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Beige Book Report: Atlanta

June 19, 1996

Overview
Reports from contacts in the District suggest that the Southeast economy continued to grow at a moderate pace during May. Retail sales largely met retailers expectations, with real sales apparently exceeding year-ago levels. Overall, manufacturing performance was mixed in May, although the outlook among manufacturers improved. Tourism and business travel continue to grow vigorously throughout the District, and this summer is expected to be especially strong. District Realtors report single-family home sales beat year-ago levels in May, while reports on home building compared to a year ago were mixed. Commercial and multifamily construction continued to increase. Bankers characterized overall loan demand as flat to slightly up. Wage pressures were reported in several parts of the region, especially for entry-level, low skill jobs. Some industries report higher materials and product prices.

Consumer Spending
According to District retailers, real sales increased modestly as same-store sales during May met or, more generally, exceeded, year-ago levels, even with the entry of many new competitors. Sales largely met expectations for the month. Inventories are said to be on target throughout most of the District. Apparel and cosmetic products were strong sellers across the District, while previously strong home-related product sales were mixed. Looking forward to summer, most managers anticipate sales will grow modestly in real terms over last year's levels.

Manufacturing
Manufacturers in the Southeast report mixed activity in May following an uptick the previous month. Plant production and the volume of new orders was said to have generally weakened, while materials inventories increased moderately. An increasing number of contacts noted declining employment rolls recently, although most continue to report steady payrolls. Looking ahead. however, reports indicated new orders for export mostly picked up modestly, and the outlook for production, orders, and capital expenditures, reportedly improved.

Auto component suppliers in the region reported a shrinking factory workweek and slowing production because of mixed auto production schedules. Some producers of heavy duty trucks are trimming factory payrolls. Apparel producers continue to report intense competition from both here and abroad, resulting in further layoffs and excessive inventory accumulations. Industrial machine and electrical equipment producers say that markets are weakening following a period of strong growth. More positively, production, orders, and exports are improving for some pulp producers. Building product fabricators and manufacturers of household appliances report that employment is growing, and some plants are running at capacity because of strong markets. Steel mini-mills continue to expand in the region because of increased product demand and capacity constraints. And, a medical equipment manufacturer reports that order backlogs are growing.

Tourism and Business Travel
The tourism and convention sectors continue to boost the region's economy; industry contacts expect an especially strong summer. In central Florida, hotels are experiencing high occupancy rates, and theme parks are posting strong gains in attendance over last year. South Florida tourism officials note a healthy second quarter with modest growth from European and South American markets. Summer advance bookings at south Florida destination resorts are ahead of last year. Gambling revenues in Mississippi continue to grow, rising over 10 percent from a year ago for the first four months of this year. The opening of a new mega-casino in the state, employing 3,600 workers by the end of June, is expected to further boost state revenues. Atlanta's Hartsfield International Airport continues to post double digit gains in passenger traffic compared to last year as the Olympic Games draw near.

Construction
Most real estate contacts reported that single-family home sales were ahead of year-ago levels in May, and existing homes were selling much better than new homes. Builders and Realtors reported that inventory levels are adequate except in Nashville, where inventories remain tight.

Most contacts reported that home prices are stable, however, several indicated that new home prices were on the rise because of increases in both labor and material prices. The sales outlook among District Realtors remained optimistic, while building contacts were more cautious in their outlook for the remainder of the year.

Contacts from across the District report that commercial and multifamily real estate markets continue to improve. Low vacancy rates and higher rents continue to propel new industrial and office development. While most commercial projects continue to be build-to- suit, several speculative developments are underway and more are anticipated this year.

Financial
Contacts in the banking industry described overall loan demand as flat to slightly up in May from April and this period last year. Consumer lending was reported as stronger than last month and steady to slightly stronger than last year. Some strengthening was noted in autos. Commercial lending was said to be constant over both periods. Mortgage lending was flat to slightly up in May over last month and a year ago, with interest rate differentials propelling a general migration from fixed to adjustable rate mortgages. Lenders expect their mortgage activity will fall off during the rest of the year.

Wages and Prices
Contacts again report instances of wage pressures in parts of the region. Some retailers and service sector employers note that the labor supply is tightening, especially for low skill, or entry-level type jobs. In Atlanta, intense demand during the Olympics is raising wages for entry-level and temporary workers this summer.

Contacts report that prices for raw materials and output have increased marginally recently. Material price increases were noted by producers of packaging, plastics, apparel, machinery, and steel. Prices received are increased for producers of pulp wood, plastics, and some metals, according to factory contacts. Further out, material and finished goods prices are generally expected by contacts in the manufacturing sector to escalate moderately.