Beige Book Report: Atlanta
December 1, 1987
The Southeast's economy continues to show a mixed performance. Auto sales and residential construction have slowed but tourism, financial services, and most other industries have improved or remained stable. Retail sales declined briefly in late October but have since rebounded. For the most part, capital spending plans have not been altered recently. The prevalent attitude seems to be one of cautious optimism. In this report we have concentrated on developments since the stock market crash in mid-October.
Employment and Industry
Reports on the market's effects on southeastern industries are
mixed. Many firms indicate no impact is expected before early next
year. There have been a few reports of expansion plans put on hold
and initial stock offerings for some companies have been postponed
but not cancelled. However, most manufacturers are optimistic and
are proceeding with expansion projects.
The region's appliance and furniture producers are concerned that the stock market plunge may result in more conservative spending patterns. Spokesmen for the carpet industry are also uneasy about possible consumer belt tightening and a construction slowdown.
Textile companies are leaner and more competitive than in the past as exports have bolstered the industry. The lower value of the dollar is also stimulating domestic sales by making imports more expensive. There have been no signs of slowing in the paper industry. If lower domestic new car sales and output persist, district tire and auto part producers expect increased replacement goods demand to make up for some of the loss of original equipment business.
Consumer Spending
The plunge in stock prices has elicited mixed reactions from
retailers. Sales across most product lines, particularly durables,
decreased during the week of the crash but subsequently rebounded.
There is some indication that the impact on discount stores was less severe than on full service department stores. Sales ended the month flat or slightly above last October, and early indications for November are moderately favorable.
Expectations for the holiday season were not adjusted significantly after the market's fall since retailers throughout the District had already been expecting only slight increases over last year's sales. Promotional activity will be increased compared to last year, but most retailers report they are not at this point giving price discounts. They also have not altered their hiring plans for the holiday season.
Auto sales in October and early November slowed according to dealers but they believe the behavior had more to do with the removal of factory incentives than the plunge in stock prices. Despite concern over weakened consumer confidence, dealers' plans remain largely unchanged.
Construction
Most contacts reported downturns in overall residential construction
which they attribute to seasonal factors as well as economic
uncertainty. Birmingham sources noted a small uptick in sales of
existing homes in late October, but no change occurred in Mobile.
Florida contacts report mixed trends in the state's housing markets.
Mississippi and Tennessee sources indicate general slowing in sales
activity in larger cities. Multi-family markets have been gloomy
throughout the year in the Sixth District, and there is an inventory
overhang.
Metropolitan office vacancy rates during 1987's third quarter remained steady but high ranging from 18 percent to almost 30 percent. Only Jacksonville showed significant improvement in absorption, as vacancy rates decreased by more than eleven percent since last quarter. Office and industrial developers in the region report a number of projects are on hold, reflecting earlier overbuilding. Meanwhile retail construction has sustained its strength throughout the region as mall construction flourishes.
Financial Services
Banks and thrift institutions report mixed experiences in recent
weeks. While small net increases in deposits have occurred, loan
growth has slowed at large commercial banks. Some banks in Georgia,
Alabama, and Tennessee note a drop off in loan volume while most
Florida, Mississippi, and Louisiana banks report no changes. The
rate of growth in consumer loans slipped in October while business
and real estate loans have remained stable or increased.
Tourism
District travel agents report no appreciable changes in advance
bookings and cancellations in recent weeks. The dollar's decline,
however, has spurred a shift away from foreign vacations. Officials
expect slight increases in tourism activity throughout the District
this winter spurred mainly by convention business.
Mining and Agriculture
Estimated yields of late-harvested crops such as soybeans are lower
as a result of dry weather. Damaged pastures are causing farmers to
purchase feed for their animals.
Spokesmen in the pulpwood industry report a thriving industry. There is some indication of slight capacity expansion but caution prevails. The lumber industry is experiencing a seasonal softening in markets and slight price declines.
District crude oil production fell in October to a level almost 10 percent lower than the peak in early 1986. Production capacity has declined with the cutbacks in exploration since the early 1980s and with the closing of numerous inefficient stripper type wells. On the other hand, drilling activity increased, reaching its highest point since March of 1986.
District coal production rose modestly in October making the third consecutive month of higher output, supplying evidence of a beginning recovery in the coal industry.