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April 11, 1979
Activity has been rather quiet in the past month, bringing steady but modest growth despite the emergence of potential problems. Except for subcompact car sales, consumer spending gains have been small. Housing markets remain fairly strong but softening. At banks, deposit growth looks a bit better, but loan demand has eased. Steady, solid advances in nonresidential construction have continued. Layoffs and strikes have clouded labor market reports, but the Teamsters' strike has had only limited impact as yet. Inventories appear to be adequate and manageable, although short gasoline supplies have become more visible. Farmers are getting higher prices and are optimistic about the year's prospects.
Growth in retail sales within the District has been moderate and steady. Many retailers indicated that consumer spending is generally satisfactory and may be slightly ahead of spending for the comparable period in 1978. A continued shift in preference for smaller, fuel-efficient automobiles was evident, with very good sales straining supplies of economy cars. One contact reported a tendency for middle-class consumers to trade down to smaller models, while the well-to-do continue to purchase luxury cars.
There's been little change in housing trends of late. Some areas reported a pick-up in mortgage loan demand in March, probably largely seasonal or due to special influences like April 1 changes in local building codes. Apartment construction continues to increase modestly, although some areas have noted apartment vacancies creeping up. In early April, New Orleans made available some $72 million, raised through municipal bonds, to mortgage borrowers at 8 1/4 percent. Estimates of the total amount of tax- free mortgage offerings planned by Louisiana cities range from $500 million to $750 million. Several Florida cities, including Jacksonville, have similar bond issues in the works.
Loan demand, excluding mortgages, has moderated in the most recent weeks. Deposit inflows have strengthened, although demand for six- month money certificates seems to have slowed after the regulatory changes. In Tennessee, with an easing of usury restrictions on the horizon, borrowers are reportedly negotiating eagerly for longer loan maturities.
Nonresidential construction appears to be progressing at a steady pace. Office occupancy rates have continued upward, nudging up rents; construction seems to be well-balanced against reasonable expectations for demand, with most space rented in advance. Land transactions have been very active, with prices strong and even distressed properties now moving. A major Atlanta realtor has experienced no abatement of commercial closings to date, but he sees some hesitation of prospects, definite caution with regard to retail properties, and a potential overhang of warehouse construction. He characterizes credit availability as good and underwriting as "sensible." Some noteworthy industrial announcements have been made in the past few weeks, among them a $150- to $200-million expansion of St. Regis' Pensacola plant and an enormous electric-generating facility in Tennessee. Florida's phosphate producers are moving ahead with ambitious expansion plans, notably the development of uranium extraction capabilities, since the EPA gave them the green light in March.
Recent labor market news has been downbeat, with strikes and layoffs dominating the picture, but the potential for good job growth remains. The latest hard figures, several weeks old, showed only slight overall employment gains. A construction strike, involving 2,500-5,000 workers, has brought a halt to major commercial building projects in south Florida. Georgia-Pacific's Louisville, Mississippi, plant continues to operate despite a lock-out of local workers. Both disputes arose from management's attempts to keep wage increases within the Administration's guidelines. The impact of the Teamsters' strike has been muted by the District's relatively high proportion of nonunion labor in trucking. The two Atlanta-area GM plants are well-supplied with parts, the majority of which are received by rail, and are likely to be stepping up production in coming weeks. Ford's Lakewood, Georgia, LTD plant will remain on a one-week-on, one-week-off schedule until July to reduce inventories and alleviate a parts shortage that pre-dates the Teamsters' strike. While it appears that Georgia will be spared from any major military cutbacks, Florida is likely to be the hardest hit state in the nation, losing more than 5,000 armed forces personnel, if the recent proposals are carried out.
A query of directors regarding inventories revealed no significant problems, either build-ups or shortages, although many expect some if the Teamsters' strike persists much longer. A few bankers reported that they received limited requests for financing of extra inventories just prior to the strike. Retail stocks are generally considered tractable, although Atlanta retailers complain of excesses. Supplies of some steel products remain tight, with lead times extending further.
Tightness of gasoline supplies has become more noticeable but has yet to pose major problems. Temporary outages have been more common, mainly at retail stations (especially Exxon) but also at some distributorships. Many stations have cut back hours and/or begun closing on Sundays. Other rationing schemes being considered by retailers include converting self-serve pumps to full-serve and limiting service to regular customers; some south Florida stations are reportedly issuing IDs for that purpose. Some hoarding of fuels, notably by agricultural and construction firms, has been observed by central Florida directors. On the other hand, the trucking slowdown has reduced sales of gasoline, food, etc., at truck stops.
The Three-Mile Island incident has provoked a great deal of comment on the future of nuclear power in the Southeast; scattered groups of protesters have called for the closing of existing facilities and a halt to construction of new nuclear plants. No concrete steps in that direction have yet come to our attention.
Business is poor in the District's coal industry. Many smaller operators are selling at loss or closing shop. The industry has seen a rather brisk capital expansion and a dramatic rise in regulatory costs in the past few years, while the projected surge in coal demand has not materialized.
In the agricultural sector, prices generally have continued to rise. Beef prices posted a new record last month, and corn and soybean prices remained quite strong. Expanded production dropped poultry and pork prices, however; a "promotional" 10-percent cut in citrus prices looks likely to stick, and industry sources are talking of another reduction within the next few weeks. Crop producers are optimistic, increasing plantings and borrowings. Heavy rains have put plowing slightly behind schedule.
