September 20, 1989
Overview
Contacts throughout the Southeast report that business activity in
general is no longer weakening and their expectations for the
remainder of the year are somewhat brighter than before. Several
contacts in manufacturing have recently revised upward their
expectations of business activity for the near term and report their
capital spending plans will remain unchanged or increased as a
result. These manufacturers are primarily in chemicals, textiles,
and primary metals industries. The few manufacturers reporting a
downward revision in their expectations tended to be associated with
residential and office construction. The railway and trucking
industries continue to report a decreasing volume of shipments.
Contacts indicate that consumer spending is stronger than they
expected last month. Oil and gas exploration is still showing some
renewed strength, although expectations are for only a slow
improvement in activity.
Manufacturing
Most manufacturers report generally good business activity and their
expectations for the next few months remain unchanged or have been
revised upward in August. A producer of plastic containers noted
that to begin a new product line, capital spending plans had been
recently increased. He added that most of the additional investment
would be in their southeastern plants, where wage pressure and labor
shortages were lower than in the rest of the nation. He also
reported that the price of plastic resins has been falling, which he
thought would eventually lead to a decline in the prices of their
final products. Another producer of thermoplastics reported that
prices of raw materials like ethylene have been coming down all
year, and he expects them to fall further by year's end. He
anticipates business will remain good for the remainder of the year
with the only weakness occurring in construction related plastic
goods such as plastic pipe.
Producers of aluminum expect continuing good business after record business last year. The sources of strength are large orders from aircraft producers and strong export demand. From a year ago, exports of aluminum have been up by 50 percent. Weaker auto and appliance sales have not affected aluminum production so far, but producers expect some inventory buildup by the end of the year. A manufacturer of kitchen appliances reports that although 1989 started out strong, production over the past few months has been below last year's level by about 15 percent; he expects production to remain weak for the rest of the year.
Contacts in the textile and apparel industry have reported concern about competition from imports, although strong domestic demand has been able to absorb both imported goods and domestic production. One producer notes that there has been a slight easing in the costs of raw materials like cotton and chemicals recently. Another, describing his outlook as "guardedly optimistic," reports that capital spending will continue at the same level for the next three years, a level he considers substantial.
Construction
Reports on residential construction vary considerably. Reporters
indicate that building permits in Orlando are up over 50 percent
compared to year-ago levels, while contacts in Miami describe their
market as depressed. Some Miami lenders note that they do not expect
to encourage new borrowing until the real estate picture clears up.
Uncertainty related to the potential impact of the new S&L
legislation on the real estate market was mentioned a number of
times. A major supplier of building materials in Florida says that
business is down substantially because of declining residential
construction, and while he sees signs or activity leveling off, he
does not expect any recovery this year. On the other hand, a
spokesman from the lumber and wood industry reports that home
remodeling has been steadily increasing in importance and has taken
up the slack from weak residential construction demand. His
expectations of future business activity have not changed recently.
Nonresidential construction is reported to be holding up well in
most areas of the Districts.
Consumer Spending
Contacts continue to indicate that spending for home appliances and
furniture is soft. A furniture retailer pointed out that sales so
far in September have been about the same as last year and that they
are expecting only slow growth for the rest of the year. They have
begun postponing capital expenditures in case business weakens
further. Purchases of nondurables like apparel and textiles are
generally described as strong.
Auto sales in August are reported to be up substantially over previous months as a result of manufacturer rebates, although sales in the Sixth District were somewhat weaker than the rest of the nation. It is feared, however, that the recent gains may be at the expense of reduced sales in 1990.
Natural Resources and Energy
Reporters indicate that interest in drilling for oil and natural gas
in the Gulf of Mexico has picked up recently. Contacts thought that
increased interest in exploration to replenish domestic reserves
combined with some consolidation in the industry might result in
improved drilling activity later this year. A couple of our contacts
indicated that the increased interest in oil and gas exploration in
the Gulf is a consequence of the Alaskan oil spill and uncertainties
concerning future regulation of production.
Services
The trucking industry has been reporting declining volume of
shipments for the past several months. Reduced shipments of building
materials and lumber products have been sources of weakness.
Representatives of several trucking firms said that they have
recently decided not to increase capacity, any capital spending
would be to maintain existing equipment. Railway representatives
report that carloadings have been down for all products, including
autos and other manufactured goods. One contact noted that the
Southeast is faring about the same as the rest of the nation. Most
have attributed the reduced volume to overall economic conditions
rather than seasonal factors.
The health care industry has reported that the shortage of nurses has eased recently. Efforts to increase enrollments in nursing programs seem to be paying off.