Beige Book Report: Atlanta
March 15, 1989
Overview
Business activity, as reported by firms headquartered in the
Southeast, continues to move ahead at a moderately healthy pace.
Manufacturers and firms in the service sectors report shortages of
both skilled and unskilled workers. Compensation gains are said to
be somewhat higher than last year at this time. Materials and final
product prices are up strongly for particular industries and, in
general, appear to be accelerating slightly. Order backlogs, vendor
delays and inventories are said to be acceptable relative to sales
in most industries. Their capital spending plans show moderate gains
over last year's levels. Loan delinquencies at both the consumer and
business levels are reported as stable, with the exception of real
estate development where pressures are evident. This report
incorporates a new panel of business contacts and thus is not
strictly comparable to previous ones.
Labor Markets
Wage increases this year so far are generally reported to be in the
3-5 percent range, in line with expectations at the companies
surveyed. However, there is some concern that rapidly rising
benefits costs will accelerate increases in overall compensation. A
majority of contacts reported labor shortages for a wide variety of
skilled labor and for unskilled labor in the service sector. At the
same time, a significant minority of firms report no problems in
hiring.
Prices
Most input and product prices are rising at a faster pace than last
year at this time, although price pressures vary widely among the
industries surveyed. Prices of many kinds of paper are up 7-10
percent since year end. While demand is strong, contacts are
uncertain about whether all of the posted increases will stick.
Prices for newsprint are said to be softening due to new industrial
capacity and retailer consolidations which are reducing advertising.
In chemicals, improved supplies of plastic resins are expected to
stabilize prices, which rose by 25 percent in 1988. The price of
polyester for textile use is up 20 percent over year-ago levels.
Steel used for fabrication in the oil and gas industry is up 7 to 10
percent and computer chip prices are said to be soaring.
Some price softness is occurring in construction and related markets. Except for cement, where imports to the region have declined, building materials prices are soft. Lumber and plywood prices at retail are reported to be up 2 1/2 percent over the last 12 months. Overbuilding has resulted in lower effective lease rates in strip shopping centers, helping to keep chain grocery store costs down; however, the drought's effects have raised food costs.
In agriculture, egg prices have nearly doubled from a year ago and broilers, also up in price, could go even higher this year as the supply of competing red meats is expected to become tighter. Growing international grain and soybean exports are reported to be raising these commodity prices. The price of domestically-produced furniture is up only marginally whereas those on imported merchandise are showing strong gains.
Capacity Utilization
Capacity utilization and order backlogs are reported as strongest
for industries where prices are up sharply such as paper and
chemicals, and in the heavy equipment area. However, contacts noted
only a couple of examples of delivery delays. A few industries that
have been experiencing excess capacity, such as the entire energy
sector, expect greater domestic production as long as oil and gas
prices remain at recently increased levels.
Excess capacity is expected to grow in the construction and building materials industries despite strength in the remodeling segment; slowing public infrastructure investment is said to be a new drag on activity this year. The volume of excess retail trade, office building, and hotel space is growing. While construction of new space has slowed, it is still greater than absorption. Excess capacity typifies portions of the textile and apparel industries where foreign competition is strong.
Investment
Reported capital spending intentions are reflective of current
industrial business conditions. Investments in the chemicals and
pulp and paper industries are expected to be significant this year,
but not to exceed last year's strong levels. In textiles,
acceleration in capital spending is being spurred by international
competition, with an emphasis on enhancing efficiency and
modernizing equipment rather than expanding capacity. Growth of U.S.
exports is boosting railroad freight equipment purchases. Truckers
are also expanding capacity by adding equipment and new or expanded
terminal facilities.
Credit Situation
Delinquency problems, defaults, and bankruptcies are on the rise in
real estate, with a few developers running into severe difficulty.
Foreclosures, delinquencies, and restructuring of developers' loans
are up this year in Atlanta, Nashville, and in South Florida; on the
other hand, delinquency rates on single family mortgages have held
steady or dropped moderately. No particular trends were reported at
the business or consumer level.