July 1, 1983
Consumer spending, especially for durables, offers the strongest evidence of recovery in the Southeast, and retailers surveyed expect sustained growth through the summer. The uptrend in construction persists despite a recent increase in mortgage rates and an earlier drop in building permits. Business loans at large commercial banks have risen for the first time since February. Manufacturers report increased sales, some firming of prices, and more recalls than layoffs. The pickup in tourism is gaining momentum, but this acceleration has yet to reach south Florida and Tennessee. Florida's citrus industry is one of the few bright spots in the troubled agricultural sector.
Employment and Industry
The southeastern labor market shows signs of strengthening despite
the increase in Florida's unemployment rate from 8.6 percent in
April to 9.1 percent in May. The recent volatility in the state's
jobless rate is attributable to changes in seasonality patterns.
Alabama's unemployment rate fell from 14.3 percent in April to 13.1
percent in May. Even in depressed industries, recalls have exceeded
layoffs. Steel fabricators in Alabama have begun rehiring furloughed
workers. Building supply firms, particularly in Florida, report
increasing sales and firming prices because of expanded housing
demand. Executives at cement plants and lumber mills expect to
operate near capacity in the next few months in response to
burgeoning construction activity. Higher prices in Louisiana's farm
chemical industry, mainly the result of cutbacks in plant capacity
and reduced supplies, are probably more temporary. However, industry
leaders remain concerned that low-priced, imported ammonia will
exacerbate their problems. Louisiana produces 30-40 percent of the
nation's ammonia, a chief source of nitrogen fertilizer for crops.
Consumer Spending
The May performance of consumer sales exceeded retailers'
expectations; southeastern taxable sales in May rose 6.8 percent
from 1982 levels in spite of declines of 5.9 percent in Louisiana
and 0.3 percent in Mississippi. Most retailers polled now anticipate
sales throughout the summer to run 10 to 35 percent ahead of last
year, even though nearly all predict the impact of the July 1 tax
cut will be negligible. Merchants attribute these increases to
renewed consumer confidence in the economy and, in Florida, to a
growing momentum in tourism. Appliances and other durables, such as
stereos, televisions, and lawn mowers, are moving especially well.
New motor vehicle sales in the Southeast continued to strengthen in
May. Dealers indicate that a number of popular full-size car lines
were in short supply regionally as well as nationally at the end of
May. Consumers are using credit to pay for a large portion of these
durable purchases, according to retailers and credit reporting
agencies polled.
Construction
The June 8 increase in the FHA/VA rate from 11.5 percent to 12.0
percent may spur home sales, according to realtors in the District.
A fall in discount points accompanied the rate hike and lowered
"cash-in-hand" requirements for many home buyers. The rise in rates
also spurred prospective buyers to sign contracts in order to lock
in current interest rates. Lenders expect no major changes in
mortgage rates in the near future, but they believe increases are
quite possible within a year.
Building permit activity remains strong despite the drop in April. Single-family building permits issued fell 1.1 percent from March to April. Many industry analysts attribute the decrease to aberrations from normal seasonal patterns earlier this year when lower interest rates catalyzed an unusual winter surge in building. Permit offices report that June housing activity remains stable. Atlanta housing sales are especially strong. The market now consists of individual transfers from other regions and a larger share of local buyers seeking to upgrade the value of their housing; last year corporate relocations accounted for most sales. Although fairly stable to date, housing prices may begin to rise by the fourth quarter because of inventory absorption and increasing land costs, according to industry representatives.
Commercial real estate brokers surveyed have become more buoyant in their outlook despite rising rental rates and ongoing problems of excess supply in many regional cities such as Orlando, Atlanta, and New Orleans. Commercial realtors are not worried that vacancy rates are not diminishing because they expect a 6-8 month lag between the onset of recovery and office relocation decisions. However, suburban markets in the Southeast are faring better than their downtown counterparts. The vacancy rate in Atlanta's central business district approaches 20 percent compared to a metro-wide rate of 15 percent.
Financial Services
Total loans at large District banks rose considerably from April to
May. The first growth of business loans since February sparked this
overall increase. Total bank deposits were off slightly in May. Some
respondents believe the slowdown in income tax refunds has reduced
the influx of most deposits except time deposits and large-
denomination certificates of deposit. Money Market Deposit Accounts
showed more strength at S&Ls than at large banks in May. However,
their earlier impetus has slowed to a monthly growth rate of less
than 3 percent at both institutions. Substantial funds flowed out of
Negotiable-Order-of-Withdrawal (NOW) accounts at large banks
although super-NOWs at thrifts rose slightly from April to May.
After shelving a proposal to allow interstate banking, the Tennessee
legislature recently passed several bills to make the state's
financial institutions more competitive. Most notably, banks may now
acquire other banks across county lines.
Tourism
Attendance at most attractions is more than 5 percent over last
year's levels, and state visitor center registrations, except in
Alabama and Tennessee, were up in May relative to last year. Central
Florida remains the leader of this upsurge. Respondents in Tennessee
and south Florida are pessimistic about travel this summer. May
lodging tax receipts in most states exceeded year-ago figures, but
many properties still suffered lower occupancy rates because of the
lingering effects of recession and because of the expansion in hotel
rooms. Hotels in cities such as New Orleans and Atlanta, which rely
on convention trade, have begun to discount rates to offset reduced
occupancy. This practice is likely to generate considerable
uncertainty and adverse results, particularly among smaller hotels,
in the opinion of those polled.
Agriculture
Conditions in agriculture remain troubled, although certain markets
show encouraging signs. Valencia orange production has rebounded
from last year's crippling freeze with an estimated harvest of 72
million boxes (20 million more than in 1982). Overall revenue
projections for oranges portend a 20 percent rise to $804 million.
In contrast, large stocks of grapefruit juice carried over from 1982
and poor marketing practices have resulted in excess supplies, lower
prices, and a $40 million decline in projected revenues. Estimated
revenue in 1983 from Sixth District peach production will be
approximately half of 1982 revenue because late frosts and freezes
severely reduced crops in Georgia, Alabama, Tennessee, as well as
South Carolina. Despite these regional crop losses, California's
above-average peach crop has held nationwide prices below 1982
levels. Adverse weather throughout the South and widespread flooding
in Louisiana and Mississippi lowered the District yield for winter
wheat from 36 bushels per acre in 1982 to 32 bushels in 1983.
Nevertheless, wheat farmers' net income should be substantially
higher this year because approximately one-fifth of the projected
revenue of $530 million will come from sales of Payment-in-Kind
(PIK) wheat, for which there are no offsetting costs. PIK, however,
continues to have an adverse impact on agricultural suppliers and
livestock farmers, who face higher feed costs.