November 3, 1993
Overview
The Sixth District economy continued to expand in September and
early October, although most business contacts characterized recent
growth as sluggish. After gaining momentum through the first half of
the year, consumer spending has leveled off in recent months. New
orders for manufactured goods improved slightly in September, but
current production and employment levels generally remained flat.
Residential real estate sales and construction have remained a
source of strength for the District economy, and commercial
construction has shown signs that it is beginning to revive.
Although residential mortgage lending has remained strong, consumer
lending for automobile purchases has slowed recently. Commercial
loan demand has not improved. Wages and prices generally were
reported to be stable, although some construction and manufacturing
firms noted that lumber prices have been edging higher.
Consumer Spending
According to southeastern retailers, consumer spending has leveled
off in the last few months following relatively strong growth during
the first half of the year. Unseasonably warm weather through
September and early October was cited as a factor contributing to
below expectation fall apparel sales, while continued strength in
residential real estate markets has maintained demand for furniture
and other home furnishings at levels me in the spring. Despite
recent sluggishness, most retailers again said they were optimistic
that upcoming holiday sales will modestly surpass the healthy levels
of 1992. Auto sales, while higher on a year-over-year basis, have
slowed from their torrid mid-summer pace. Dealers noted that sales
of new model-year cars have been slightly below expectations.
Tourism, recreation, and convention-related activity has been mixed
in the District. In south Florida, contacts attributed year-over-
year declines in hotel occupancy levels and convention attendance to
a combination of the slow economy, high airfares, and the spate of
publicity about criminal activity. On the other hand, tourism along
the Gulf Coast of Mississippi has continued to benefit from
increased activity generated by new casino operations.
Manufacturing
Reports from industry contacts were mixed in September, but, in
general, manufacturing production and employment levels were little
changed from August. Several contacts reported, however, that new
orders were up slightly and that the new-term prospects for their
firms have improved. Most manufacturers reported that they do not
expect to hire new employees in the next six months. In contrast,
contacts with temporary employment agencies indicated that staffing
for manufacturing firms has begun to pick up during the last two
months following a mid-summer lull. Among those firms that indicated
an improvement in current business activity, producers of medical
equipment and supplies reported increases in production and
shipments for the month of September, and companies producing
automotive supplies and commercial construction materials also noted
increases in production. Although employment in the carpet industry
remained stable since the last Beigebook, apparel plants in
Mississippi and Georgia continued to pare back their employment
rolls in response to sluggish retail sales and stiff foreign
competition. Weak demand from foreign markets was reported to be
holding back production in Louisiana's chemical industry, and
several paper producers reported cuts in production from mid-summer
levels.
Construction
After a busy summer selling period, Sixth District realtors reported
an expected seasonal downturn in September and early October. Home
sales year-to-date, however, are well ahead of last year's levels,
and real estate agents were optimistic that there would be another
surge in sales before the end of this year. Demand for new homes,
especially starter and mid-priced homes, remained strong, and
contacts in some areas noted that luxury home sales have improved as
well. Home builders also reported a seasonal slowing in sales in
September, but several contacts noted that this would allow them to
replenish their nearly depleted inventories of new homes.
While commercial and multifamily real estate activity generally has remained slow, reports from industry contacts continued to suggest that these markets are beginning to revive. Several small speculative office and industrial projects have been announced recently in submarkets where available space has been reduced through absorption. Multifamily construction a1so has been improving slowly, and several contacts noted that the permanent extension of the low-income housing tax credit could stimulate new building activity.
Financial Services
Bankers reported that loan demand generally was flat in September
and early October. Although residential mortgage lending has
remained strong at most banks, refinancings continued to make up
about three-quarters of all mortgage loans. Consumer lending for
automobile purchases has slowed since the summer, and commercial
loan demand has remained muted throughout the District.
Agriculture
Reports indicated that severe drought conditions persist in central
and south Georgia. According to current estimates, total
agricultural losses in Georgia are expected to surpass $500 million.
In Alabama, Tennessee, and Florida, crop yields are expected to be
reduced by 5 to 20 percent as a result of the drought, although
total losses in these states are not expected to approach those in
Georgia. While Mississippi and Louisiana enjoyed excellent weather
until late in the growing season, a lack of rain in late August and
September has reduced yields on most major crops, including cotton
and soybeans.
Wages and Prices
There were no reports of increased wage pressures in September and
early October. Construction companies and furniture manufacturers,
however, noted that lumber prices have been edging higher since
early August.