March 20, 1986
Economic activity in most sectors of the Southeast sustained the stronger pace that emerged around the turn of the year. Reductions in borrowing costs and prospects for substantial declines in energy prices have begun to stimulate regional industries, and employment has been growing. With some exceptions, residential and commercial construction activity remain strong. With regard to commercial space, building continues despite high office vacancy rates. The outlook for tourism has improved, and regional airline traffic has responded to declines in fares and prospects of further cuts. Consumer spending has moderated. Many of the region's crop farmers are delinquent on their loans, though prospects are better in a few selected agricultural areas.
Employment and Industry
Unemployment rates fell moderately in most District states from
December to January. Florida and Georgia continue to post below-
national jobless rates. Alabama and Tennessee are slightly above the
nation, but continued weaknesses in energy and agriculture have kept
rates in the double-digit zone in Mississippi and Louisiana. The
region's paper producers have trimmed excessive inventories to near-
normal levels, and plant operating rates have begun to climb.
Sawmills are being helped by declining energy prices and imports of
low-cost timber from Canada. Lower oil prices are expected to
stimulate demand for petrochemical products by lowering costs and
prices. Home appliance producers in Alabama and Tennessee are
encouraged by the better housing situation. In contrast to declines
for other textile producers, Georgia carpet mills have added 2,700
workers over the year in response to strong demand for carpets used
in automobiles, offices, and homes.
Consumer Spending
Retail contacts report that sales in early 1986 are only moderately
higher than a year ago. Most respondents also report a continued
tight inventory stance in an effort to control costs more closely in
an environment where profit margins are narrow. Although merchants
expect only a slight improvement in March compared to last year,
mild optimism prevails for the second quarter. Changing
manufacturers' incentives are credited with getting 1986 auto sales
off to a weak start compared to last year.
Construction
In most of the region, construction and sales of single-family
housing remain firm to good. However, severe weakness is evident in
Louisiana's markets, and several large Florida markets exhibit
growing softness. Multi-family building has begun to concentrate in
the stronger leasing markets. Apartment vacancy rates continue to
rise in most areas as new construction outpaces absorption.
Office vacancy rates remain high throughout the Southeast, yet construction continues in many markets. In those markets where office construction is dropping off, light industrial space seems to have grabbed the attention of developers. Overall, construction of retail space has attracted little new interest, and the market for industrial and warehouse space is also sluggish. All sectors of nonresidential construction are facing a slowdown in the New Orleans area, and the continuing decline in oil prices dashes hopes of any turnaround in the near future.
Financial Services
Loan growth at large District banks held steady in January after
almost a year of consistently slowing growth. The strength of real
estate and consumer lending balanced January's softer business loan
demand. In February Alabama passed a regional interstate banking law
which will become effective in July 1987. Now four of the six
District states have interstate laws, including Alabama, Florida,
Georgia, and Tennessee. Of the remaining two states without such
laws, Mississippi currently has a bill in the state legislature, and
a bill is expected in Louisiana when the legislature convenes in
April.
Tourism
Data for airline passengers, auto travel, and lodging receipts
indicate strong early-year performance, and contacts continue to
hold positive outlooks for the remainder of 1986. Throughout the
Southeast hotel, motel industry personnel are looking for an
increase in domestic travel and occupancy rates due to the dollar's
decline relative to currencies of most other advanced economies.
There are also predictions of increased foreign travel to the United
States, particularly Latin Americans to Florida. Advance convention
bookings are looking good in most District markets. Regional air
travelers have recently experienced much cheaper air fares, and,
with the intended acquisition of the region's second largest airline
by a confirmed discount carrier, air travel costs seem likely to
drop further.
Agriculture
Financial conditions remain precarious for the Southeast's heavily
indebted crop farmers. Thirty-five percent of the region's borrowers
from the Farmers Home Administration (FmHA) are delinquent on their
loans compared with 20 percent for the nation. Mississippi and
Georgia are the second and third ranking states nationally in number
of FmHA delinquencies. About half (over 3,700) of Georgia's FmFA
borrowers and around 40 percent of such borrowers in Florida,
Mississippi, and Louisiana are delinquent on payments, and most have
been mailed notices of potential foreclosure. In sharp contrast to
most other farmers, poultry and vegetable producers are doing
relatively well. Reduced feed costs have raised profit margins for
broiler growers, while the prospective returns to Florida's winter
vegetable producers are being boosted by increased acreage, with
prices averaging about one-fifth above the year-ago level.