June 15, 1988
The growth of the regional economy has slowed a bit since the beginning of the year. While most manufacturing industries exhibit strong growth, business services and trade are slackening. With the exception of autos, retail sales remain lackluster. Although residential construction continues to sag, nonresidential construction has picked up. Bank loan activity in May varied across the District but in most states modest growth occurred. Higher crop prices should help farmers prosper, however, the potential for yield losses from dry weather is increasing.
Employment and Industry
Business activity in the region has slowed somewhat since the last
reporting period. Employment growth in some sectors has cooled while
others continue to operate at capacity levels. New orders are
falling for textile producers and inventories are building. Business
services as well as trade are off the pace of previous months due in
part to slower consumer spending.
In contrast, most manufacturing, and particularly companies producing paper and chemicals, continue to report strong business activity. In the paper industry, price increases were noted in both kraft sheet from which corrugated shipping containers are manufactured and in chemicals used in the paper production process.
Consumer Spending
Retailers in the region report that disappointing spring sales
continued in May. Memorial Day weekend sales ranged from poor in
Mississippi to good in Florida. However, most areas found sales
mediocre and at about the same dollar level as last May. Inventories
remain at acceptable levels.
Car sales continued to be helped by extended manufacturers incentives and intense competition among dealers through mid-May. Domestic car and truck sales in particular are benefitting from the recent surge in buying. The first quarter's new motor vehicle registrations in the Southeast rose 13 percent over 1987's level. This performance represents a marked improvement over the sluggish sales pace registered in the first quarter of 1987.
Construction
Home sales in the Sixth District were mixed throughout May as
mortgage interest rates turned up. Residential construction value in
the region was down 13 percent through April well below the 8
percent decline for the nation. Construction is expected to decline
further in the months ahead. Alabama and Florida report that home
sales have been strong as mortgage interest rates have bottomed out.
Tennessee's housing market has improved steadily in 1988, but still
is down from last year's pace. In Louisiana and Mississippi, home
sales remain depressed.
In contrast, nonresidential construction has regained momentum in the Southeast this spring, posting a 3 percent rise in construction value over the first four months of 1987. Much of the District's increase has been in Georgia, which was boosted by Atlanta's 64 percent increase through April. Tennessee's construction has also surged ahead of last year's pace. Downtown office construction in Jacksonville and in New Orleans have led the way for their respective states over the last two months.
Financial Services
Large banks in the Sixth District experienced flat to moderate
growth in loans during May. Business loans were sluggish while real
estate loans were strong. All contacts agreed that it is too early
to discern the impact of higher interest rates on loan demand.
Bankers throughout Florida agree that loan growth was flat in May, but lenders in Georgia reported steady growth in total loan volume. Consumer loans accounted for the majority of Georgia's loan growth. Louisiana is the only state to register strength in business loans. Other states generally reported flat or declining trends in both business and real estate lending.
Tourism
Tourism was slow in May but rapid increases were expected by mid-
June. Foreign visitors have been flocking to the Southeast,
especially Orlando, Daytona Beach, Miami, and New Orleans. Reasons
for this include the weak dollar, direct marketing abroad, and
increased international flights directly to Miami and Orlando.
Despite the increased traffic, hotel occupancy has either been
holding steady or declining throughout the Southeast partially due
to the fact that more travelers are staying with family and friends
while on vacation. National Park attendance is already up 4 percent
this year and is expected to climb even more.
Agriculture, Forestry, and Mining
Pork and egg producers are experiencing sharp declines in revenue as
a result of weak prices. Cattlemen, however, are enjoying
substantial gains from sharply higher prices. Crops are in good
condition at present but soil moisture levels are perilously low.
Further dry weather will quickly reduce yields. Crop prices are much
higher than a year ago and could increase even more if weather
damage occurs.
Lumber and building products industries are experiencing weaker prices due to the decline in housing starts in the Southeast. One bright spot, however, is a further decline in competition from Canadian lumber as price differences widen.
Oil production stabilized in recent weeks after falling slowly throughout the winter. Nonetheless, production remains down 5 percent from the same period last year. Conditions in the coal industry are stable; coal production is up 4 percent over last year thus far.