October 31, 1990
Overview
Most Sixth District firms contacted in October report marginally
slower growth than last month and generally flat year-over-year
sales. Retailers, with few exceptions, report slower sales in
September than in August and attribute this to a further erosion in
consumer confidence. Banking contacts supported this view and
indicated that in the last month or so consumers have become more
conservative in taking on new debt and business loan demand has
softened. Retail contacts were less optimistic this month than last
concerning their outlook for sales for the remainder of the year and
into 1991, sentiments echoed by District manufacturers of consumer
and nondefense goods. However, defense and oil related producers
cited a recent increase in orders. Most realtors report weaker
residential and commercial sales in September than in August but a
few areas in the District are reporting improvements. Recent
contacts report shortages of skilled labor in oil producing regions
in the District. They generally indicate that oil price increases
have not yet been incorporated into the price of most finished
goods.
Retail Sales
Retailers generally report flat year-over-year sales volume in
September, as compared to slight growth in previous reports.
Contacts in Florida and Georgia, our two largest states, report that
small retailers and department stores are seeing a significant
reduction in gross receipts. These contacts indicate that
announcements of layoffs at retail stores are becoming more common,
some associated with debt-ridden parent companies but others
associated with weakening sales. In contrast, discount department
stores are reportedly showing some strength and are largely
responsible for the aggregate level of retail sales remaining flat.
Most retail contacts report that floor traffic is off from last
month and consumers are purchasing less expensive items. These
reporters still attribute the recent slowing to reduced consumer
confidence resulting from the recent political and economic
uncertainties and fueled by the media. A contact in Florida reported
that the most recent (September) University of Florida Consumer
Confidence index fell from the July level (their last survey) and
that the survey's report on the percent of consumers willing to
undertake big-ticket purchases also slipped. While this survey is
limited to Florida, the findings generally agree with the
observations of most retail contacts in the District.
Financial Services
Banking contacts also report that growing consumer uncertainty was
reflected in their attitude toward taking on new debt. Consumer loan
growth in September was at less than half the pace of a year ago.
Most of the lending officers that were contacted also indicated that
business loan demand weakened in September reflecting slower
business activity. The major exception was credit demand by firms
associated with the health care industry.
Manufacturing
Reports on manufacturing around the District were mixed, with
defense and oil related activities showing strength while orders
slowed for most other producers. Contacts in Alabama report that
military apparel producers are running at full capacity with tens of
millions of dollars in new contracts awarded since July. Florida
contacts indicated a pickup in high tech military orders destined
for the Mid East. Most manufacturing contacts producing goods for
the private sector reported flat to weakening orders in September. A
manufacturer of pump and metering equipment reports that orders are
down 5 to 10 percent. According to this contact, both domestic and
foreign orders were down: domestic, because his manufacturing
customers are reducing capital expenditures, and foreign, reflecting
cessation of business with Iraq and Kuwait. A producer of heating
and air conditioning equipment reports that total current sales are
even with a year ago but distributors are now cutting new orders and
reducing inventories and pre-season air conditioner orders are
running 14 percent below last year's level. Textile and apparel
contacts expect the continuing slowdown in orders to last through
the first of the year. Apparel producers without military contracts
continue to announce layoffs and plant closings. Textile producers
report a weakening of orders in the past few weeks.
Construction
Construction contacts indicate that construction activity is
generally flat throughout the Southeast relative to last year.
Several contacts indicated that a number of new commercial and
residential projects were placed on "hold" in September. Realtors in
most areas of the District indicate substantially weaker sales in
September relative to last month especially in Florida and Georgia
while in other areas, such as Louisiana and Alabama, reports were of
flat to slightly stronger sales. These later reports come from oil
producing or support areas and areas with significant aerospace
activities.
Wages and Prices
Contacts reported continued tightening in labor market conditions
for certain types of workers in oil producing areas. Skilled workers
such as welders, pipe fitters, engineers, geologists and
geophysicists are reportedly in short supply in Louisiana. Most
manufacturing and transportation companies report that oil price
increases are not yet reflected in higher final product prices to
consumers. A textile producer noted that the price of synthetic
fibers has escalated dramatically during the past month with the
price of nylon, the major component of most synthetic carpet,
increasing by 12 percent. He added that market conditions for carpet
do not allow these increases to be passed through to consumers at
present so the increased costs are shrinking profit margins.