October 14, 1980
Last month's general feeling of optimism turned to one of concern as higher interest rates threatened to stall the recovery in home building. Consumers are still cautious in the use of credit and are postponing major purchases. Merchants are reacting by keeping inventories lean. Employment brightened in August but may be less buoyant in September due to the ripple effect of slower housing demand and weaker retail sales.
Consumer Spending and Inventories
Retail sales have been slack in
most areas. Home furnishings and appliance sales were weak, and the
new fall fashions got off to a slow start, hampered by extended
summer-like temperatures. One large retailer noted increased
preference for catalog shopping as consumers continued their efforts
to avoid higher floor prices. Use of cash is also more prevalent.
Although traffic is high at most new car dealer showrooms, sales have only been fair. Dealers are not optimistic about new car sales over the next three months. Consumers are taking a "wait and see" approach on the performance of the widely promoted American-made fuel-efficient cars. Many consider them overpriced. Inventories are at low levels by design—carrying charges have been rising rapidly.
Financial and Construction
The recent surge in interest rates is
slowing home sales throughout the District. The typical 13 1/2- to
14-percent mortgage rate has about eliminated the first-time buyer,
and trading buyers are finding difficulty qualifying for
conventional financing. There is much uncertainty among building
contractors and potential home buyers. They are unable to plan ahead
due to rapidly changing interest rates. Savings and loan
associations report applications tapering off. Some lenders are
returning to a policy of restricting loans only to their customers.
Unconventional financing is becoming much more prevalent. One
Florida S&L reported good reception to its new equity-participation
mortgage. A large south Mississippi supplier reports a sharp
reduction in orders for construction materials since interest rates
have moved up, and lumber prices in north Florida have fallen
considerably from last month's level. About the only market not yet
affected by the high interest rates are the luxury condominiums in
south Florida as building continues strong.
Capital investment plans are mixed at this time. Northern Alabama businessmen are leery of making plant expansions or building inventories because of escalating interest rates, but in south Florida, firms are said to be still expanding with minor exceptions. Backlogs at high-technology companies are the highest ever. In Louisiana, industrial construction is strong due to continued petrochemical expansion.
Employment and Industry
For the most part, the employment picture
has brightened, although there still are some rough spots.
Manufacturing employment turned upward for the first time in over
half a year. The factory workweek edged up, but hours worked in many
industries are still far behind those of last year. Cutbacks are
anticipated by the farm machinery and food processing industries as
the record-breaking heat wave and drought curtailed crop and animal
production. Unemployment continues to escalate in northern Alabama,
with renewed layoffs and a "general across-the-board slowdown" by
industrial concerns. Datsun, Japan's second largest automotive
manufacturer, will build a major truck plant in middle Tennessee.
The plant, set for production in 1983 at a cost estimated at nearly
$500 million, will ultimately employ 2,200 workers, nearly all of
them local. Tourism has shown some slackening in most areas except
for southeastern Florida, which continues to attract foreign
visitors. Eastern Airlines reported that passenger revenue miles
were down 12 percent in south Florida. Deplanements were also off in
New Orleans, and hotel reservations in Nashville were down 10
percent from the year-ago level.
Agriculture
The drought has made further reductions in District
crop production; however, additional price increases have offset
some of the drag on income. Corn and soybean prices have risen
significantly. The cow-calf industry faces a severe squeeze
resulting from drought-reduced forage supplies, rapidly escalating
feed costs, and feeder calf prices averaging 25 percent below a year
ago. Farm credit outstanding is well above year-ago levels, and
farmers have made heavy use of emergency credit.