May 4, 1988
The southeastern economy still shows moderate strength. Manufacturing of most types continues to expand. Non auto retail sales are flat when compared to last year; nevertheless, inventories are not excessive and auto sales are improving. Although commercial construction continues at a low ebb, absorption is strong in most markets. Residential building is improving in some areas. Loan demand has turned up at commercial banks. Crop acreage is up over last year because of increased planting of cotton. Petroleum and coal extraction seems to be reviving.
Employment and Industry
Industrial activity remains strong In the region. Computer software
and data processing firms note expanding business activity, as do
health care services. Space related government contracts continue to
benefit the Alabama and Mississippi economies. Pulp and paper output
continues to grow with recent announcements of plans to build new
mills in the southwest region of the district.
Although apparel exports are growing, imports continue to provide stiff competition for domestic firms. The outlook for apparel firms is uncertain at this time; however, price increases appear to be benefiting some domestic producers. Textile mills are operating at or near capacity, and prices are up. Carpet producers anticipate that the strong spring residential sales will further stimulate their business.
Regional appliance producers are encouraged by the recent jump in housing starts; however, they express concern over rising raw material costs for steel and plastic. Primary metals prices have generally been increasing, however a contact reports lower prices of iron and steel scrap in recent days. There has also been a strong pick up in demand for specialty metals; exports and prices are up thanks to the weaker dollar.
Consumer Spending
Most retailers report sluggish or moderate sales during April
following a strong March. Markdowns are prevalent as retailers try
to keep inventories in line. With respectable spring sales,
retailers are slightly more optimistic about summer sales; most
expect real sales to equal or slightly exceed last year's levels.
Retailers are not yet experiencing widespread price increases
although most expect higher price in the near future.
Unexpected strength in this year's car sales continued through early April, surpassing both year ago District and current national sales growth. Car sales were soft in early April, but domestic vehicles were selling at a better-than-expected clip. Sales of lower-priced imported vehicles in the region continue to boom despite rising prices and intense promotional activity from rivals.
Construction
The region's housing market, reacting to lower mortgage rates, has
picked up a bit in sales, but construction fell by almost 8 percent
from January to February. Downtown residential construction has
become popular in several cities in the District.
Following a weak January, nonresidential construction has slowed its descent around the U.S. and the southeast region, down only 6 and 5 percent, respectively, from last year's pace. New Orleans and Jackson still report high office vacancy rates; other District cities report strong absorption that has helped lower vacancy rates. Developers have displayed a resiliency that continues to resist a cyclical correction and are finding selected opportunities in overbuilt office markets where significant levels of preleasing—50 percent in some cases—must be secured before financing.
Financial Services
Total loans at large commercial banks throughout the Sixth District
continued to increase steadily through March of 1988. Lenders in
Georgia and Mississippi note renewed emphasis on providing a wide
range of services for small business clients. Contacts in Louisiana
note, however, that the availability of capital is a problem for
small businesses and entrepreneurs, especially those outside of New
Orleans.
Across all states except Louisiana. lenders report significant increases in automobile installment loans. Banks are also expecting a last effort surge in demand for home mortgage loans before an expected rate increase in the next few months.
Tourism
Early Indications point to the possibility that tourism is off
slightly from last year in Florida. Both Orlando and Tampa had hotel
occupancy rates that were lower during the first few months of 1988
compared to a year ago. Certain segments of the tourism industry
like business travel, conventions and cruises, however, continue to
outpace 1987 levels.
Agriculture, Forestry, and Mining
Acreage planted to major crops in the District will increase
slightly in 1988 if farmers follow through on planting intentions. A
substantial rise in expected cotton plantings offsets declines in
corn, soybeans, and sorghum acreage. Recent rainfall has reduced
earlier concerns about inadequate soil moisture in some areas,
especially Georgia.
Crude oil production in the District continues its slow decline, falling one percent since the beginning of the year and down 2 percent relative to a year ago. The number of drilling rigs currently in operation, however, has fallen 15 percent since the beginning of the year, although it remains far above the low levels of early 1987. Even so, Louisiana Gulf Coast refineries have been operating at a much higher capacity, 91 percent recently compared with 83 percent a year ago. There is rising interest in oil and gas exploration in the Gulf of Mexico. A sale of tract leases by the U.S. at the end of March achieved a new record in bidding activity. While coal production in March fell modestly, the region's coal industry ended first quarter with a five percent production increase over the same period in 1987.