August 4, 1993
Overview
According to Sixth District contacts, the Southeast economy grew at
a modest pace in June and early July. Consumer spending gains were
again reported by most retailers, but momentum has slowed. Realtors
and residential builders reported healthy sales and building
activity, although multifamily and commercial real estate markets
remain sluggish. Manufacturers generally experienced increased
production and orders in June, with lumber, furniture, and home
textile producers noting increases because of strong residential
construction. However, their expectations about fixture production
are less optimistic than they were earlier this year. According to
bankers, commercial loan demand remains flat, but consumer lending,
especially for automobiles and home refinancing, has increased in
most areas. There were no reports of increasing wage or price
pressures.
Consumer Spending
Retailers throughout the District reported chat an upward sales
trend continues; however, consumer spending growth has slowed in
recent weeks. Smaller retail stores consistently had weaker sales
than major retailers. Sales gains were most prominent in apparel,
home improvement products, big ticket consumer durables, and autos.
Auto sales did particularly well in June and mid-July, and the
majority of dealers expect the recent trend to continue through the
end of the summer. Most contacts in the hospitality industry expect
further improvement in already strong tourism and business travel
through the summer as air passenger traffic and convention
attendance continue to outpace year-ago levels.
Manufacturing
Manufacturing activity expanded modestly in June and early July
according to industry contacts. Most firms reported current
increases in production and new orders; although few reported new
hiring. Expectations for the near-term future have become less
positive. Uncertainty and concern over taxes and health care have
contributed most to declining expectations about future activity,
according to many contacts. Most manufacturers stated they are not
planning to add workers in the near term. Increasing backlogs of
orders for home textiles were reported, as well as a pickup in
orders for sportswear, but production of other types of apparel has
slowed because of declining retail sales growth. Strengthening
residential construction is stimulating new orders at lumber and
furniture companies, but commercial construction suppliers remain in
the doldrums. Increased natural gas prices have boosted oil and gas
production as well as business for related service companies. Energy
companies are also planning capital expansion projects to meet
environmental requirements. Defense-related job cuts continue for
military contractors in the region, and cuts in both military and
civilian aircraft orders have resulted in layoffs. Some industries,
such as auto parts, noted slowing exports to Europe.
Construction
Real estate agents from across the District reported that home sales
had leveled off in June and early July, though they remained above
last year's levels. Starter and mid-priced homes continue to sell
well, but luxury home sales are still fairly flat. Despite healthy
single-family building, a lack of new home inventories has increased
demand for resale homes in some areas. Most realtors and builders
remain optimistic about the rest of the year, although a few
contacts expressed concern that uncertainty about government fiscal
policy was keeping potential buyers in their current homes.
Increased rental rates have encouraged some multifamily building
activity. Several contacts reported older multifamily properties
were being purchased and refurbished at a much lower cost than new
construction.
Commercial real estate markets remain slow. Several contacts have seen modest improvement in leasing activity and occupancy rates, but effective rental rates remain too low to encourage any new speculative building. Retail construction and build-to-suit projects are providing almost all of the new commercial projects in the District.
Financial Services
Bankers' reports indicate that loan demand was mixed in June and
early July. Weak demand was noted in Mississippi and Louisiana,
while the rest of the District experienced a modest increase.
Contacts noted that there is a lot of competition for good
commercial loans, with several banks pursuing any good deal that
comes along. Many commercial borrowers are taking advantage of the
low rates to refinance existing debts. Consumer lending, especially
for new cars, has picked up modestly in most of the District.
Residential mortgage lending continues at a strong pace. Mortgage
refinancings have begun to surge again after tailing off the latter
part of June. Refinancings now make up about three-quarters of all
mortgage loans.
Agriculture
In contrast to the Midwest, drought conditions exist in portions of
Alabama, Georgia, and Tennessee. The situation is most severe in
east-central Georgia and east Tennessee. In the affected areas of
Georgia, the dry land corn crop may have been entirely lost. Cotton
and soybean crops are also in need of rain, but are more drought
tolerant than corn. Dairy farmers have been forced to dip into
winter hay reserves because the pastures have become too dry to
graze. In east Tennessee, grazing pastures and tobacco are being
hurt the worst. Alabama crops have been less affected, but one-third
of the corn crop acreage is now rated poor or very poor. On the
other hand, Florida farm land has had at least adequate soil
moisture in all areas except the northeastern coast. Mississippi and
Louisiana crops are in good to excellent condition for the most
part.
Wages and Prices
Factory contacts did not report any increases in raw materials or
finished good prices. There were no reports of increasing wage
pressures.