April 15, 1980
Most business indicators signal a downturn in the District economy. Retail sales have not met expectations, and higher interest rates have caused a slump in home and automobile sales, forcing layoffs in related industries. Loan demand has slackened. Agricultural prices are below the break-even point for most products.
Retail sales have softened recently. Inventories are lean in most cases, reflecting retailers' expectations of slower future sales. There has been a notable falloff in the sale of big-ticket items where financing is usually necessary. The heavy tourist season is bolstering sales in Florida; however, retailers are concerned that this is not sustainable through summer. Florida merchants are especially concerned over the restraints on credit card use, since a high proportion of their sales are from credit cards. Customers are becoming very price conscious, and discount stores are doing well. Slower sales prompted the closing of one of Alabama's oldest department stores and eight A&P stores.
Recent auto sales have been sluggish. The end of many rebate programs has weakened demand for most medium and large models. A few auto dealers in or around Atlanta have recently gone out of business. Fuel-efficient small car sales are still strong but not to the extent of previous months. People seem to be repairing their present cars rather than trading as most service and parts departments report heavy business. Used car sales are down because of the restricted supply of small fuel-efficient cars. Consumer loan demand has fallen off due to high borrowing costs.
High interest rates and their expected adverse effects on the economy have prompted some companies to revise capital spending plans. For instance, Kimberly-Clark Corporation has postponed construction of its $300-million manufacturing and distributing facility near Augusta, Georgia, and the Atlanta-based lodging chain, Days Inn of America, has cut its capital expansion program by 50 percent. Most architects and contractors in central Florida also see work running out in three to four months. Condominium construction has slowed because the typical Florida condominium buyer from the North is unable to sell his house. The few long-term loans recently issued include "kickers" (percent of profits) in addition to stiff rates. Residential construction is at a standstill in most areas. Buyers can't qualify for loans, and houses are staying on the market longer.
Mortgage rates of 16 percent for potential home buyers and 17 percent for builders are typical. Mortgage loan applications have slowed to a trickle. Most of the inflows into savings and loan associations are from the sale of money market and 30-month certificates. The high costs money are presenting serious problems for some businesses. The Vero Beach Piper Factory, a manufacturer of small airplanes, closed for two weeks and furloughed 700 employees.
Industries connected with construction are cutting back. In south Mississippi, hardwood plants, sawmills, and plywood manufacturers are reducing their work forces. One Masonite plant has reduced its work force by one-third since the first of the year. Prices of lumber in the Florida mills are paralleling the drop in housing starts. In south Alabama, some sawmills have gone to one shift. In Augusta, Georgia, a brick manufacturer closed one of its six facilities as shipments of bricks were down 40 percent from last year.
The short-range outlook for the agricultural industry is not good. Farmers are producing in a period of great risk due to high interest rates, high energy costs, and an unstable price structure. Heavy rains have presented serious difficulties with the corn crop in south Alabama. Lettuce and tomatoes are reported to be the only vegetables in south Florida that can be sold above the cost of production. Pork and poultry prices are low, reflecting rapid growth in supply. On the brighter side, the orange crop in Florida suffered less freeze damage than was first expected, and farmers are optimistic about next year's crop.
Contrary to the weakness in the aforementioned areas, energy- related industries are booming. In the chemical and petroleum sectors, a disposal facility of hazardous wastes, alleged to be the world's largest, will be constructed between Baton Rouge and New Orleans. This complex will be capable of detoxifying 80 million gallons of hazardous chemical by-products from area industries, which now create 50 million gallons of these wastes annually. Also, a large plant for refining contaminated petroleum products will be constructed near Montgomery, Alabama. Two large chemical companies have announced plans to spend about $300 million over the next five years on a joint exploration project for oil and gas, mainly in Louisiana and Mississippi.