May 4, 1987
The region's economic indicators continue to show signs of expansion for most non-energy related sectors in early spring. Output and employment are increasing for key regional industries such as textile, aerospace, and building products. Easter retail sales were favorable, but strength in auto sales was limited to imported vehicles. District building permits increased, and builders anticipate vigorous spring construction. International tourism is up, and rising imports are still boosting port activity. Less positively, farmers will reduce plantings, and the peach crop was severely damaged by cold weather. The petroleum and coal extraction industries remain at a low ebb with little reason to expect improvement at least for the near term.
Employment and Industry
Manufacturing activity continues to advance in the region. A record
volume of direct foreign investment, largely in plants producing
consumer goods and auto parts, is boosting manufacturing employment.
For the first time in years, textile industry spokesmen have a positive outlook for their sector. After a shakeout in which many weaker firms either went out of business or were absorbed by stronger firms, profits and orders are rising, and employment levels are increasing. Defense spending also continues to bolster employment in the region, helping to maintain the Southeast's manufacturing jobs near a record high level. For example, two large aerospace companies have announced major contracts for the middle Georgia area, which are expected to spawn over 30 satellite industries to service the contracts.
Demand appears to be holding up for the building products industry, although industrial spokesmen are concerned about the recent rise in mortgage interest rates. Paper packaging manufacturers report brisk business with hefty order backlogs.
Consumer Spending
Major southern retailers report that Easter sales met their
expectations for good performance. Lean inventory levels reduced the
need for Easter price promotions, but retailers are now finding it
more costly to rebuild inventories as a result of the falling dollar
and the recently imposed tariffs on electronic items from Japan.
District car dealers reported mixed sales behavior through mid- April; softening demand for some domestic models was partially offset by continued growth in sales of imported vehicles. Despite price hikes, imports continued to fuel much of the activity in dealers' showrooms.
Construction
Single-family building permits increased in the Sixth District in
February after a four-month decline, leading builders to expect a
strong upturn in construction this spring. The recent hike in the
mortgage rate spurred an immediate rush by consumers to complete
housing purchases; an Atlanta realtor reported a doubling of
business the first weekend following the rise its rates, although
business has since slowed as consumers await further indications of
interest rate direction. Lenders are unwilling to make rate
commitments beyond a few days.
An oversupply of space still plagues the Sixth District's commercial construction industry. Atlanta developers say speculative building is very slow, and lenders require substantial preleasing when financing new projects.
Financial Services
In March, total loans at the District's larger commercial banks grew
at 18 percent for the third consecutive month. Competition for
commercial and home equity loans is unusually strong in Miami and
Nashville. Bankers in Miami are poised for another round of
reductions in credit card rates. None of the major Florida banks
have lowered their rates yet, but cuts are possible considering
recent reductions in a few Georgia banks and lagging outstanding
credit card balances due to the popularity of home equity lines.
Credit card delinquency rates and bankruptcies have jumped sharply
in some of the most rapidly growing sectors of the District.
Tourism
The arrival of spring break again brought an influx of students to
the beaches of Florida. A record number of college and high school
students flocked to Daytona Beach; however, contacts in Fort
Lauderdale report a 20 percent decline in student visitation this
year. International tourists, whose numbers appear to be on the
rise, find Florida a prime attraction.
The falling dollar apparently has not yet improved trade activity at District ports. In New Orleans, for example, import volume continues to climb stubbornly. Port officials report that much of the recent tonnage increase there is due to rising imports of auto parts from Brazil, bagged fruits from the Caribbean, and steel and ore products from various countries. Except for forest products, exports are less than expected. An improving trade volume through Florida's ports is principally attributable to rising exports to the gradually recovering economies of Latin America.
Agriculture, Forestry, and Mining
Fewer oil drilling rip were in operation in the District in March
than any time in the past decade. Active rigs in the District number
only 56 percent of those a year ago. It is unlikely that future
production will return to past levels as many stripper wells have
been closed and are unlikely to resume operation. District coal
production in the first quarter of 1987 averaged 12 percent less
than a year ago. Industry spokesmen indicate coal prices and profits
will remain low until supply is more clearly in balance with demand.
In the agricultural sector, land values appear to be stabilizing. Georgia, Florida, and Tennessee experienced modest increases in average prices during the past year, while Louisiana and Mississippi suffered further severe declines. District farmers intend to cut planted acreage by an additional 9 percent this year, further shrinking the prospective demand for products of farm suppliers. A late freeze eradicated about half of the region's peach crop.
The lumber industry reports that southern pine is selling at prices 14 percent above a year ago, reflecting a combination of influences including the Canadian export tax on lumber, rainy weather reduction in local production, and strong residential housing demand.