November 12, 1980
Economic activity has been "better than expected" recently in the district. Merchants are optimistic about Christmas sales, and industrial concerns are lengthening their workweeks and recalling workers as orders have picked up. Business men are concerned, however, that the rapidly escalating cost of money may forestall a strong recovery. Recent increased weakness in housing markets lends substance to their fears.
Consumer Spending and Inventories
Retail sales contacts indicate sales about even with or up slightly
from last year at this time. Apparel sales, which had been sluggish,
picked up, and appliance sales have strengthened, especially
microwave ovens. Home furnishings remain a weak area. Although many
customers are burdened with debt and requests for payment extensions
are still common, there was a report of a large department store
soliciting new customers for the store's credit card. Merchants are
building stocks in anticipation of strong holiday sales and are
determined to move their inventory even if strong pre-Christmas
promotions are required.
New car sales are holding up, particularly x-cars and k-cars, but there is dealer concern about rising interest rates. Good sales in northern Alabama were attributed to customers rushing to get the 1980 models still in stock. Relatively strong demand for mid-size and large used cars reflects buyer resistance to the prices of the 1981 models. Many buyers are paying cash and are more willing to draw down or borrow against savings rather than pay the high conventional finance.
Financial and Construction
Mortgage lending is beginning to weaken due to rapidly rising
interest rates. Commitments are slowing and speculative builders are
being squeezed. In Atlanta, savings and loan associations reported
that increasing interest rates are dampening applications. Many
potential home buyers are being forced out of the market by the 14
percent mortgage rate now common throughout the region. Existing
homeowners are choosing to stay with their low mortgage rates rather
than "trade up." Corporate transferees provide the bulk of sales in
some areas. Builders are reportedly reducing outlays by acquiring
smaller lots and cutting back on square footage and other amenities.
A builder of large homes reports a recent slowing of unit sales. One
very large savings and loan association suggested that it would be
out of the fixed rate mortgage business in the near future,
reflecting a growing trend toward renegotiable and variable rate
mortgages.
In general, not much optimism can be found about the real estate and home construction industries. Nonresidential is doing well in comparison, with several large office building projects announced recently. New Orleans, in particular, is quite strong.
Employment and Industry
Most industrial contacts note a feeling of optimism due to the
results of the presidential election. Defense spending is expected
to increase, affecting many industries in the district. The
lengthening of the factory workweek and reopenings after partial
shutdowns of numerous plants indicate that industries are moving
back toward full production. Workers are being recalled by steel,
textile, and equipment manufacturers. Oil support companies are
bolstering the economy in south Mississippi, and in Louisiana, the
petrochemical industry is still expanding. Industrial orders posted
gains over the last month.
Recent statistics indicate that Florida attracted more investment in the first six months of 1980 than for all of 1979. Local option tax breaks are expected to benefit industry-hungry north Florida communities, which in the past have had little to offer to compete with tax incentives offered by bordering Alabama and Georgia. Alabama's liberal program offers property tax exemptions for as long as 40 years and easy-to-obtain revenue bond financing.
Georgia has topped the $1 billion mark in new and expanding manufacturing investment in 1980. Pratt and Whitney aircraft has recently announced plans to build a $100 million plant in Columbus, Georgia, to produce parts for its civilian and military engines. Plans call for a major expansion and upgrading of the state docks at the port of mobile, following a record year of tonnage handled.
Ground was recently broken for the only world's fair scheduled for the 1980s. It will be held in Knoxville, Tennessee, from May through October of 1982. The theme of the fair is "Energy turns the World." Financing for the World's fair will come from private sources.
Agriculture
Crop production estimates were lowered again in the southeast,
reflecting the drought's severe impact. Prices of cotton, tobacco,
and vegetables (crops of great significance to this region) declined
from September's levels. The Florida citrus Corp., however,,
exceeded growers' expectations. Grain prices were higher. Most
livestock prices declined from a month ago.