September 16, 1998
Federal Reserve Districts
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Business activity in the District remains strong, and prices are generally flat or falling across a broad range of goods. Still, wage growth appears to have increased from earlier in the year.
Temporary employment agencies report increased wages and an uptick in labor demand following a short leveling-off period. Office workers, customer service representatives, and general laborers are in high demand. Many firms, especially in the southern part of the District, report wage hikes by as much as 20% from a year ago, with much of the increase coming in the past few months. Even with the higher wages, agencies are having a difficult time filling positions. Some union sources indicated a pickup in wage growth to about 4%; others see wages growing at their longer-term trend rate of about 3%.
District corn production is expected to be slightly better than last year's high levels, despite a drop in acreage planted. Corn conditions are also comparable to those of 1997, with a relatively high proportion of the crop rated good-to-excellent. Similar yields and conditions are reported for the District's soybean crop.
Dry late-summer weather has favored Kentucky's tobacco crop, 56% of which is now rated in good-to-excellent condition, compared to 38% at this time last year. Farmers are also anticipating above average tobacco yields, although there is growing concern about finding adequate labor to cut and house this year's crop.
The costs of construction projects show some upward pressure. In Central Ohio, land prices are reported to have risen somewhat, while other locations indicate a slight upward tilt to wage growth. Indeed, tight labor markets continue to be a concern in this industry. Some reports indicated that a growing number of contractors from neighboring states have been bidding on jobs in Ohio and bringing in out-of-state crews with increasing regularity.
Chemical producers report that, although sales are up slightly from earlier in the year, they were still lower than expected, perhaps due to increased competition from foreign producers. Chemical prices remain flat but some firms have been having a little more difficulty in finding skilled workers.
The transportation industry is still growing, although somewhat less strongly than earlier in the year. Prices have been stable and there has been no more than the usual difficulty in hiring additional workers. District railroads are reporting a good recovery after the GM strike.
Retail inventories are said to be "on plan" with sales projections, and there is no clear indication of price alterations. Owing to sales strength and anticipation of the upcoming holiday season, retail outlets continue to add staff. Many are having trouble finding workers, however, and this may have begun to put upward pressure on wages in some cases.
Auto dealers reported strong sales through August. An exception to this rule is the GM dealers; The UAW strike left them with a shortage of vehicles. In general, the strong August sales caught dealers a bit off-guard which resulted in thin inventories.
Banking and Finance
Competition for borrowers is still fierce, and the spread between borrowing and lending remains narrow. One source indicated that deposit inflows have improved a bit as investors move funds out of equity markets.