January 21, 1998
Federal Reserve Districts
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District business conditions remain strong overall. While labor markets are reported to be "tight," no broadly based acceleration in wages has been seen.
Employment agencies witnessed solid growth last year, with some firms posting placement gains of 30% from 1996. Computer programmers, as well as light industrial and construction workers, remain in high demand. In Kentucky, a good tobacco harvest has produced an unseasonably large rise in farm labor. One employment agency indicated increased demand for human resource personnel, as businesses have stepped up their recruiting efforts. The agencies also note a small rise in wages.
Organized labor is reporting yearly wage growth of about 3%, and a majority of respondents anticipate little change in this trend during the current year. Increased competition from abroad and low inflation are cited as factors restraining unions' ability to press for larger wage hikes.
Construction in the District remains active in most areas. In Cleveland, all segments of the market—industrial, commercial, and public—showed strength in the fourth quarter. Stable material and labor costs have helped keep the rise in construction expenses moderate.
Contacts in the transportation and shipping industries report good growth in 1997, and some have noted record gains. International shipments have been a source of rapid expansion in recent years, and this pattern continued in 1997. The Asian financial crisis appears to have had little measurable impact on the industry thus far.
Area manufacturers with Asian ties report a plunge in orders and foreign production activity. Adversely affected have been a few large capital goods makers and motor vehicle suppliers. Some "collateral" weakness from suppliers to the aerospace industry has also been noted. Overall, though, the direct impact of the Asian slowdown on the local economy appears to be limited.
Slight upward pressure on some industrial commodity prices is seen, most notably for paper products, but price increases remain modest overall. No significant materials shortages are noted, although concerns about labor availability continue to be heard.
All respondents conceded that, while early December sales were slow, consumer spending rebounded sharply during the two weeks prior to the Christmas holiday. A small majority of respondents indicated that overall sales for the month exceeded expectations, and some reported gains of as much as 5% from last year. Selling especially well during the holiday shopping season were electronics, housewares, and jewelry. Apparel sales were soft, and mild weather appears to have hampered sales of some seasonal items.
Retailers indicate that promotions remained "aggressive" throughout the holiday period. Although modest price hikes were noted at some smaller mail-order firms, most retailers said that price pressures remained light. Inventories now appear near desired levels, although some reports of excess stocks are noted at department stores.
Sales of new vehicles during December remained somewhat soft for cars, but steady to strong for minivans, sport utility vehicles, and small trucks. As a result, new car inventories are generally heavy. High rebates at the end of the 1997 model year are blamed for the recent sales slump.
Banking and Finance
The spread between borrowing and lending rates is narrowing, and competition in the commercial loan market is especially intense. Overall, though, credit standards are said to be holding steady.