August 5, 1998
Federal Reserve Districts
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The District's economy seems to have slackened a bit, partly as a result of rising imports and the growing effects of the General Motors strike. Nevertheless, business activity remains strong overall, and labor markets are still unusually tight. Shortages of skilled workers remain a problem at many firms, especially in the communications industry. An electronics firm indicated that labor shortages there have been eased by in-migration from other regions.
Temporary employment agencies in the District report that labor demand has leveled off after several months of rapid growth. Still, the demand for workers remains well above year-ago levels. Moreover, temp agencies report that a high proportion of placements become permanent hires before the standard 90-day contract has expired. Most firms report a small rise in the rate of wage growth, and retention bonuses have become common.
Collective bargaining settlements in the District reveal mixed wage patterns. About half of the union contacts report a slight increase in wage growth from this time last year, while others see wages holding steady.
In Ohio, corn plantings are down 7% from last year, acres planted in soybeans are unchanged, and winter wheat acres harvested increased 6%. Still, corn inventories are 70% above this time last year, soybeans are up 16%, and wheat stocks have risen 156%.
Construction costs are holding steady, with the exception of a slight increase in labor costs and land prices. Cost increases are somewhat higher in central Ohio, where one source indicated that building costs rose 3% to 5% overall during the first half of 1998. A few large construction companies are reported to be buying land in this region in anticipation of future building.
Steel producers report a drop in sales resulting from the GM strike and a record increase in foreign imports. These developments have combined to cause a buildup in steel inventories and to put downward pressure on steel prices.
Sales have also fallen somewhat in the chemical industry. Prices of many products are being driven down and profit margins are said to be narrowing due to increased pressure from Asian competitors. A few companies also report that raw materials prices are decreasing. Some chemicals and plastic producers also report a drop-off in sales due to the GM strike.
The transportation and shipping industry remains very strong. Ports and railroads see increased volumes related to the recent strength in imports. Trucking companies are also reporting an increase in business from year-ago levels. Some firms expressed concern that the impact of the GM strike, whose influence on the industry has been only minor until now, is increasingly being felt in the supplier network.
The furniture category saw modest sales increases, as did home electronics. Strength in the electronics segment came from sales of digital satellite systems, home office equipment, and major appliances. Audio equipment has seen a sales decline.
Inventories for every category of retailer appear to be "on plan." Owing to sales strength and store growth, retail outlets continue to add staff. Most report "no more difficulty than usual" in acquiring personnel. Retail prices remain flat, with the exception of electronics, where prices have been declining.
After posting record sales volumes in June, District auto dealers note a drop in new-car sales in July. GM dealers indicate that inventories have eroded and sales have dropped dramatically as a result. Other dealers, however, remain generally optimistic about continued sales strength. Used vehicle sales have been relatively stable, although prices at auctions are reportedly rising again after many months of decline.
Banking and Finance
Competition for borrowers is still vigorous in the District. The spread between borrowing and lending rates continues to narrow.