January 23, 1991
Overview
A large majority of firms contacted around year end reported
marginally lower or flat production, sales, or employment compared
to late fall and a year ago. Retailers, with few exceptions,
reported that real holiday sales fell below or only equaled last
year's levels. While domestic sales are reported to be down by many
contacts in diverse industries, several businesses report growing
international sales. Continued widespread contraction in
construction is reported to be causing construction-related
manufacturing activity to weaken further. Banking contacts supported
these interpretations with information that consumer loan demand and
business capital spending are softening. Contacts report that the
California freeze is raising fruit and vegetable prices, while an
unseasonably warm winter in other areas has led to falling prices
for natural gas.
Retail Sales
Retailers said that real sales had turned out weak compared to a
year earlier, though most had expected this to happen. Contacts say
that they planned inventory carefully, promoted and discounted items
early, and finally moved remaining merchandise with further price
cuts during the week before Christmas; that helped trigger an
unusually large late sales surge. It appears that sales activity was
not as poor in the western part of the District. Although sales of
most big ticket items were reported to be weak everywhere, luxury
items received a temporary boost in December from the special tax
slated to begin in 1991. Florida restaurateurs and luxury resort
operators report reduced business entertainment spending, and a "no
frills" hotel franchiser says that business travelers in the
Southeast are "trading down." Tourism, overall, is still strong but
there are reports of softening domestic leisure travel to Florida.
According to industry contacts, convention attendance in Atlanta,
New Orleans, and Orlando has been record-setting.
Manufacturing
Producers in most industries report declining or flat domestic sales
while reports on the strength of exports vary. Contacts reporting
strong exports but flat domestic sales include a telecommunications
components manufacturer in Atlanta, linerboard and pulp
manufacturers with plants across the Southeast, a major regional
aluminum can sheet producer, and a few makers of original equipment
auto parts. Mobile home manufacturers in Florida, Georgia, and
Mississippi report new or expected contracts to make homes for
Russian immigrants in Israel, helping to offset weak domestic sales.
Manufacturers who report weak domestic sales that are not being
offset by growing exports include southern pine lumber producers for
whom Iraq represented a major market before its August invasion of
Kuwait. Lumber sales to LDCs in the Caribbean and Africa also are
reported to be down because of the higher energy costs they are
facing. A Georgia producer of carpets says that Saudi Arabia, the
largest international market for the state's carpets, has stopped
taking delivery and that insurance costs on shipments to the Middle
East have become prohibitively high. A major supplier of inorganic
industrial chemicals to domestic manufacturers of many industrial
and consumer products reports significantly lower sales compared to
a year ago. A plumbing fixture supplier serving Georgia and
Tennessee and a Florida wall coatings manufacturer report lower
sales in their domestic-only markets. In contrast, pen and pencil
and cellular phone companies report healthy domestic and foreign
sales.
Financial Services
Bankers indicate that business and consumer loan demand was weak in
December compared to a year ago and attribute the weakness to the
slackening economy and uncertainties associated with the Middle East
crisis. Loan officers say that capital spending is shrinking or
being delayed in several industries. Direct reports from businesses
such as a hotel franchiser, a computer software firm, and a producer
of office supplies confirm this information. Industrial engineering,
accounting, and management consulting firms report a decline in
their businesses due to reduced capital spending by clients.
However, one loan officer reported continued strength in loan demand
by the health industry, and a Miami banker notes growing demand from
firms exporting to South America.
Construction
Most segments of construction activity across the region were down
sharply at year-end from levels a year earlier and in previous
months of 1990. In contrast to previous years, there was no
initiation or acceleration of projects related to tax laws. Parts of
Louisiana and Mississippi are reported to have more building
activity than last year at this time, but these areas are expanding
from depressed levels. A large building materials supplier, who has
already cut his payroll by 15 percent, says that he is experiencing
collection problems from hard-pressed contractors and that the
remodeling business is flat. A home improvement company in Georgia
also reports that December and early-January sales are down from
preceding months.
Wages and Prices
A major Florida contractor cites a decline in prices of concrete and
construction tools in response to construction's weakness. South
Florida citrus and vegetable growers are reported to be temporarily
reaping much higher prices as a consequence of the December freeze
affecting Southern California crops. Trucking company contacts, a
mobile home manufacturer, and a regional supplier of linens say
their profits are falling because they are unable to pass on
increased fuel costs. According to an industry contact, natural gas
prices fell significantly in January because of unseasonably warm
weather and excess supplies.