January 20, 1984
Construction and consumer spending continue to sustain economic recovery in the Southeast, and contacts are optimistic about 1984. Retailers enjoyed the best holiday sales in the last four years. Housing purchases remained strong through December despite rising mortgage rates and adverse weather. Strength in these sectors has prompted recalls of laid-off manufacturing workers and sharp increases in orders in construction-related industries. Lending activity slowed in December, but bank deposits advanced sharply. Unusually cold weather adversely affected tourism and agriculture. Losses of vegetable and citrus crops have pushed up prices.
Employment and Industry
Industry contacts believe that labor market conditions continued to
improve through December and gains will persist at least through the
first quarter. In November, unemployment fell in four of the six
District states. Manufacturing employment grew by over 85,000 from
November 1982 after falling by 161,000 in the previous 12-month
period. Vigorous auto sales led to the recall of 1,600 workers for a
second shift at a large auto assembly plant near Atlanta. The
scheduled mid-February reopening of a large Alabama sheet steel mill
and the attendant recall of 2,500-3,000 workers bodes ongoing
improvements in manufacturing employment. Contacts expect 1984 to be
a good year for the timber industry as well. Boosted by renewed
vigor in the housing industry, southeastern construction employment
rose 38 percent in November above year-earlier levels. The American
Plywood Association indicates that 1983 plywood production, nearly
25 percent over 1982 levels, attained record highs, largely as a
result of increased demand in the "do-it-yourself" market. A rig
count increase from 282 in November to 321 during December betokens
recovery in Louisiana's oil and gas exploration industry. Many
chemical plants in Louisiana found themselves ill-equipped to cope
with the unusual Christmas cold spell, but an industry spokesman
believes the short-lived production halts may have helped stabilize
falling prices.
Consumer Spending
District retailers surveyed about December sales regard 1983 as the
best year since 1979. New car sales sustained the momentum of recent
months despite unusually cold weather. Department store merchants
report double-digit increases over the previous year. Retailers cite
apparel, big-ticket items, and jewelry as leading holiday sellers.
These reports suggest a continuation of the healthy growth shown in
November's state sales tax receipts Merchants perceive widespread
consumer optimism about employment prospects. If this optimism is
well-founded, retail spending should remain strong in 1984.
Construction
December's housing sales were slightly above normal despite
unusually severe weather and rising conventional interest rates
early in the month. Realtors report increases in the share of used
homes sold and in the proportion of buyers "trading up." Improved
employment opportunities and transfers account for much of the real
estate activity in Nashville, Mobile, and Jacksonville. The sale of
houses to retirees in Florida is strengthening as national economic
improvements enable homeowners to sell their residences elsewhere.
Builders who have moved from Houston's saturated market are
stimulating residential construction in Orlando, and realtors expect
this trend to continue. Area lenders say that the deregulation of
the FHA mortgage rate has resulted in higher rates and lower
discount points. Confusion over post-deregulation requirements for
FHA loans made some lenders less willing to make EHA loans. In the
opinion of those surveyed, FHA activity should increase as lenders
become more familiar with the loans' new terms. However, some
builders fear recent price increases in supplies will dampen the
pace of residential building. In the last two months, the number of
single-family building permits declined on a seasonally adjusted
basis.
Office space absorption and construction in Atlanta and Nashville continues at a brisk pace. Shopping center development is reviving throughout the Southeast. However, commercial construction in Orlando has slowed from its previously booming pace. Realtors fear that Orlando and several other cities may have excessive inventories of office and hotel accommodations on the market or under construction.
Financial Services
After maintaining strong growth for six months,
loans at large banks advanced only slightly on a seasonally adjusted
basis from November to December. The slow growth is attributable to
a decline in real estate lending, flat demand for consumer loans,
and a moderation in the recent strong growth of commercial loans.
Bank contacts report that loan demand through early January
increased over late last year, although the improvement in
Mississippi has been modest. Respondents most often cite commercial
lending as the fastest growing segment, but Florida and Atlanta
contacts report that consumer lending is strong. S&L spokesmen
indicate that loan applications are at least maintaining, if not
surpassing, the rate of late last year.
Deposits at large banks ended 1983 with the strongest monthly showing since June. The strength is attributable to faster expansion of both demand and time deposit accounts and the continued strength of savings. Jumbo CDs contributed significantly to the spurt of deposits in December. Savings at thrifts grew slowly in December and early January. according to those surveyed. Contacts do not expect the January 1 elimination of the quarter point advantage formerly held by S&Ls on regular savings accounts to trigger the sort of competitive struggle in the Southeast that attended the introduction of MMDAs a year ago; Competition is concentrated in higher rate accounts.
Tourism
Cold weather weakened the performance of the tourism industry in
December. Visitor center registrations declined relative to year-ago
levels in three states, and attendance at most southeastern
attractions fell. Hotel occupancy is still soft in most cities. Even
in Orlando, occupancy fell 7 percent in November after 14 months of
increases. Air travel continues to improve because of rising
passenger volume and expanded carrier service at southeastern
airports. The relatively small (1-2 percent) increases in revenue-
passenger miles reported in December by the major southeastern-based
carriers are probably attributable to unusually high year-earlier
volumes. Discounts triggered much of the year-ago increase. Since
the proportion of passengers flying on discount has declined,
present levels indicate healthy conditions despite the modest
nominal growth. Renewed auto-train service from Virginia to Florida
has generated strong demand. Most southbound routes are sold out,
and advance bookings are reportedly heavy.
Agriculture
The unexpected freeze at Christmas inflicted substantial injury on
Florida agriculture. Grower losses may exceed $500 million.
Approximately 85 percent of the state's orange crop had not been
harvested when the cold struck. The most recent USDA estimate
projects a 23 percent loss in the orange crop with a concomitant 13
percent decline in juice yield per box. By early January the
wholesale price of orange juice had climbed 1 percent above its pre-
Christmas level. Imports of Brazilian orange juice should temper the
impact on consumers somewhat, but Brazilians have increased prices
18 percent from last season in anticipation of strong demand.
Consumers will face much sharper price increases for fresh vegetables until new crops reach harvest. The wholesale price of lettuce has more than doubled since the freeze. Tomatoes, pepper, and squash also incurred extensive injury. Higher prices will partially offset citrus crop losses, but revenues for many growers will be below earlier expectations. Vegetable growers' annual revenue should decline because they have lost their most advantageous marketing period. The freeze has reduced employment except in south Florida, where many growers have undamaged fruit suitable for sales as fresh produce, and in portions of central Florida, where growers are rushing oranges to juice processors.