September 23, 1992
Overview
Contacts in the Sixth District reported that economic activity
expanded quite slowly through Labor Day. Merchants recorded steady
to slightly higher sales, and factories were generally busier than
earlier in the summer. Home sales and construction improved in most
of the District, but apartment development and commercial
construction was flat. Except for the recent surge in refinancing,
business and consumer loan demand at District banks remains stalled.
Wages have been relatively stable under conditions of job
uncertainty, and attempts to raise product prices have met with
little success. A summary of Hurricane Andrew's economic impact on
south Florida and Louisiana is presented in the final section.
Consumer Spending
Retailers reported marginal sales increases in August compared with
year-ago levels. Back-to-school sales generally met retailers'
conservative expectations. Discount stores continue to post the best
gains, led by sales of apparel and other nondurable goods. Looking
ahead, merchants are not expecting significant gains over last
year's lackluster Holiday season. Auto sales have been mixed to only
slightly higher, but most dealers are comfortable with the
relatively low inventories of 1992 models still on the lots.
Convention traffic in most states is exceeding year-ago levels and is expected to remain strong into next year. Tourism enjoyed moderate increases through late summer, bolstered by the air fare wars and an influx of European visitors responding to sharp declines in the dollar.
Manufacturing
A large majority of manufacturing contacts reported steady to higher
orders, production, and shipments. However, only a quarter of these
contacts added to employment rolls or lengthened the workweek in
August. Inventories of material inputs and finished goods continue
to drift downward, mostly by design.
However, firms that rely on NASA or defense contracts reported decreasing orders and are not optimistic about the outlook over the next six months. Petroleum industry suppliers stated that the energy business remains slow.
Construction
Most realtors noted sales gains for starter homes and some have seen
increased interest in the trade-up market. Ample existing home
inventories have kept prices stable even as the number of
transactions has risen. Responding to market conditions, builders
are putting up more low-to-mid priced homes and expect slow but
steady improvement for the rest of the year. Although there have
been some reports of rising occupancy rates and modestly increasing
effective rental rates, multifamily construction has yet to respond.
On the commercial side, some brokers sense that effective rental
rates are beginning to firm. Even so, rental rates remain far below
those required for speculative development.
Financial Services
Bankers around the region reported that consumer and business loan
demand was generally flat in July and August. However, almost all
contacts are seeing a deluge of mortgage refinancing that may
eclipse the record volume posted earlier this year. Commercial loan
activity was generally weak. Several business contacts noted that
increased regulatory burdens and conservative lending practices
continue to hamper access to credit. Consumer loans were mixed with
some contacts reporting increases in auto loans in July.
Wages and Prices
Materials prices for most manufacturers were steady to slightly
higher in August. However, firms have generally been unable to pass
these through on final products because of sluggish demand and
competitive pressure. Businesses across all sectors have not
experienced upward wage pressures.
Hurricane Andrew
Hurricane Andrew devastated parts of southern Florida and sparsely
populated south central Louisiana. However, after an initial period
of disruption, a surge in economic activity is expected as
rebuilding commences. South Florida will likely experience a local
building boom. Retail sales will rise significantly in both states,
and to a lesser extent, across the region. South Florida bankers are
expecting new deposits and increased loan activity as insurance
money and aid pours into the region to fund reconstruction.
The extent of damage to oil and gas platforms off the Louisiana coast is still being assessed. According to most recent reports, about 200 installations show storm-related losses. Decisions regarding restoration of the most seriously damaged structures are pending. Natural gas prices, which had already been trending upward, were pushed sharply higher by the interruption in supply.
In Florida, the lime, avocado, mango, and foliage plant crops were all severely damaged or destroyed. It will take several years to establish new production for many of the tree crops. Salt water intrusion into fields may delay planting of the winter vegetable crop. However, except for limes, fruit and vegetable prices have remained relatively stable as lost supplies have been displaced by imports. In Louisiana, 25 percent of the sugarcane crop was destroyed. The fishing and shrimping industries were also disrupted, and oyster harvesting has been suspended pending pollution test results. Although the affected areas may experience a net gain in jobs and income for one to two years, the stimulus from rebuilding activity is ultimately transitory and is not expected to displace the loss in agricultural and personal wealth incurred by large uninsured losses.