October 23, 1985
Broadly-based yardsticks of economic activity indicate a mixed performance of the Southeast economy in late summer. Employment growth exceeded labor force growth, reducing the region's jobless rate. Manufacturing employment showed a respectable increase in August, with transportation equipment responsible for much of the growth. Consumer spending is up from a year ago. However, September retail sales were up only moderately from August as consumers gave a lukewarm response to sales promotions. Construction of single-family housing is strong but signs of weakness have surfaced in multifamily, commercial and office construction. The pace of loan demand is slackening despite an uptick in business loans in September. Tourism has flattened somewhat around the region. While carpet mills are increasing employment, owing to strong demand and low susceptibility to imports, weakness persists in other textiles and apparel, petrochemicals, and agriculture.
Employment and Industry
Labor markets conditions improved since midsummer. Employment growth
exceeded labor force increases in August, and the District
unemployment rate fell 0.4 percent from July to 7.9 percent. Job
gains in the services and trade sectors have more than offset
employment declines in manufacturing. Chemicals and textiles
manufacturing have accounted for the most job losses. Spokesmen for
Louisiana's chemical industry now feel that employment may remain
stable for the remainder of 1985. However, the high comparative
value of the dollar continues to pressure regional textile and
apparel producers and employment in apparel plants is continuing to
decline. In contrast to apparel manufacturers, carpet mills are
adding employees. The strong housing market and the commercial
office building boom are chief sources of strength for the domestic
carpet industry which is somewhat insulated from imports, owing to
high shipping costs and customization. Orders for carpets are
expected to remain strong through the end of the year. Contacts
report that the region's paper and linerboard industry, unexpectedly
weak in the first two quarters of 1985, is expected to strengthen
towards the year's end. A record $8 billion in capital spending by
U.S. paper mills is expected in 1985, 13 percent above 1984 levels.
Expanding employment at auto and auto-related plants in the region
is related to growing new car sales.
Consumer Spending
Retailers report moderately higher sales in September compared to a
year ago. Although consumers' response to recent sales promotions
was lukewarm, merchants report inventories to be leaner, but at
desired levels. Sales at department stores continue to exceed the
sales pace nationally. Women's apparel, sportswear and sports
equipment, and furniture and housewares have been the best-selling
items during the early fall period. Most retailers polled expect
Christmas sales growth to match last year's increase despite fewer
selling days between Thanksgiving and Christmas this year. Car sales
strengthened throughout the region in September, and industry
contacts are optimistic about the demand for cars for the remainder
of 1985.
Construction
The general outlook for single-family sales and construction remains
good. Declines in mortgage rates have boosted demand amid only
modest advances in home prices. August building permits were up from
the previous year by 28 percent in Nashville, 20 percent in Atlanta,
and 13 percent in Miami. In the multifamily sector, by contrast,
there is a large unsold inventory of condominiums and prices have
been falling, especially in the south Florida market. Reflecting the
surplus of condos, building permits for apartments are down sharply
from last year. Signs of slowdown in office markets have surfaced in
Atlanta and Miami. Below-normal absorption for the first half of
1985 and a significant volume of new space expected to enter the
market in the fourth quarter, are likely to push up vacancy rates
and place downward pressure on rents.
Financial Services
Although loan demand remains strong, a slowing trend is evident A
slight uptick in business loan growth in September cushioned the
slowing growth rates in real estate and consumer loans. About one-
third of current real estate lending reflects mortgage refinancing.
Bankers were smarting over substantial losses in auto loan volume to
special low-rate dealer financing during September.
Tourism
After good growth during the summer, tourist activity seems to have
waned a bit Air travel was mixed in August While most regional
airports have reported healthy increases in passengers in 1985,
some, including Atlanta's Hartsfield, have experienced slower growth
in August. Visitor center registrations in September fell in 3 of
the 4 states for which data are available. Hurricanes adversely
affected the region's coastal areas during the month. Although
occupancy levels at hotels and motels in overbuilt cities such as
Orlando, Miami, and New Orleans remain weak, performance continues
to strengthen in many other southeastern cities.
Agriculture
Crop prospects are generally favorable throughout the region and
indicated yields are significantly above the average for the past
five years. However, crop prices averaging 29 percent below year-ago
levels indicate sharp reductions in income from 1985's increased
production. Farm loans outstanding, as of mid-1985, were below year-
ago levels reflecting both reduced lending and increased write-offs
of bad loans. Loan write-offs will increase as a result of further
reductions in crop income in 1985. The livestock sector, and
especially broiler and turkey producers, will fare better than crop
producers because product prices have not weakened as much as crops
and feed costs have dropped with grain prices. On balance,
southeastern farmers are doing somewhat better than farmers
elsewhere in the country.