Today the Atlanta Federal Reserve Bank announced the results of its January survey of southeastern manufacturers. The Atlanta bank serves the Federal Reserve Sixth District which includes Georgia, Florida, Alabama, and parts of Mississippi, Louisiana, and Tennessee.

In addition to assessing conditions in the district, the Atlanta Fed also polls local manufacturers on their perceptions of nationwide conditions in their industries. One of the products of this "national" survey is the bank's National Production Index. For January, this Index stood at -12.3: a weak showing, but significantly improved over last month's reading of -23.5.

For the Sixth District, the production index rose from -7.0 to +3.6. The New Orders Index was less negative, rising from -12.6 in December to -7.0 in January. The Finished Goods Inventories Index improved from 0.4 to 4.4.

Regardless of evidence of marginal improvement between December and January, the survey respondents were generally less optimistic about prospects for the manufacturing sector during the next six months. The Output Expectations Index fell from +31.1 in December to +17.3 in January, not much higher than the historical low of 16.7 registered last March. Expectations for new orders, shipments, inventories, and employment all fell in this month's survey. And, the expectation indexes for prices paid and prices received both dropped to all-time lows.

So, even though today's survey shows that month-over-month conditions have improved slightly, southeastern manufacturers are not confident that improvements will continue.

Further North, the Labor Department reported today that during 1995 employment costs rose 2.9%, the lowest yearly rise since 1982 when this statistic was first calculated. The table below shows the year-to-year percentage growth in total compensation for the past 9 years. Note that the rate has decreased steadily from a value of 5.0% in 1989 to the 1995 rate of just 2.9%

Percent changes in Employment Compensation
Percent change, 12 months ended in December

1987 1988 1989 1990 1991 1992 1993 1994 1995
 3.6 4.9  5.0  4.9  4.3  3.5  3.5  3.0  2.9

Wage, salary, and benefit costs account for about 2/3 of the cost of production of goods and services. So, any way that employers can lower compensation costs will contribute directly to lower prices for their products and/or greater profits. In recent years employment compensation cuts have taken the form of reduced wage increases, reduced retirement and health care benefits, and outright firing of employees.

But, employers need to keep another 2/3 factor in mind when they are concocting their grand schemes to lower employee compensation costs. And, this is the 2/3 of all the nation's economic activity that is attributable to consumer expenditures -- people buying stuff. In recent years, if you gave a U.S. wage earner an after-tax buck, on average he or she would spend about 96 cents of that buck on some kind of goods or services. But, if you take away that wage earner's job, or make it harder and harder for that wage earner to eke out an existence from his or her wages, then that wage earner is going to spend less and less money.

All you need to do is look at today's economic indicators to see all this happening. Employment compensation growth is decreasing. Price rises have been low. Profits are up in some sectors of the economy. But, you just have to look at the rotten retail sales during the past holiday season to see that people aren't buying stuff like they used to.

What's next? Well, we know it can't be more and more of the same. The data in the table above suggests that the slowing of growth in compensation may be leveling off. Maybe we're really slipping into an extended era of slow, steady economic growth -- a soft landing -- yeah... a soft landing. That's the ticket.

Byline: Lafferty (MF Merlin)