The Southeast, a bastion of prosperity during every recent recession in the United States except for the one in 1974-75, suddenly is taking an economic beating.
This abrupt -- and according to some, unexpected -- development in the eastern half of the Sun Belt is an important indication of how severe the 1980 recession might be.
"We hear every day about how hard Detroit and other industrial cities of the Northeast and Midwest are being hit," Charles J. Hulk, an economist at the Federal Reserve Bank of Altanta. Conversley "the people in the Southwest and West argue that, although they might slow down, they won't show an actual income decline. Their performance in the 1974-75 recession -- and the strength of their aerospace industry -- gives credence to that assertion."
Haulk and other forecasters have had little difficulty predicting how the Northeast, Midwest and West would hold up during the recession. But the economic performance of other regions -- including the Southeast -- has been far less predictable.
Lacking any concrete evidence to the contrary, many economists were inclined to predict that the Southeast once again would bull its way through, based on the region's historic pattern and steps in had taken to correct some employment imbalances obvious during the 1974 recession, Haulk recalled.
Last month, however, it became clear that those forecasts were overly optimistic. As a result, some economists, including Georgia State University's Donald Ratajczak, have revised their forecasts for the nation as a whole. Ratajczak, who had expected the national unemployment rate to rise to 8 percent, now predicts that it won't stabilize before reaching 9 percent.
In North Carolina, Charlotte banker G. D. Carrier Jr. recalled his surprise several months ago when a vistor from Ohio mentioned that the Midwest's economy was deep into a recession. "Back then, we were't seeing it at all here," Carrier said. "Later on, we say it but were still trailing the Midwest in depth and severity. But now we're not far behind if we're behind at all."
His observation is supported by dozens of economic statics.
In March, Georgia's leading indicatiors plunged 0.7 percent, the steepest monthly decline in the index since January 1975. In Florida, Arvida Corp., a leading builder of houses and condominiums, has experienced a 70 percent decline in sales so far this year.
Home constructions has plummeted sapping the strength of southeastern lumber mills, building supply manufacturers and furniture makers, many of whom hadn't recovered fully yet from the last bout with recession.
More than a dozen plywood mills in Georgia, Alabama, Louisiana and the Carolinas have closed their doors this year, according to the American Plywood Association, and nearly a dozen others have curtailed productin by 40 percent or more, throwing 5,000 employes out of work
Housing starts are down 60 percent from a year ago in some areas of the Southeast compared with a 40 percent decline for the nation as a whole.
Hundreds of southeastern apparel and carpet workers have been laid off. Automotive component manufacturers -- many with new plants in the Southeast -- are feeling the pinch as auto sales continue to slump. And two-thirds of Florida's savings and loan assocations reportedly were operating in the red during first quarter.
This region's economy is still heavily dependent upon construction and manufacturing despite diversification moves since 1975, and it appears to have deteriorated more rapidly than most. Nevertheless economists widely predict that it will be spared the punishment it took during the 1974-75 recession.
"Hog farmers are dying on the vine. Lumber is getting killed. The mobile home industry is showing a definite weakness. So is the carpet industry. And March residential building permits (in Georgia) were down 60 percent," observed Ratajczak director of the Economic forecasting Project at Georgia State.
"I'm a little nervous about it," Ratajczak continued. 'But it's awfully hard to see 1974-75 revisited," in the Southeast.
Not only is the southeastern economy better balanced than it was five years ago, but leaders and builders have taken precautions to avoid the mistakes that led to widespread overbuilding in 1974, he noted.
For these reasons, Ratajczak looks for the Southeast to be back on the road to recovery three to six months before the rest of the nation. By his timetable, that means the region could rally in the fourth quarter.
Even the Southeast's most boisterous boosters now have spurned the nation that the region will emerge from the recession unscathed. What remains is widespread disagreement among economista and business leaders over the Southeast's ability to weather the recession of 1980 better than other regions.
"We'd be the worst damn Pollyannas to come down the pike if we said there wasn't going to be a recession in Florida," said Thomas Walker, an economist for Miami's Southeast First Natinal Bank.
But Walker added, "I'm afraid we've all been seduced down here into thinking that maybe we're going to withstand this better than anybody else. I don't know if we will . . ."
Halk offered one of the grimmest views. Noting that the region's durable-goods composition has risen since 1975 and that durables always are among the first economic sectors to suffer in a recession, Haulk said, "I've never given much credence tot he idea we can do better than the rest of the country during a recession."
Particularly if the national slump is deep and long, as many economists now fear, the Southeast's downturn could be equally severe, Haulk predicted.
Despite his view that Georgia and the Southeast as a whole are suffering more than most regions at the moment, Ratajczak expects the Southeast's unemployment rate to stabilize at between 7.5 percent and 7.9 percent by the fourth quarter, well below the 9 percent level he projects for the nation.
Far rosier is the view expressed by Raymond D. La Combe, an economist at Miami's ameriFirst Federal Savings and Loan. Preparing for a slowdown, not a recession, La Combe contends that "recession-proof transfer payments" will help cushion the economy of south Florida. Transfer payments -- unearned income such as Social Security payments and interests and dividend income -- account for about 40 percent of all personal income generated in south Florida.
Carrier of First Union National Bank in Charlotte also remains optimistic about the Southeast's ability to weather the economic storm. Florida and North Carolina, particularly, should remain buoyant, largely because of the seady influx of new business and new residents into the two states, he predicted.
To be sure, there are pockets of strength in the Southeast. Miami, flush with foreign capital, migrants and immigrants, and Atlanta, traditionally a bellwether of the southeastern economy, are the two mentioned most fre quently, although Atlanta's construction activity is falling even more rapidly than in 1974.
Southern Louisiana, rich in oil and natural gas deposits, is considered a third, although Haulk said Louisiana "will know they're in a recession before this one's over."
Largely because of a high concentration of cyclical durables, however, Alabama has been fighting a losing battle with the economy for six months, said Bruce L. Williams, an economist at Frist National Bank of Atlanta. Employment there has fallen sharply in most sectors, and population growth has stalled.
In Georgia, seven of the state's eight leading indicators fell in March, narrowly escaping a record decline only because nonresidential construction contracts continued to grow, ratajczak said.
But while residential construction is being clobbered in most southeastern cities, commercial construction is holding its own. Tourism shows no signs of weakening. Textile and apparel employment, while declining slightly in some southeastern states, improved slightly in North Carolina in the first quarter. Furniture sales, important to North Carolina's economy, have softened on the lower end but are inching up on the top end of the market. Jobless rates are climbing through the region but remain well below their 1975 levels.
"Maybe we didn't participate in the expansion (after the 1974-75 recession)," said Alfred G Smith III, senior vice president of North Carolina National Bank. "But we seem to be suffering less (now) as a result."
Smith's observation that the Southeast has taken a more conservative business approach in the wake of the hard-hitting 1974 recession is well documented.
Although one in every 10 southeasterners still is employed by the construction industry, employment in the building trades never returned to its pre-1974 level. The excess was absorbed by the region's fast-growing electronics, machinery and other hightechnology manufacturing industries.
Neither has this region returned to what the Fed's Haulk calls the "euphoric overbuilding" that characterized the Southeast in the early 1970s. Housing inventories are lean here, economists said.
Additionally, bankers have adopted more cautious leading practices. Charlotte's First Union National Bank, for example, has only $85 million worth of construction and land development loans in its portfolio today, down from $250 million in 1973.
Miami's import-export business grew to $20 billion last year, and Walker of Southeast First National bank estimates that it will grow by 20 percent again this year regardless of the U.S. economy's behavior.
Harder to predict is the influence of illegal funds and foregin "flight money" on south Florida's economy.