May 2, 1990
Overview
Our contacts continue to report steady growth in the Sixth District
at a pace that shows, on balance, a little slowing from that of last
year. They note that prices of most raw materials have been steady
in the past few months, and there are no signs of added wage
pressures. Manufacturers of consumer durables continue to report
weak demand for their products, while producers of chemicals note
strong business activity. Retailers report modest increases in sales
from a year ago, with apparel sales being particularly strong. Real
estate markets are described as being generally soft, and lenders
are said to have become increasingly cautious in financing new
building projects. Exports of raw materials and natural resources
are reported to be strong.
Wages and Prices
Prices of raw materials arc generally reported as stable. A
manufacturer of chemicals and plastics reports that the prices of
chemicals used in construction and of some input chemicals like
benzene are down slightly this year. A producer of heating and
cooling equipment noted that aluminum prices continue to fall slowly
but that copper prices are now steady. Several of retailers in the
District indicate that they see no significant increases in their
prices. A furniture distributor pointed out that there has been no
upward pressure on prices from manufacturers because of weak demand
for furniture.
Few employers reported any new wage pressures, and most indicate that they are seeing wage increases of about 5 percent at most. The cost of employee health benefits, however, remains high and is still increasing.
Manufacturing and Employment
Contacts in the chemical industry continue to report strong demand
for most of their products, especially from the paper and pulp
industry. One manufacturer noted that exports of chemicals to the
Far East have been down recently, owing to new plants in Korea and
Taiwan, but that exports to Europe continue to increase. He added
that because of strong domestic demand, his firm was increasing
capital spending substantially over 1989's level to modernize
equipment and expand capacity.
Apparel producers report that they expect their sales to increase as consumers spend less on autos and other durable goods. A carpet manufacturer expects 1990 to be a good year for the carpet industry because replacement demand should continue to support sales. He explained that carpet tends to be replaced in roughly ten-year cycles. Because 1979 was a very strong year, they are now seeing increases in replacement demand.
Contacts in the aerospace industry expect an increase in layoffs as a result of budget reductions at the Department of Defense. Firms in Georgia and Florida reported the largest cutbacks in employment. Aerospace firms related to the space program, however, report increased hiring as a result of renewed growth. Florida, Alabama, and Louisiana are gaining jobs as a result.
Retail Sales
Most District retailers indicate that sales in March met or exceeded
their goals and in real terms were slightly above year-ago levels.
They also expect the modest real growth to continue for the next few
months. Contacts point out that apparel sales have been very strong
in comparison to durable goods like appliances and furniture.
Auto dealers note that sales have been slightly below year-ago levels recently. But because they have been able to reduce their inventories and, therefore, interest costs, several large dealers said that profits are up over last year. A few dealers expect that sales will be up slightly this year, and some dealers noted that a few popular models are in short supply. Nevertheless, contacts continue to report that small dealers, particularly those in nonmetropolitan areas, are not doing well and that many have gone out of business.
Real Estate and Construction
Several home builders have reported that residential construction
remains weak after an abnormally strong January. A number of
contacts indicate that housing sales throughout Florida are down
substantially compared to a year ago. Commercial developers
mentioned that the value of nonresidential construction is up over
last year, but they added that most of the strength has been in
public building projects in Florida and Georgia. Office construction
remains subdued in much of the District.
Developers and builders across the District pointed out that it is becoming more difficult to obtain financing for new real estate projects. Much of the reluctance on the part of lenders has been a response to overbuilt markets, but builders are now saying the increased surveillance by the Comptroller of the Currency is adding to the already cautious lending attitudes.
Natural Resources
Domestic oil drilling remains steady, and most contacts do not
expect significant growth in the next few months. Several producers
in Louisiana felt that increasing environmental concern is
discouraging new drilling.
Exports of coal, kaolin, wood pulp, and chemicals are reported to be holding steady or increasing. Few contacts indicated that the recent strengthening of the dollar had affected their exports substantially. They pointed out that the reliability of U.S. suppliers and long-term contracts are more important in determining the volume of exports than are short-term movements in exchange rates.
Recent cold weather has delayed planting of some crops and has damaged some of the new peach and apple crops. Farmers expect to increase substantially the acreage devoted to cotton while reducing soybean acreage. On balance, southeastern farmers plan to return a large share of idle land to production because of higher prices for cotton and some grains.
Credit Conditions
Except for real estate credit, none of our contacts indicated a
direct experience with tightening credit conditions. Some contacts
report a reluctance on the part of financial institutions to engage
in further real estate lending given the overbuilding which has
occurred in most markets. One indicated that a financial institution
withdrew support for the second and third phases of an office
complex and others reported higher collateral requirements and
interest rates on proposed projects. With regard to business and
consumer lending, however, credit is said to be available as usual.