March 13, 1991
Overview
Reports from businesses contacted in February were more mixed than
has been the case in recent months. While manufacturing activity
levels were below or barely equal to those seen a year ago, several
retailers and residential realtors have seen either a bottoming out
or slight pickup in recent weeks. Producers in construction- and
transportation-related industries reported no signs of improvement.
Some current offset in the generally weak construction sector is
provided by work on a number of large industrial and government
projects, and rising home sales. Industries related to agriculture
and energy are experiencing growth or remain stable. Oil price
declines this year have allowed some farms to restore profit margins
and others to lower prices. Reports from bankers indicate that
consumer and commercial lending remains sluggish.
Retail Sales
Retailers report that sales dropped dramatically during the first
week of the Gulf war but that they rebounded after that time.
Overall, retailers said that January and early February retail sales
fell below or only equaled last year's levels. Contacts reported
that durable goods sales continued to decline, and a few contacts
noted a drop in their historically strong catalog business. Most
merchants said they were cautiously ordering durables because they
expected sales to be lackluster at least until spring. However,
discount stores continued to report strong sales, particularly for
nondurables, and were ordering more aggressively than last year.
Auto dealers, meanwhile, have reported improved sales recently
following an initial deep plunge at the beginning of the war. An
Atlanta dealer emphatically said "we have seen the bottom." The
convention business in Atlanta and Orlando is reported to be down
while New Orleans' convention attendance levels are up slightly from
"solid" year-earlier figures.
Manufacturing
Producers in several important regional industries report declining
or flat sales in January and early February compared to year end;
they say that soft orders suggest that improvement is not yet
imminent. Declining orders caused a heating and air conditioning
company to reduce its 1991 sales forecast by 5 percent recently, and
cut its employment level by 10 percent. Home furnishings
manufacturers, textile and auto producers, and auto parts
manufacturers say that they are responding to bleak sales with
further layoffs and plant closings. A jet engine parts maker,
previously producing near capacity, reports that expected airline
and military spending cuts will result in a significant number of
layoffs at its southeastern plants. Formerly strong exports of pulp,
paper, and chemicals now are reported to be softening. This export
slowdown is reflected in a report by a power generation equipment
producer which indicates that new orders from pulp and paper
producers are down. Generally, businesses report cutbacks in capital
spending, though a majority say these are temporary.
Other significant industries report stable or growing sales. Producers of military boots and camouflage apparel say their order backlogs have lengthened and that they are expanding their work forces in order to fulfill growing military demand. Contacts say that stronger markets for agricultural products have strengthened sales of fertilizer and other farm supplies. A sugar processor says that its 1990 sales were up 18 percent from 1989. A poultry- processing firm reports that stronger demand for its product by fast food stores has bolstered production and sales. Oil producing activity reportedly has remained stable throughout the steep price swings of the past half year.
Financial Services
Bankers report flat business and consumer loan demand in January and
early February compared to the last reporting period, and attribute
it to a general lack of confidence in the economy. Contacts say that
commercial loans were flat because firms have maintained low
inventories and reduced capital spending. However, a major regional
bank's working capital lines are reported to be growing due to its
easing of credit terms. Banking contacts say that lending conditions
still are tight for some borrowers, particularly for real estate
development. Borrowers representing stable industries such as
utilities report that credit market conditions are favorable.
Construction
Commercial construction and homebuilding activity across the region
remain at levels well below those of a year ago and of recent
months. Commercial construction, except for a number of industrial
projects, was described as "dead" by a large building materials
manufacturing company that has already cut its work force by 30
percent over the past year. According to other contacts, a number of
large highway and other government construction projects that are
underway across the region should offset some of the weakness in
commercial construction. Additionally, realtors report improvements
in existing home sales in January and February, and they indicate
that overall home sales probably have bottomed out.
Wages and Prices
Recent oil price declines have been passed through to customers in
industries with automatic adjustment clauses such as utilities and
some transportation companies. Others, however, are still putting
through lagged adjustments to earlier increases. Prices for
fertilizers and some other energy-intensive products are even
reported to be rising. Contacts in some transportation companies say
they are rebuilding previously squeezed profit margins. A
refrigeration machinery company contact reports that his suppliers
seem to be benefiting from lower energy costs and are holding prices
steady. Business contacts generally report easing wage pressures.
Technical workers such as welders still are reported to be scarce in
Louisiana while there is a growing pool of plumbers, electricians,
and other building trades workers in the region due to
construction's decline.