September 16, 1984
Economic conditions in the Southeast are mixed, but strength continue to outweigh weaknesses. Industries dependent on international trade continue to be hit hard by the climb in the value of the dollar. Consumer spending remained strong through August, but summer tourist trade fell below anticipated levels of growth. Very recently, declines in mortgage rates have contributed to renewed growth in residential construction. Deposits at financial institutions are also increasing for the first time in many months. The general outlook for farmers is somewhat brighter than in several years, but last winter's freeze devastated many citrus groves.
Employment and Industry
Conditions in industries sensitive to interest and foreign exchange
rates have deteriorated, and labor markets have softened.
Unemployment rates increased in each of the Sixth District states
from June to July, after holding steady, on average, for three
months. Higher short-term rates and slower residential construction
nationwide caused many furniture plants to reduce inventories. As a
result, some small sawmills expect to close temporarily. The
increasing strength of the U.S. dollar is adversely affecting many
southeastern industries. A Florida shoe manufacturer expects to
furlough 1,500 workers because of import competition, and leather
employment in Tennessee is down 17 percent from last year. A
recently retooled steel plant in Alabama closed temporarily in
response to weak foreign demand.
The outlook for the chemical, energy, and defense industries is brighter. Two large oil companies recently announced plans to build refineries in Alabama. For the third consecutive month, the number of active drilling rip in Louisiana increased in July. Military contracts boosted manufacturing employment in Georgia this year, and job growth is likely to continue through 1986.
Consumer Spending
Retail sales activity in the region continued strong through August.
Atlanta, Orlando, and Jacksonville led the region in sales gains.
Thanks to a spending surge in the latter part of the month, August
sales activity was reportedly better than in July. Electronics, fall
clothing, and housewares moved particularly well, but all
departments fared better than last year, according to most store
managers polled. Auto sales remained healthy through August, but
dealers are concerned about the impact of a strike, which some feel
could keep potential customers out of showrooms.
Construction
The construction outlook has brightened over the past two months.
Residential brokers and real estate agents report new strength in
single-family home sales as a result of the recent mortgage rate
decline, which enabled more homebuyers to enter the market. In some
areas, rates on fixed-rate mortgages fell from 15 percent in July to
as low as 13 1/2 percent in early September. Mortgage rates appear
high by past standards, and much of the activity has been in the
resale market, where buyers can assume mortgages at less than
current market rates. The attractiveness of adjustable-rate
mortgages apparently is waning. Earlier this year, roughly 60
percent of new mortgages were of this type, but our latest survey
suggests that this level may have been the peak and the proportion
is now declining. Apartment vacancy rates are beginning to rise as
first-time homebuyers vacate. Estimates of vacancy rates range from
20 percent in Jackson, Mississippi, to below 6 percent in Atlanta.
Commercial construction in the Southeast continues to surge despite high interest and office vacancy rates. Developers, financiers, and leasing brokers, buoyed by the continued strength of nationwide business expansion, believe demand for office, warehouse, manufacturing, and retail space will increase. However, commercial developers have historically provided more office space than most southeastern markets could readily absorb. Office buildings are the most common type of commercial construction currently in progress, yet most markets have more excess office capacity than any other type of commercial structure.
Financial Services
Loans by large commercial banks advanced in July and August after a
strong June showing. Real estate credit recorded faster growth than
business or consumer lending. Mortgage commitments at S&Ls fell 12
percent from June to July, but recent mortgage rate declines are
likely to have produced some growth through mid-September. Large
commercial banks recorded the first substantial growth in deposits
in July and August since February, but financial institutions report
that loan demand exceeded new deposits in early September. The
overall deposit advance is traceable to additions to nontransaction
accounts, principally certificates of deposit, and a deceleration of
the five-month decline in demand deposits. A slight majority of
those polled indicate they are setting rates on their money market
accounts on the basis of national rates. More than half the
institutions contacted believe that time-deposit maturities on new
issues are shortening, but only slightly. Most banks attributed this
change to expectations of higher interest rates.
Tourism
Business conditions in the tourism industry are mixed. Rainy weather
and increased international travel, due to the high exchange rate of
the dollar, depressed midsummer tourism in the Southeast. However,
hotels had higher revenues, and air travel remained strong through
August. World's Fair average daily attendance through early
September dropped slightly to 42,000. Attractions, such as theme,
state, and national parks, are posting only slight gains or declines
in attendance. Visitor center registrations also dropped in July.
The lodgings industry is showing more positive signs. All states
reported double-digit increases in hotel/motel tax receipts in July,
reflecting increases in room rates and occupancy. The World's Fair
and increased business travel are largely responsible for the strong
performance of lodgings.
Agriculture
The outlook for District farmers appears more favorable than in
recent years. Despite a drought in June, most crop yields are
expected to approach record 1982 levels. Last year's sharp reduction
in commodity stocks, a strong economy, and increased Soviet
purchases may keep prices at a profit-making level. As a result, net
revenue for major District crops is projected to be up substantially
this year.
The full extent of Florida's citrus damage from last winter's freeze is now estimated at $1.1 billion. The freeze, the worst in this century, caused varying amounts of fruit loss and tree damage to approximately 100,000 acres of citrus. Florida's citrus industry is likely to shift further south as growers seek to replant trees, which take five years to reach bearing age, in areas less vulnerable to freezes.