December 9, 1992
Overview
According to contacts in the Sixth District, the Southeast economy
was showing signs of moderate improvement through the end of
November. After the first weekend of the holiday shopping season,
retailers report sales increases across a broad range of goods, and
most merchants believe that this season will be the most profitable
one in three years. Most manufacturers indicate that factory
activity has held steady in recent weeks, but persistent weakness is
reported by firms linked to defense production. Home builders and
realtors say that single-family residential markets remain healthy,
and contacts in south Florida note that the hurricane rebuilding
effort has begun to stimulate local construction and retail sales.
Commercial construction, however, continues to be slow in most
areas, and business and consumer loan demand remains muted. On the
inflation front, most contacts report that they have seen no signs
of upward pressure on either wages or prices.
Consumer Spending
Retailers throughout the District were upbeat in their assessment of
sales through the end of November. Weekend sales following
Thanksgiving were reported to be above year-ago levels throughout
the District. Increases have been reported across a broad range of
goods, with nondurable items leading the way, but sales of durable
goods such as home furnishings, electronics, and appliances have
also shown improvement. Inventories are relatively lean as planned,
and merchants expect this season to be characterized by fewer
discounts and higher profit margins than in the past few years.
Retailers are in the process of hiring seasonal employees to meet
this annual surge in activity, and most indicate that they will hold
the line even if sales are stronger than anticipated. Although auto
dealers have seen little change in showroom traffic in recent weeks,
the majority continue to report at least modest increases in sales
over year-ago levels.
Manufacturing
Manufacturers' reports on factory activity were mixed in November.
Some industries continue to be plagued by persistent weakness. This
is particularly true of defense contractors, several of which have
announced plans to cut a substantial number of jobs at District
plants. Firms linked to the production of communications equipment
and autos have also reported slowing production, shipments, and new
orders. Producers of nondurable goods, however, generally have
recorded moderate increases in factory activity. Apparel and textile
manufacturers characterize current levels of production and
shipments as encouraging, but they expect a leveling off by early
next year as their backlogs are reduced and customers' inventories
restored. Manufacturers of building supplies and other home products
continue to report increases in demand stemming from the hurricane
rebuilding effort. Producers of shingles, plywood, roofing felt, and
carpeting report that they are running their plants at capacity
levels.
Construction
After taking into account normal seasonal patterns, most residential
realtors report that conditions continue to improve in single-family
housing markets. Low-to-mid priced homes are still the best sellers,
but the market for trade ups and more expensive homes has improved.
Builders note steady single-family construction activity, and a
growing minority are seeing increases in speculative building.
Multifamily and commercial construction, however, remains slow in
most parts of the District and contacts suggest that there is little
near-term prospect for improvement.
South Florida is beginning to experience the expected increase in economic activity as a result of the hurricane rebuilding effort. In particular, contacts report that the local economy of Dade county has recorded substantial increases in both retail sales and construction. However, contacts also report that a number of individuals and families have opted to move out of the area rather than to rebuild their damaged or destroyed homes. On the commercial side, realtors in areas around Dade county have seen a surge in short-term leasing from companies whose facilities were damaged by the storm.
Financial Services
Bankers around the District report that loan demand was flat to up
slightly through the end of November. Mortgage refinancings still
represent the most prevalent form of loan activity, but contacts
believe that this wave of refinancings has finally peaked. Other
forms of consumer lending have shown some improvement in recent
weeks, particularly auto financing in parts Florida and Georgia.
Commercial lending, however, is reported to be flat, and most loan
applications have been for refinancing, debt consolidation, or
acquisitions, rather than new business activity. Contacts in Miami
have seen deposits rise by about 10 percent since the hurricane, but
there still have not been any reports of a significant increase in
commercial or consumer lending in the area. Small business continues
to report difficulties obtaining credit, although conditions have
not worsened. It appears that lenders are becoming more aggressive
in consumer lending.
Wages and Prices Contacts report that wage pressures are practically nonexistent. Firms continue to focus on cost cutting, including workforce reductions, in order to improve balance sheets. Materials input prices have remained stable for most producers, and competitive market forces have foiled recent attempts to raise prices of final products.