September 8, 1987
The pace of southeastern economic activity remains brisk in most sectors at the end of the summer. Employment in key regional industries continues to expand; residential construction activity has picked up, and office vacancy rates are expected to drop in some major regional markets. Although retailers' sales have slowed recently, recent dealer incentives have boosted auto sales. Port activity is benefiting from the weak dollar, and tourism has been strong throughout the region. Crop yields and profits are expected to outpace last year's drought-reduced levels.
Employment and Industry
The service sector continues to add employment in the Sixth
District. Health services and business services such as equipment
renting, management consulting, and computer services have shown
strong growth lately. Contacts indicate that factory employment
growth is likely to continue to increase. Textile employment has
grown briskly, and demand remains strong for the region's textile
products. Shipments of carpet from some mills are being delayed
because producers have not been able to hire enough workers to keep
up with the large number of orders.
Concentration on narrow, localized market niches has reduced import vulnerability of regional steel producers. Small mills have been adding to capacity and boosting productivity with improved technology. Lumber industry spokesmen are concerned about the multifamily building slowdown and the rise in mortgage interest rates; however, the tariff on Canadian lumber has helped to curb the tide of imports. Also, the surge in lumber use for home remodeling is helping to support the market.
Consumer Spending
August's retail sales showed only slight gains from a year ago in
spite of good performance a month earlier. Retailers are heavily
promoting back-to-school items. They say that apparel sales continue
strong; however, there is little growth in other items. For the most
part, inventories remain at comfortable levels although there are
scattered reports that the stock of summer apparel remains heavy for
late August. Retailers project sales for the coming months to be at
or only slightly above last year's level.
Early August car sales in the District were boosted by new factory incentives featuring finance rates as low as 1.9 percent and generous cash rebates on 1987 models. Industry contacts reported a strong market response, particularly for some GM cars and trucks for which sales had been especially weak. Despite the sluggish sales of domestic autos, the District's new vehicle registrations in the first half of 1987 were off only 0.7 percent from last year, much less than the 7.9 percent drop nationally.
Construction
Although the spring uptick in interest rates caused a dip in
existing home sales in June, sales for the second quarter finished
well ahead of last year's pace. All the District states except
Alabama bettered the national average of 5.7 percent growth.
District realtors say pockets of activity in the region, like the
Florida Gulf Coast, Jackson, Mississippi, and middle Tennessee, are
fueling the growth.
The Sixth District is attracting an increasing portion of foreign investment in U.S. commercial real estate. In both Atlanta and Miami, 18 percent of downtown commercial properties are owned by foreign investors, and this rate is expected to increase. Although no upward pressure in prices has yet occurred, the slowdown in construction in these overbuilt markets, coupled with the rising demand of foreign investors, is expected to increase prices, say contacts in these cities. Contacts in almost all District metropolitan areas expect increased foreign investment in the near future.
Office leasing in Miami is strong although vacancy rates are still high. Contacts there say they expect a 30 percent increase in leasing this year over last. Sales and leasing of industrial property in Atlanta remain very active, and the vacancy rate in the second quarter was again below the national average.
Financial Services
Loan growth at the larger commercial banks in the Sixth District
continued to decline in July. Business, real estate, and consumer
loans are all expanding at a reduced pace. Many banks, searching for
lending alternatives, have begun to reemphasize home lending.
Tourism
Tourism continues its strong summer performance throughout the
District. Florida campgrounds are reporting another good year. Hotel
occupancy along the Mississippi Gulf Coast has been increasing, a
sign that tourism is reviving in that area.
Port Activity
The share of exports in the trade mix of southeastern ports is
gradually rising in response to the lower dollar. The value of
exports was up 3.3 percent during the year ending in June, slightly
surpassing the rate of increase for imports. All District ports
except New Orleans posted trade gains during the period. In
Savannah, port officials expect that demand for Georgia products
such as kaolin, fertilizers, and pulp and paper will continue to
grow in the year ahead. In Miami, where higher shipments to Latin
America have revived exports, the outlook also is bright. In Mobile,
increased forest products exports have helped to offset lower coal
shipments.
Mining
In August the number of operating oil rigs declined modestly but
still remained one-third higher than a year ago. However, production
of crude oil remained at about 5 percent less than in August 1986.
District refineries report failing profit margins in recent weeks as
crude oil prices rose faster than product prices.
Agriculture and Forestry
Southern pine lumber, which accounts for 10 percent of the nation's
total lumber exports, experienced a favorable spring with exports
over 10 percent higher than last year. Demand for southern pine
remains strong at relatively high prices.
Yields of major crops in the region are expected to be much higher than last year's drought-reduced harvests. Production will be up despite reduced acreages this year. With prices and costs near those of a year ago, profit per acre should also improve moderately.