March 7, 2001
Federal Reserve Districts
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Economic activity in the Fourth District remains weak overall, but the landscape is mixed, with some sectors weathering the slowdown better than others. Roughly speaking, sectors tied directly to households, such as retail sales and residential construction, appear to be holding up better than heavy industry, such as steel and capital equipment. While there have been some layoffs, mainly in manufacturing, most households have yet to feel directly the effects of the slowdown; the unemployment rate remains relatively low, and wage growth has generally continued along last year's trends.
A survey of metal forming manufacturers revealed that most (61 percent ) expect their business to decline over the next three months. About a third have laid off workers or have put their plants on short time. They also reported that the number of customers who pay less promptly has increased, from 15-20 percent in the first half of 2000 to 39 percent currently.
The steel industry continues to suffer from both weak orders and over supply. Contacts do not expect steel prices to rebound this year given weak demand, high inventories, and strong competition from foreign imports. While steel producers are getting more orders than at the end of 2000, orders currently remain well below levels reached this time last year.
Over the first seven weeks of 2001, District sales of new vehicles were steady, but a little below expectations. Moreover, all area auto dealers reported that sales were up from the end of last year when sales were weak. The dealers offering aggressive incentives programs reported the strongest sales. Improved weather also was credited for boosting sales over December's level. Dealers still reported that fewer customers are coming into the showrooms than in the first nine months of last year. Most dealers reported inventory positions at or in excess of 75-days of sales; levels around 60-days are typically preferred. Used vehicles sales have been surprisingly strong recently.
Organized labor contacts reported virtually no change in the rate of wage growth in current contracts, with the notable exception of the public sector. So far in the first quarter--a particularly heavy renegotiation period for public sector workers--wage growth averaged 3.8 percent compared to 3.5 percent in the last quarter of 2000.
Residential builders are cautiously optimistic about their prospects in 2001. For the year so far, most reported steady sales. Buyers seem to see the current circumstance as a buying opportunity, in part because of lower interest rates. Homebuilders, nevertheless, remain guarded, concerned that the current economic uncertainty could soon spill over into the sector.
Cost pressures remain muted for both commercial and residential builders. In particular, drywall costs are down, and lumber prices are at an 18-month low. Labor also appears to be more plentiful, with the labor shortages of last summer reportedly a thing of the past.
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