May 12, 1982
Business conditions in the Sixth District are somewhat mixed at this time. Limited signs of recovery are evident in tourism and construction, but other sectors remain depressed and firms are hesitant to expand employment and inventories. Heavy industries are more depressed than in years, and industry spokespersons are not optimistic about any near-term upturn. Higher prices for calves and hogs have improved cash flow for farmers, but a high level of debt remains difficult to carry.
Consumer Spending
Reports on retail sales in the District are
mixed. Big-ticket appliance sales are up noticeably in Miami and New
Orleans, and home entertainment products are showing widespread
strength in the District. There are reports that Easter buying of
clothing was lower than last year, and wholesale buyers say
consumers are very quality- and bargain-conscious. Traffic in
furniture stores remains slow and the floor-covering business is
poor. Retailers continue to keep a tight rein on inventories, and
wholesale clothes buyers are even delaying purchases for the fall
season.
Auto sales remain poor. Domestic car sales in most of the District are below year-ago levels but are stronger than foreign car sales. High interest rates still limit sales and squeeze profit margins, but dealers are hanging on. Dealer closings do not appear to be accelerating.
Financial and Construction
The behavior of loan demand is generally
consistent with geographic differences in the severity of the
recession. Bankers in the more depressed areas of the District told
of weak demand for both consumer and business lending. By contrast,
lenders in Georgia and Florida, where unemployment rates are well
below the national rate, spoke of strong loan demand. A few bankers
expressed concern that strong lending may be an indication of poor
sales.
Residential construction is showing some sign of improvement. Permits issued to build single-family houses are up in April and early May in many areas of the District. Permits are being issued to home purchasers with cash in hand, ready to build. Realtors report a slight pickup in sales. Atlanta's "mini-boom" in sales is being supported by relocation of employees of Georgia-Pacific. Throughout the District, homes have been moved primarily with innovative financing; conventional rates are reported still too high for home buyers. Realtors feel the worst of the recession is over but remain cautious. Homebuilders remain very pessimistic, since sales are almost entirely existing homes and new home inventories remain high. Throughout the District, vacancy rates for both residential and commercial dwellings have increased.
Employment and Industry
Unemployment rates continued to drift
upward in the District in March as employment contracted and the
labor force continued to expand. The six-state average jobless rate
reached 9.9 percent in March, 0.7 percent higher than the February
rate and 0.8 percent higher than the national rate in March. Except
for services and paper, job declines are still prevalent in many
industries.
Alabama has been particularly hard hit, with an unemployment rate of 13.6 percent. The situation there may deteriorate even more as U. S. Steel Corporation is considering a temporary shutdown of its operations near Birmingham because of declining orders and competition from imported steel. The plant, Birmingham's largest, has 3,200 people currently at work with close to 7,000 of its May 1980 work force on layoff. The state's important textile and forest product firms have hundreds of workers on layoff due to the weakness in construction and auto sales.
Layoffs have surfaced even in industries thought to be insulated from the recession. In Louisiana, orders for oil-field structures and drilling rigs, in particular, have taken a nose dive, prompting layoffs in the oil rig and equipment fabricating business. Phosphate mining has slowed noticeably in central Florida. Recent closing of a phosphate-based fertilizer plant in Savannah, Georgia, is indicative of weakness in the farming area. The region's largest manufacturer of satellite and telecommunications equipment has laid off workers for the first time in years. For Florida, a bright spot continues to be foreign trade. A new record was set in 1981 as the actual value of goods exported increased $1 billion over the previous year. South Florida has contributed heavily to these exports.
The tourism industry appears to be reviving in Florida, following what was characterized as a ho-hum start to the season. Low hotel/motel occupancy rates for the month of February were reversed during March and April. Lower gasoline prices and discount air fares have stimulated travel to the state. Traffic counts are up and reports of heavy summer bookings at lodging places suggest a healthy summer for tourism. Attendance at the World's Fair in Knoxville, Tennessee, has not kept pace with projections in spite of heavy promotion. Officials predict a surge of visitors when school is out. The fair is scheduled to run for six months.
Agriculture
Rising prices of calves and hogs have somewhat
brightened the agricultural picture in the Southeast; however, crop
prices are not yet offering much encouragement to farmers who need
increasing profits to repay large debt overhangs from prior
unfavorable seasons. Many farmers owe more than their assets are
worth in current markets. However, lenders are continuing to work
with borrowers if there is any hope of recovery from current
financial straits. Foreclosure sales of farm property have produced
few bidders for either land or machinery. In most cases, lenders
have purchased property at the loan value in order to prevent losses
of loan principle. There have been few actual sales of farmland, and
a representative market value is difficult to establish. Estimates
of the decline in land value from year-ago levels range from zero to
as much as 20 percent.
District Economists
District bank and business economists polled
this month agree that the FOMC is on the right track and should
stick to its announced policies. They believe these policies will
soon result in reduced inflationary expectations and help to lower
interest rates. The panel is concerned that projected budget
deficits will keep interest rates high in the coming expansion and,
consequently, limit private sector growth. Some panelists argue that
the relatively high current interest rates for this stage of the
recession are causing more severe liquidations and pressure on
profit margins than usual. They say the liquidations are, in turn,
providing earlier-than-usual inflation relief.