December 6, 1989
Overview
The southeastern economy continues to grow modestly. A few new
reports of weakness were received. They were mostly related to the
construction industry, which, with the exception of the industrial
building sector, has been sluggish for much of the year. Capital
spending and capacity expansion continues in industries related to
chemicals, metals, paper and lumber, and industrial equipment.
Retailers expect good sales of consumer nondurables in the weeks
ahead, and inventories are reported to be leaner this year than
last. Weakness in purchases of consumer durables like appliances,
autos, and furniture continues. Commercial lending is down, although
there are still signs of strength in some types of consumer
spending. Our contacts continue to report only mild wage and price
increases and a few scattered shortages of skilled workers.
Prices and Wages
Most contacts report subdued wage increases and softness in input
prices. No signs of new wage pressures were reported. Employers
continue to note steeply rising costs of benefits, most notably
employee health insurance. Few contacts thought that their labor
market had changed much from last year, although some reports of
difficulty in finding skilled workers surfaced. Several industrial
contacts commented that finding skilled employees like mechanical
and software engineers has been troublesome. Increasing demand for
such employees was cited as contributing to the difficulty. A banker
in Atlanta noted that positions like accountant and account analyst
have been difficult to fill recently, although finding clerks and
tellers has been relatively easy.
Input prices have been reported to be mostly stable or falling in some instances. Construction materials prices do not appear to be under pressure. Building materials prices are expected to remain stable or decline until construction picks up. A producer of wood building materials says that the price pressures usually seen this time of year are absent. Prices of metals like aluminum and copper are expected to remain stable into next year. Prices for communications equipment are also stable or declining. Several trucking firms have reported that freight rates have been falling owing to excess capacity in the industry. Even though volume is as good as in 1988, total revenue is down.
Retail Sales
Sales of automobiles continue to be weak, and most dealers do not
anticipate much improvement soon. Several furniture retailers have
reported that sales continue to decline, as have several retailers
of home appliances. Sales of carpet have also slowed recently as
replacement and home remodeling demand has weakened. A number of
Atlanta retailers have stated that sales in the last few weeks have
been at least equal to last year's levels. They noted that consumer
nondurables have been selling particularly well. However, retail
sales in New Orleans and Baton Rouge have generally been reported to
be slower than last year. Retailers in various parts of the region
added that sales after Thanksgiving posted double-digit increases
over the same weekend a year ago. Most contacts report satisfaction
with retail inventories that are flat to up moderately this year.
They anticipate more price promotions to move their inventories
during the Christmas season.
Construction and Capital Spending
Residential and office construction in the Southeast remain
sluggish. Sales of existing homes have shown some strength recently,
particularly in Jackson, Mississippi and New Orleans. Nonresidential
construction is up from a year ago, however, because of continuing
strength in industrial construction. New plans for several large
chemical plants in Louisiana were announced recently. Construction
of retail space in Nashville was also reported to be at record
levels according to several contacts.
Spending on capital goods continues to hold up in the Southeast, although there have been a few reports of plans having been revised down recently. Much spending involves purchases of new equipment rather than capacity expansion. Producers of industrial pumps, fabricated aluminum, and processed food report plans to update older machinery. Several wood and pulp producers have announced plans to expand capacity because of strong overseas demand. A large producer of building materials, however, reports recent cuts in capital spending plans for 1990 by 50 percent. Their purchases of new equipment have been put on hold until construction activity picks up.
Financial Services
Several bankers in Georgia and Tennessee report that commercial loan
demand is weak. Consumer lending, on the other hand, is reported to
be slowing in some states. Several lenders pointed out that auto
loans by banks are down substantially because of falling auto demand
and because more and more people are using home equity loans to
finance automobiles. Real estate and mortgage lending is down
compared to last year, and a contact in Atlanta thought that
mortgage demand in that market is at its worst since the early
1980s. Several lenders added that lending standards have become much
more strict for real estate loans in the last few months.