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Federal Reserve Districts

Sixth District - Atlanta

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The Southeastern economy continued to post moderate growth into early fall, according to most contacts. Merchants report that sales are up from a year ago, and they are optimistic about the holiday sales season. Home sales and construction weakened slightly, while commercial real estate occupancy levels and building are increasing. Factory activity is mixed, but contacts are positive about long-term prospects. Commercial loan demand is stable, while consumer loan demand varies by location. The tourism and hospitality industry continues to register strong numbers and a bright outlook. Wage pressures are limited to a few industries, even though labor markets remain tight in several parts of the District. The outlook for material and finished product prices over the next few months is for little change, according to most reports.

Consumer Spending
Although most District retailers reported that sales in September exceeded year-ago levels slightly, almost half said that recent sales had not met their expectations. On a year-over-year basis, sales were generally stronger in September than in August. Several retailers attributed the dip in August sales to the unusually early start of schools, which shifted purchases into July. Home-related product sales were strong across much of the District, while apparel sales were decidedly mixed by location. Warm temperatures stalled fall apparel sales in many parts of the District. Looking forward to holiday sales, many merchants are optimistic about the fourth quarter.

Home sales and construction were mixed around the District during August and September. However, both were slightly weaker in September on a year-over-year basis than August. Inventories remain generally in good shape. Realtors indicated that no overbuilding was occurring in their markets. Builders and Realtors expect residential home sales and construction in the remainder of this year to be about unchanged from last year.

District commercial real estate markets remain healthy. Most suburban and central district office markets continue to report rising occupancy levels and rental rates. A good deal of speculative construction is underway. The industrial market is near "equilibrium" throughout much of the District. Despite declining occupancy rates and the presence of concessions in several District markets, multifamily construction remains at high levels.

Although more factory contacts reported some recent slowing in current production, the number expecting production, new orders, and factory payrolls to increase was up significantly. Companies, other than apparel firms, are reportedly responding to strong demand by continuing to invest in high-tech equipment to boost production. Orders are increasing for plywood producers, building products firms, and manufacturers of appliances. Shipyards are operating at 100 percent capacity, and backlogs are increasing because of new contracts. Activity in the oil and gas sector in Louisiana remains strong, and industry experts anticipate that the upturn will continue for a considerable length of time. Some regional military contractors are increasing capital expenditures. Less positively, however, weakness persists in the Southeast's large apparel sector. About 4,700 jobs have been lost by Georgia apparel producers alone over the year. The factory workweek has also recently declined for auto producers. Slower sales have forced some regional auto plants to cut back production shifts.

Tourism and Business Travel
The outlook remains positive in the tourism and hospitality sectors. Room rates are up and hoteliers are excited about advance bookings in central Florida. In south Florida, hotel and motel occupancies reportedly continue to outpace record year-ago levels. Cruise ship vacation demand is up with an unusually high level of bookings and deposits. Capacity has increased substantially. The strengthening dollar, however, is adversely impacting European inbound traffic to Florida. Convention activity is up from a year ago in Atlanta. Attendance and revenues have picked up for some of Mississippi's gaming establishments, indicating that recent declines in casino activity may have been only temporary.

Commercial loan demand has remained stable in the District, while consumer loan demand has slowed in some locations. Mortgage applications are up slightly, and automobile loan demand is flat. Bankruptcies are still problematic, and some slowdown in consumer borrowing has been attributed to the deterioration in consumer balance sheets.

Wages and Prices
Labor shortages continue to be reported in parts of the District, but reports of wage pressures are infrequent. One contact notes that the scarcity of workers is forcing companies to automate their processes as much as possible. Another reports that it will be hard for his company to grow unless the "severe shortage of technical workers" eases. More companies are reportedly getting involved with technical and trade school faculties to focus curriculum thereby increasing the firm's potential labor pool. Contacts note that apparel employees are more concerned about job security than wage increases in light of the closings of a number of mills.

Prices are generally stable. Most contacts report that they are unable to pass increases at the input level on to end users because of competitive factors. In Louisiana, costs in the oil and gas sector are rising notably.

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Last update: October 29, 1997