September 10, 1986
The pace of southeastern economic activity slackened toward the end of summer for most sectors. Unemployment rates continued to edge upward, consumer loan growth slowed, auto sales have not met expectations, and consumer spending has been mixed. High vacancy rates are slowing office construction, and residential construction has cooled in some areas. More positively, building permits are up and tourism has been strong. Textile employment has stabilized. Rains are helping to ease drought conditions. However, drought- induced damage to timber and crops has been substantial.
Employment and Industry
Labor markets weakened from June to July, according to available
statistics. Double-digit unemployment rates continue to plague
Alabama, Mississippi, and Louisiana. Florida's unemployment rate
rose to 8.5 percent, its highest level in a year.
Manufacturing employment trends have been mixed recently. Roughly 1,000 persons have lost jobs at Florida's Space Center since the Challenger accident. More layoffs are expected by major space center contractors due to delayed shuttle flights. Although District petrochemical companies have been aided by the lower dollar and falling raw material costs, demand is weak for specialty chemicals used in the semiconductor and computer industry. Agricultural chemical production has taken a downturn as a result of slack demand for fertilizer.
Textile industry consolidation and restructuring programs initiated during 1985 are beginning to benefit producers by making firms more competitive, although product prices are still under pressure. Firms are focusing on products in low-labor-content niches such as home furnishings. District textile employment is currently slightly above that of last year.
The drop in the value of the dollar has benefited the pulp and paper industry by allowing higher prices for linerboard and packaging. Exports of paper products continue to rise.
Consumer Spending
Year-over-year retail sales growth varies widely across Sixth
District states. Through May, Tennessee and Florida reported double-
digit year-to-date sales increases, while sales in Louisiana were
down from last year. Bargain-hunting consumers around the District
had been shifting purchases from traditional department stores to
discount retailers.
Domestic car sales during July and August were disappointingly below the year-earlier sales levels in most areas of the region. Dealers complain that the incentives offered by domestic manufacturers have gradually lost their appeal to consumers and that competition from imports is limiting sales, particularly in the subcompact market. Industry-wide, new vehicle registrations were still ahead of the District's year-earlier levels through June.
Construction
Southeastern single-family building permits (seasonally adjusted,
three-month moving average) rose in June for the fourth consecutive
month. Nashville's new home sales appear to be outpacing those of
the rest of the District. Economic growth attributable to
Nashville's General Motors' Saturn plant and the city's new role as
a hub of American Airlines have led to a surge in home sales and
construction.
The south Florida and Atlanta housing markets, however, are softening. Realtors in south Florida say their area is attracting ever smaller shares of Florida's in-migration. They describe their markets as flat with only moderate increases in sales over year- earlier levels. Similarly, Atlanta realtors note a slowdown. With mortgage rates declining, potential buyers seem inclined to delay loan applications.
The recent intense national concern over effects of tax reform on commercial real estate is discounted by commercial developers in the Sixth District, who believe that local economic conditions will far outweigh any effects of tax reform. Office construction in Nashville, Atlanta, and South Florida is expected to slow because of high vacancy rates. Market softness is causing lenders to enforce increasingly stringent preleasing requirements.
Financial Services
Total loan growth at large District banks edged upward from June to
July. For the second consecutive month, real estate lending
exhibited strong growth and led all other categories. District
bankers report, however, that refinancing continues to be
responsible for much of the gain. Following a national trend, the
Sixth District experienced slowing growth of new consumer borrowing,
resulting in a significant decline in consumer loan growth.
Tourism
Travel to the Southeast remains very strong. Lower gasoline prices
are especially boosting auto travel. However, the dollar's decline
has not stimulated domestic travel as much as expected. Travel
agents report vacationers are shifting their destinations to areas
that have not experienced currency realignment such as Canada,
Mexico, arid the Caribbean. Many are also choosing West Coast and
Hawaiian locations. Still, for the Sixth District, the current trend
reflects a 10 to 1.2 percent gain in tourist volume over last year.
Agriculture
Recent rain is helping pastures return to normal in drought-stricken
areas and may prevent further crop losses, especially for soybeans
and cotton. Even so, existing damage to major crops suggests that
revenue of farmers in Alabama, Georgia, and Tennessee will fall far
short of production costs.
In addition to severe crop losses from the summer drought, the Southeast is experiencing substantial damage to its timber industry. In Georgia and Alabama total forestry losses may exceed $30 million.
At mid-year, the Federal Land Bank of Jackson, Mississippi, was one of four in the nation requiring a transfer of funds from the eight other FLB's to maintain solvency. The severe drought in the Southeast will likely increase losses to the Farm Credit System during the remainder of 1986. In response, the FCS has increased reserves for losses and instituted a number of belt-tightening measures, including office mergers and consolidations and reductions in personnel.