January 18, 1995
Overview
According to contacts around the District, business activity in the
Southeast continued to expand through the end of 1994, although more
slowly than earlier in the year. Most retailers reported that the
holiday shopping season went well. Sales generally met expectations,
but many contacts had to use more discounting than they would have
liked in order to generate business. Auto sales were reported as
steady. Tourism and business travel contacts say activity remains
above year-ago levels in most of the District; however, parts of the
Florida tourism industry have not yet fully recovered from their
year-long slowdown. Single-family home building and sales have
continued to slow, and most contacts expect a moderately slower
1995. On the other hand, commercial real estate market reports
continue to improve. District wages and prices were generally
steady; however, there were an increasing number of reports of tight
labor markets and higher materials prices.
Consumer Spending
District retailers reported that sales in December met or exceeded
their expectations; however, retailers attributed much of their
success to aggressive promotions. Several merchants stated that
unseasonably warm weather held sales down a bit. Once again, men's
apparel and home products were strong sellers and several retailers
noted substantial improvements in women's apparel over last year.
Retailers said after-holiday inventories were, for the most part, at
anticipated levels. Most contacts expect year-over-year sales gains
to continue, although same are concerned that the credit card debt
incurred during December will curtail consumers' purchases more than
usual during the first quarter of 1995.
Manufacturing
District manufacturers reported ongoing spotty growth in December
and early January. Strength in orders for paper, pulp, metals, and
industrial chemicals is keeping plants in these industries operating
near capacity. Auto parts suppliers continue to announce
construction of new production facilities in the region. Some
producers of electronics for cable television and data
communications report order backlogs increasing at double-digit
rates. Producers of home textiles such as sheets and towels are
optimistic that business will remain strong. However, respondents
note that the market has softened for other products linked to
housing such as building products and heating and air-conditioning
equipment.
Contacts in the apparel industry continue to report a shrinking factory workweek and payrolls. Temporary help firms supplying personnel for manufacturers report that the pace of placements remains brisk. Foreign orders for military aircraft have brightened the outlook for Lockheed's Marietta, Georgia, facility. However, recent cancellations or scalebacks of U.S. Department of Defense contracts continue to adversely affect many defense-related firms in the District.
The recent peso devaluation has some regional manufacturers concerned that exports of their products will slow as U.S.-made products become more expensive in Mexico. A broad range of regional industries has posted significant gains in exports to Mexico since NAFTA was enacted last January. Most industrial contacts remain optimistic about the near-term outlook.
Tourism and Business Travel
Winter bookings and occupancies are up for some Florida
destinations; however, state officials are concerned that rival
destinations are capturing a significant portion of the state's
marks. Weak early winter cruise bookings are expected to pick up in
February following an unusually soft fall season, partly attributed
to unseasonable weather. Although overall casino traffic in
Mississippi continues to grow and larger firms continue to expand,
contacts report that weaker firms are laying off employees or filing
for bankruptcy. Interest in the 1996 Olympic Games is sharply
increasing foreign visits to Atlanta.
Construction
A majority of real estate contacts reported that single-family home
sales and construction slowed slightly in December. However,
contacts in the Miami and Nashville markets stated that December
sales exceeded year-ago levels. Most real estate agents and builders
continue to anticipate a modest decline in home sales and
construction in 1995.
Commercial and multifamily real estate contacts continue to report improving market conditions. The apartment market is characterized by steadily rising rental rates and high occupancy levels. Contacts say that, as a result, multifamily construction is on the rise in many areas of the District. Commercial realtors also report declining vacancy rates and steadily increasing rental rates. While commercial construction is reportedly accelerating, the majority of current construction is build-to-suit with most of the space leased prior to building, leaving very little speculative space available. However, builders say that shortages of skilled labor continue to push building costs up. Realtors anticipate both commercial and multifamily markets will exhibit continued strong growth in 1995.
Financial Services
According to District bankers, overall loan demand has been rising
modestly. Most contacts reported that business loan demand was up,
while consumer loan demand was slightly off. Commercial real estate
lending was reported to be fairly active by several contacts.
Weakness in consumer loan demand was accounted for mainly by auto
lending. Residential mortgage lending has declined. Commercial and
consumer default rates remain low.
Wages and Prices
Reports of upward pressures on wages are becoming more frequent
among contacts surveyed. Demand in the areas of skilled construction
and food services personnel is especially strong in parts of the
District. Manufacturers report that prices of raw materials continue
to escalate, and more producers expect to be able to increase final
product prices. Paper, chemicals, metals, and textile contacts
continue to report rising raw materials prices. Apparel and fabric
producers are coming under increasing pressure from raw materials
price increases, but are reportedly not able to raise finished
product prices because of consumer bargain hunting pressures at the
retail level. A few companies report that higher than usual
inventories at the end of 1994 are designed to help offset
anticipated additional price increases in 1995. Residential
homebuilders throughout the District report that both materials and
labor costs have stabilized, generally steadying home prices.