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Beige Book Report: Atlanta

May 8, 1996

Overview
According to contacts around the District, the Southeast economy continued to expand in early spring, although reports showed some softness as well as strength. Retail contacts reported that same store sales in March and early April exceeded year-ago levels, despite increased competition and bad weather. Manufacturing activity fell in March for the second month in a row. Recent reports from the tourism and convention sectors were largely positive, and the outlook remains upbeat. According to real estate contacts, the single-family housing market continues to maintain its strong performance from earlier in the year, and expectations among builders and Realtors are positive. Commercial and multifamily markets continued to improve. Bankers characterized overall loan demand as steady. There were scattered reports of wage pressures in parts of the District, but also reports of price deflation in lumber and paper.

Consumer Spending
Most District retailers report that sales in March and early April exceeded year-ago levels. However, some retailers did note that increasing competition and cold weather in early March did cut into sales. Most contacts reported that inventories were currently on target, but several did say that their inventories were uncomfortably high. Home-related products continue to be a strong seller across the District but apparel sales were mixed. The outlook remains positive as most contacts anticipate second quarter sales will exceed last year's level, even if only moderately.

Manufacturing
The majority of industry contacts reported that factory activity edged down or was steady in March and early April. A plurality of manufacturers anticipate a modest increase in production over the next few months, and they expect the volume of new domestic orders to slow, while the volume of new orders for export is expected to increase. More contacts now intend to trim factory payrolls and substitute capital equipment than was the case early in the year. Finished goods and materials inventories at the plant level increased moderately over the past month. A recent pickup in new orders and production for some textile and carpet manufacturers is encouraging. One contact thinks that increasing building activity will stimulate carpet production over the next few quarters. However, reports of downsizings and plant closings of weaker, less competitive, apparel firms continue in parts of Mississippi and Alabama, and stubborn inventory excesses continue to plague apparel manufacturers in other parts of the District. Some contacts express concern over building paper inventories, and several lumber mills have cut back on total hours worked. Slack new orders are forcing a heavy-duty truck supplier to cut its workforce, and a supplier of components to the auto industry notes decreasing orders and shipments. More positively, strong business activity is reported for producers of electrical and electronic machinery. A large consumer durable manufacturer is also expanding in the western part of the District.

Tourism and Business Travel
The outlook is positive for the tourism and convention sectors, according to industry contacts. South Florida destination resorts are fully booked and summer advance bookings are ahead of last year. The average length of stay has reportedly been several days longer at south Florida resorts than last year at all price levels. The number of European visitors to central Florida is up at double-digit rates from a year ago, and attendance at central Florida theme parks is expected by local tourism officials to continue to post strong gains. However, spring break attendance at some Florida destinations was not as strong as a year ago, and the number of Venezuelan visitors to south Florida is likely to decline as a result of the devaluation of the bolivar. In Nashville, hotel managers feel that the third and fourth quarters will be strong with rising occupancy rates. Casino operators along Mississippi's Gulf Coast report continued good traffic with gambling revenues rising moderately over last year.

Construction
Most real estate contacts reported that single-family home sales were ahead of year-ago levels in March and anticipate April sales will be strong as well. Throughout most of the District, inventories are in good shape. Overall, inventories are on the rise in Atlanta and Nashville, but demand remains extremely strong in these markets and real estate contacts do not anticipate market saturation. In the Birmingham market, new home inventory is said to be less than normal, while demand is strong. As a result, some District contacts report a rise in home prices. However, a contact in south Florida reports that home inventories are too high and prices are stagnant, although first time buyer homes are moving fast.

Contacts from across the District report that commercial and multifamily real estate markets continue to improve. Low vacancy rates and higher rents are propelling new apartment and office development. While most commercial projects are still build-to-suit, several speculative developments are underway and more are anticipated this year. Most real estate professionals continue to anticipate that new commercial and multifamily construction will grow this year.

Financial Services
Contacts in the banking industry described overall loan demand as steady. Bankers report that commercial lending continues to outpace consumer lending. Some contacts reported that commercial lending was up over earlier in the year but down from last year's levels, and that consumer loans were slightly stronger than early in the year. Bankers also found automobile financing to be performing extremely well, and mortgage lending up slightly.

Wages and Prices
Contacts report a few instances of wage pressures in scattered parts of the region. Some merchants and other service industry spokesmen report that the ability to fill entry level positions has become a challenge. Atlanta's boom in new retail and service businesses has forced many employers to pay well over minimum wage. Manufacturing contacts report fewer increases in prices for both finished goods and materials than was the case in late winter. Some factory contacts note price deflation, especially in paper products. One contact expects timber product prices to continue to decline for the next few months. A large chemical producer notes price erosion because of foreign competition. An oversupply of heavy equipment manufacturing capacity is keeping prices down for some producers, according to one industry spokesman.