. To date, the cancellation of a few air flights and spot outages of gasoline at stations affiliated with major oil companies have had little discernible impact on tourist traffic. Industry spokesmen feel that while a gas price increase would not take a serious toll, rationing or gas "holidays" would.
An owner of a regional chain of independent gasoline stations complains that the present tight supply situation is the worst of all worlds, blaming the allocation and price control system. The disruption of Iranian supplies has cut his already low margins to half of last years s average or less. A real shortage, on the other hand, would be extremely profitable. A director reports that distributors in his area are filling their tanks to capacity when possible, a divergence from their usual practice of carrying a minimum and relying on dealers to deliver on short order. Some industrial buyers have been placed on allocation.
Production levels have been well below capacity in a few operations. Alabama's coal industries have been on a short shift since its largest buyer, Alabama Power, met resistance from its regulators and pared its operations. Slow sales and a parts shortage have temporarily closed Ford's Hapeville, Georgia, LTD plant, idling 3,400. A smattering of small plants in a variety of industries have been permanently shut down in recent weeks. However, the opening of new plants and strong orders has kept the industrial sector busy and hiring overall. Inventories are described as relatively low. Prices of raw materials, especially those derived from petrochemicals, have escalated alarmingly since the beginning of the year.
The farm sector is possibly the brightest spot in the current picture. Weather conditions have been mostly favorable and prices strong. Farmers' borrowings have risen sharply, pointing to plans to expand acreage. Agribusinesses have large supplies which they fully expect to move.
Businessmen's attitudes seem more divergent since the last report. The strong fourth-quarter 1978 performance has encouraged some optimism, especially among retailers. The oil supply question has been equally discouraging to others, adding to their continuing anxiety over inflation, high interest rates, and government regulations.