December 6, 1983
The southeastern economy continues to strengthen. Employment and orders are up in regionally important industries. Vigorous retail sales during the Thanksgiving weekend have made merchants optimistic regarding the Christmas season. Housing sales have increased since the FHA/VA rate dropped, and commercial real estate investment is lively. Business lending by major banks has improved markedly, and the growth in consumer lending remains healthy. Tourist trade is picking up in several major convention cities. The Payment-In-Kind (PIK) program has aided many farmers, but heavy debt burdens presage difficulties for marginal operations.
Employment and Industry
A poll of southeastern manufacturers indicates that employment and
orders continue to improve even though the latest available labor
market statistics for October show mixed signs. Employment losses in
the petrochemical industry have ceased, and economizing measures
have enabled firms to earn profits despite low utilization rates.
Oil and gas drilling is increasing in Louisiana and Alabama.
Corporate executives, anticipating rising energy prices over the
next two to three years, are optimistic about prospects for 1984.
Brisk sales of new cars have spurred demand for tires. In response,
Alabama tire manufacturers, who produce 15 percent of the nation's
supply, are expanding capacity by as much as 10 percent. Government
contracts for military clothing are boosting production in the
apparel industry. Pulp and paper mills are now operating at over 90
percent of capacity, almost 10 percentage points higher than last
year. Demand for computer paper has been especially strong. Southern
mills produce 52 percent of the nation's paper. Timber industry
representatives report continuing upward momentum and expect
production levels by year-end to approach peak 1979 levels. However,
the effect of the upturn in housing has yet to reach some areas of
Mississippi that depend heavily on lumber manufacturing.
Consumer Spending
Major southeastern retailers polled about Thanksgiving weekend sales
report double-digit increases over last year's levels. Sales of
apparel, toys, electronic goods, and home appliances have been
especially strong despite limited price discounting. Most merchants,
encouraged by the high levels of activity over the holiday weekend,
are optimistic that consumer spending will reach a new peak by year-end. New motor vehicle sales continue to grow at a crisp pace. Truck
and van sales are outperforming car sales, in part because dealers
have had an abnormally low inventory of new cars.
Construction
The drop in the FHA/VA rate to 12.5 percent in early November
stimulated housing sales by decreasing buyers' monthly mortgage
payments, in the view of most realtors polled. Nonetheless, many
potential buyers may be delaying purchases in anticipation of
further decreases, and Atlanta lenders believe the increase in
discount points that generally accompanies a decrease in FHA/VA
rates may have motivated some sellers to leave the market rather
than pay the additional fees. Orlando and Nashville realtors report
increases in new-home sales, and Atlanta real estate agents indicate
improvement in the used-home market. However, the cancellation of
the Clinch River Breeder Reactor has dampened sales of single-family
houses in Oak Ridge, Tennessee.
Commercial real estate development in Tampa and Miami is proceeding swiftly. Tampa city officials are evaluating designs for a large multi-purpose convention center, and the city's first billion dollar project is under construction. Contacts indicate that Miami is undergoing an office-building "boom" fueled by developers' expectations of the legalization of interstate banking and attendant increases in demand for office space. Rapidly growing areas such as Atlanta and Jacksonville are also experiencing heavy investment in commercial real estate.
Financial Services
Deposits at large commercial banks advanced from September to
October by 1.5 percent, slightly below the previous month's rate of
increase. The slowing resulted from a decline in the growth rate of
time deposits, which represent over half of southeastern bank
deposits. Loans at large commercial banks increased 3.4 percent from
September to October. Business and real estate lending grew markedly
faster, while consumer lending sustained the strong pace of previous
months. Some large southeastern banks have begun investing in one
another's stock, building relationships which they could quickly
expand if interstate banking wins legislative approval.
Tourism
Lodging tax revenues increased in October relative to year-earlier
levels in all states except Tennessee, but hotel occupancy is still
down in most cities except Orlando. Contacts in Atlanta and New
Orleans report that the addition of new facilities has ameliorated
convention trade. The first phase of the Georgia World Congress
Center expansion, adding 65,000 square feet of exhibition space,
opened in early October. Attendance at southeastern attractions
continues to outpace year-earlier levels, and most of those surveyed
plan to invest in expanded facilities in hopes of drawing visitors
to the 1984 World's Fair in New Orleans. More than 15,000 people
applied for 8,000 jobs at the Fair during the two weeks after
applications were first accepted in November. The number of
passengers at most of the District's major airports continues to
increase over year-ago levels. Both large and small carriers are
adding service to smaller cities.
Agriculture
Crop farmers' net income for the year has increased 10-15 percent
above 1982, primarily because of PIK commodity payments. Profit
margins of livestock operations have diminished steadily in 1983 as
rising production coincided with sharp increases in feed costs,
leading to a classic price-cost squeeze. In the broiler and egg
industry 1983 was better than 1982, but the improvement would have
been greater if the climb in feed costs had not offset much of the
gain offered by rising prices.
Nevertheless, the increase in net revenue signals a reprieve, not a
turnaround in the farm economy. According to reports from the Farm
Credit System and commercial banks, conditions are improving for the
more conservative, financially sound farmers who constitute most of
their borrowers and who are poised for recovery. In contrast,
borrowers from the Farmers Home Administration (FmHA), who tend to
operate marginal and/or highly leveraged farms, found only a
temporary respite, if that, in 1983. In every District state except
Tennessee, FmHA delinquency rates have edged higher compared to a
year ago. The delinquency rate of Georgia's borrowers from FmHA is
56 percent, the highest rate in the nation. Only in Tennessee is the
rate less than
one-third. Many farmers in this group can do little
better than hope to continue in business. Agribusinesses,
particularly those which supply farm inputs such as fertilizer, have
experienced trade declines of a third or more, although equipment
repair work reportedly has increased.