October 18, 1988
The southeastern economy continues its somewhat sluggish pace overall. Weakening growth in manufacturing, largely reflecting downturns in transportation equipment, combines with a slower pace in the retail trade sector to hold total employment gains under the year-ago level. However, some sectors are performing quite well and scarcities of skilled laborers have been reported by textile and appliance producers and in oil drilling operations, though wages are not reported to be under much upward pressure. A number of industrial contacts report rising input prices and the ability to pass them on to manufactured products because of strong demand. Inventory levels are generally lean and retailers seem especially cautious to avoid overstocking problems, similar to those experienced in last year's fourth quarter. Export trade is unusually brisk across a wide range of products and growth appears to be gathering momentum.
Employment and Industry
Unemployment rates have been edging up in the region lately, despite
reports of some tightness in labor markets. For example, although
the region's energy sector remains at a low ebb, offshore producers
report they could now double their operations if they could find
enough skilled workers.
Appliance producers note selected labor shortages and increased production costs due to rising raw material costs. However, it is difficult to recoup rising costs through price increases because the slowdown in residential construction is now weakening appliance shipments. The housing slowdown is also dampening lumber markets. In contrast to appliance and lumber manufacturers, the district's tire and rubber industry is faring well. Although raw material costs are rising, tire producers are able to increase prices because demand for time is currently outstripping supply. Apparel and textile producers expressed a mixed outlook with some firms running overtime while others report that orders are short for this time of year. Most are keeping tight control over production and inventories are being cut back as far as practically possible.
Paper mills are doing exceptionally well with both export and domestic demand expected to remain at high levels for the remainder of the year and into the next. Orders are growing and prices are firm. By contrast, local aircraft and several defense related equipment manufacturers are cutting back operations because of reduced orders.
Consumer Spending
September retail sales were sluggish but up slightly over August's
soft performance. Most retailers are relieved that there has not
been a repeat of last year's disastrous fall season and remain
optimistic that sales will revive in the fourth quarter.
Southeastern markets are intensely competitive. Heavy promotions and
discounts accompanied by increased advertising are key ingredients
of most retailers' sales strategy. In this environment, retailers
are not ordering very far in advance and are keeping inventories
well below those prevailing last fall. Car dealers generally were
satisfied with September's strong sales performance that left them
with a relatively low inventory of unsold 1988 cars.
Construction
Year-to-date nonresidential construction growth in the District is
running slightly ahead of the national level, but its strength
varies widely across the District. Retail construction is strongest
in the District's most prosperous states—Florida, Georgia, and
Tennessee—and sluggish elsewhere. A significant amount of
activity involves renovation of older shopping centers rather than
building new space in a market where overbuilding, especially in
strip centers, has led to vacancy rates well over 10 percent.
The housing industry is bracing for a further slowing of activity. The District states are just beginning to feel the impact of rising interest rates on home sales. Home prices in Atlanta dropped in August to their lowest level in over a year, and contacts report that September prices were low as well. In Florida, areas of the state such as Miami, Orlando and Tampa reported slowing sales in the third quarter as rising interest rates began to impact the market.
Financial Services
Officers of small and midsized banks in the Sixth District report
strong demand for consumer loans. The majority of bankers said that
demand is the same or greater than a year ago. Higher interest rates
have not dampened installment loan demand at the surveyed banks and
several bankers expect demand to continue brisk throughout the year.
Bank failures in District states have declined from a year ago. Sources in Louisiana, the most troubled state, report a downward trend in the number of bank closures there and prospects continue to brighten because of recent reductions in loan delinquencies and improvement in the local economy.
Tourism
September tourism in the Southeast continues to show slight gains
over last year in most areas. Central Florida is still undergoing a
mini boom in hotel construction due to continued high occupancy
rates. Builders are confident the number of tourists will continue
to increase to fill these new rooms due to expanding attractions in
the area.
Port Activity
Port activity continues to boom, with export gains reaching double
digits. In Miami, there has been marked improvement in exports of a
variety of commodities including chemicals, steel, textile and
carpet products, fruits and vegetables, and electric and electronic
equipment, to Latin America. Clay products, forest products and
chemicals are the leading sources of export growth in Savannah.
Exports were also up in Tampa, largely due to a healthy increase in
shipments of phosphate chemicals.
Agriculture and Mining
Thanks to late-season rainfall, yields of most southeastern crops
will be down only slightly or will show improvement from the
previous season. However, the drought delayed development of the
soybean and cotton crops increasing their vulnerability to early
frosts and freezing weather. The Florida Citrus industry expects
another good year with increasing output from maturing new groves
and strong prices thanks to bright prospects for new export markets.
Despite continued sluggishness, the oil industry has experienced a bunt of new offshore activity in the Gulf waters off the coast of Louisiana, Alabama, and Mississippi. Oil production, however, remains down considerably over last year and the number of motive rigs in the District has slipped 7 percent since the previous year.