March 16, 1987
Economic activity has picked up in recent weeks. Manufacturing in the region is showing more life, reflecting better export demand and a reduction in import competition. Florida's citrus industry is prospering because of slowing imports of orange juice. Most of the energy sector remains depressed, but capital spending is rising in a few natural gas companies. Retail sales were unexpectedly strong in several District states, though auto sales were even weaker than they were in the nation in February. The region saw a moderate decline in single-family building permits, but builders seem quite optimistic that this decline was temporary. Tourism remains a strong positive force in the District.
Employment and Industry
The region's manufacturing sector appears to be rebounding from
recent sluggishness. Strong demand for a wide range of textile mill
products is boosting employment. Prospects look good for further
recovery as orders for some goods are booked into 1988. The paper
and chemicals industries have benefited from recent restructuring
and the decline in the value of the dollar. Prices for pulp and
linerboard are expected to continue to rise as exports expand.
Merger and consolidation activity are said to have increased the
strength of domestic paper firms. The cheaper dollar has improved
U.S. chemical producers' ability to compete in export markets.
Spokesmen expect both exports and productivity to increase further
in coming months.
The outlook is not as bright for the metals and machinery industries. Aluminum producers anticipate 1987 to be only marginally better than 1986. Specialty steel mills and steel fabricators that have managed to remain profitable are beginning to feel the effects of a sagging construction market. Reduced demand for oil well drilling equipment continues to dim prospects for the region's machinery industry.
Consumer Spending
February sales for most southeastern retailers were quite favorable,
although activity in Louisiana and Mississippi remained sluggish.
Retailers in Georgia, Florida, and Tennessee, in particular, report
surprisingly strong sales activity.
Regional car sales in February posted improvement from January's dismal activity, but they were weaker than the nation's sales, which declined 9.1 percent from a year ago. Over the past year market shares of imports have risen to about one-third of total sales in at least two District states.
Construction
Single-family building permits in the Sixth District have registered
a modest downtrend recently, but builders are still optimistic about
prospects for the single-family home market because of rising
incomes and comfortable mortgage rates. Birmingham is enjoying some
of the most active construction in the Southeast, and east Tennessee
contacts report strong demand and a slight inventory shortage.
Although there is very little construction of multifamily rental
units, the condominium market seems to be picking up slightly. Miami
and Knoxville realtors say current sales of condos are the highest
in recent years.
Commercial construction continues to slow as the region adjusts to overbuilding. New Orleans reports drastic employment cutbacks in both construction and related businesses. While the Miami office market is glutted, demand is healthy for smaller owner-occupied buildings. Improved occupancy of the overbuilt retail sector in Jackson, Mississippi, is renewing the interest of developers who had fled the market.
Financial Services
After a spurt of tax-induced activity in December, January's loans
at the District's larger commercial bank resumed the gradual decline
of previous months. However, residential construction lending
remains strong in Atlanta and in the larger cities of Alabama. Urban
banks in Louisiana also report slight residential loan growth, but
some small agricultural banks are not faring well.
The region's savings and loans are generally performing well, although a few have had some difficulties, particularly in Louisiana and Florida. According to District financiers, problems can be attributed to several sources, including principally a heavy reliance on long-tern lending and weak economic conditions in certain areas.
Tourism
The tourism industry continues to boost the Southeast economy.
Contacts in New Orleans term the Mardi Gras celebration a huge
success as hotel occupancy rates reached their highest level in five
years. Travel to Miami has been unusually strong as the number of
foreign visitors has surged. In Birmingham, a brand-new horse-racing
operation opened its doors in March, welcoming thousands of eager
racing enthusiasts. Atlanta and New Orleans are beginning to gear up
to host the 1988 political conventions. Both cities will increase
hotel/motel tax rates.
Agriculture. Forestry, and Mining
Capital spending remains weak in much of the energy sector with a
few exceptions in the natural gas industry. New construction of
natural gas pipelines is planned for Florida and the Mobile bay
area. The increased activity reflects deregulation in the gas
industry and expectations that the excess gas supply will be
eliminated and prices will improve either in late 1987 or early
1988.
Weather problems have delayed the regional production expansion that was expected following the imposition of the Canadian export tax on lumber. Very strong prices for southern pine have been characteristic this year, but once the weather improves prices are expected to fall. Demand has remained strong throughout the winter.
Orange producers are earning favorable returns as a result of price increases and reduced imports of Brazil's orange products. Although the domestic grapefruit market is languishing, the export market is flourishing thanks to the weak dollar and growing foreign consumption.