May 13, 1981
Recent economic activity in the Sixth District appears sluggish. Retail sales have been mixed with scattered areas of strength; retail stocks have not built up excessively. The recent rise in interest rates has put a damper on mortgage lending, and builders are predicting a substantial drop-off in housing permits in May. Strong industrial expansion continues in the energy production areas of the District, but other industries registered little growth. Bank lending has been sluggish. The prospects for agriculture are heavily dependent on abundant rainfall in the District.
Consumer Spending and Inventories. Retail sales in March appeared strong; however, caution should be exercised in interpreting the trend. Year-to-year comparisons, generally used by merchants, can be misleading for two reasons: (1) March 1980 sales were unseasonally weak due to the credit controls and the sharp recession, and (2) Easter came two weeks early last year; some of March's sales reflected pre-Easter buying.
In view of these precautions, our general impression suggests softness in retail sales. Sources mentioned lofty interest rates, hesitancy in credit use, and general uncertainty about future business conditions as reasons for caution. Automobile sales are in a post-rebate lull throughout the District, and no-frill buying is quite prevalent at this time. Interest-rate-sensitive items were noticeably weak, but there were no indications of excessive inventories. Catalog sales were about even with last year.
Recent good news from the Atlanta area was that wholesale gasoline prices declined for the second month in a row. The current glut of oil on the world market and increased use of public transportation appear to be causing companies to lower their prices somewhat.
Financial and Construction
General uncertainty best characterizes
the financial industry. Mortgage lenders report that demand is
slowing down in response to the recent surge in interest rates. The
hike to 16 percent equaled the record level for a large Atlanta
savings and loan in April and May of last year. In south Florida,
there has been a slight softening of prices in the used home and
condominium markets due to high mortgage rates. Creative financing
is a must if a home is to be sold there.
Home building rebounded in parts of the District in March and April; however, the increases were most likely due to builders incorrectly guessing that interest rates were headed downward. Some undesirable inventory overhang is probable and most builders predict a substantial drop-off of housing permits in May. Some consumers are willing to pay the high interest rates, evidenced by a still strong market for luxury housing in south Florida.
Loan demand has stabilized, with large banks reporting manufacturers and wholesalers holding inventories at low levels to avoid high financing charges. A notable exception is that energy-related lending is advancing at a strong pace. Money market certificates continue to attract funds to time deposits.
Employment and Industry
Although the number of factory jobs has
risen substantially in the District since July 1980, not all
industry divisions have fully recovered from the 1980 recession.
Employment in the primary metals and building material industries
(lumber, wood, stone, clay, and glass) is still well below last
year. The United Mine Workers, who have 13,000 active coal miner
members in Alabama, continue their strike. Area utilities are
heavily dependent on coal for generating electricity but are
apparently well stockpiled and could withstand a lengthy strike.
Favorable news from Alabama was that U.S. Steel will expand, adding
1,000 jobs to the northern area of the state. The continuous cast
pipe plant will produce a product much in demand by oil drilling
operations.
Industrial expansion is continuing strong in Louisiana, mainly due to the capital-intensive petroleum and chemical industries. Marine construction is registering substantial vitality as offshore oil fleets are enlarged. Oil and gas exploration remains strong in south Alabama and south Mississippi.
Attendance at central Florida tourist attractions rebounded in late March and early April. The Kennedy Space Center led the pack--about one million visitors came to witness the historic launch of the Space Shuttle Columbia. In contrast, south Florida reports the worst tourist season since the 1974-75 recession. Advance bookings for the Easter season were off almost 28 percent from last year. Weakness is also evident along I-75, the main corridor traveled by Florida visitors. High air fares, high gas prices, high motel rates, and reduced discretionary income were reasons given for the unusual number of vacancy signs.
Agriculture
The prospects for agriculture rest heavily on rainfall
in the District. Not enough rain has been received thus far to
replace the subsoil moisture evaporated by last year's drought.
Although showers have been sufficient to provide a good winter wheat
crop, the development of summer crops will be severely restricted
without abundant rainfall. Livestock producers continue under heavy
economic pressure that will be accentuated if another dry summer is
experienced in the Southeast.