August 6, 1997 Federal Reserve Districts Fourth District - Cleveland

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Business activity in the District is expanding amid extremely low levels of joblessness and modest wage and price increases. A growing number of counties scattered around Ohio and northern Kentucky report unemployment rates under 3� percent. In eastern Pennsylvania, where unemployment is somewhat higher than elsewhere in the District, labor markets are strengthening. Demand for temporary workers continues to rise, but at a more moderate pace than earlier in the year. Temporary employment agencies are having difficulty attracting and retaining a variety of workers, including experienced secretaries and personnel with computer skills. Many firms are addressing the shortfall of skilled workers through internal training programs. No respondents reported accelerated wage growth. Construction activity is vigorous, with housing, commercial, and road and highway building all improved from the spring. A shortage of bricklayers is noted. Manufacturing District manufacturers report favorable business activity. New orders in the steel industry have moderated since the previous District report, and imports have made inroads into the domestic market. Still, the industry's production is at a good level and inventories are only slightly higher than earlier in the year. Capital goods makers report similar trends, as a recent leveling off in orders has occurred at a very high level of production. The heavy truck industry is operating near capacity, with a backlog that extends through the end of the year. A UAW work stoppage at a major Michigan auto facility did not affect any of the Fourth District's major auto plants. No significant price increases or materials shortages were observed, but several firms indicated difficulty hiring engineers, and employment agencies reported trouble finding workers for light industrial jobs and filling skilled positions such as welders. Retailing A cool, wet spring dampened retail sales, but consumer spending recovered in June, with many District retailers posting year-to-year gains of about 5 percent. Area retailers expect that, for the year as a whole, receipts will be modestly improved from 1996. Some seasonal softness is noted for children's apparel, which is anticipated to pick up as the school year approaches. Retailers report strength in shoe sales. District contacts are satisfied with inventory levels and say that price increases by suppliers have been light. Auto dealers report that sales have slowed from the exceptional pace of the previous two years, and imports have recently begun to outperform domestic brands. Dealers, who indicate that competition has reduced prices and increased promotional costs on a wide variety of models, see profit margins narrowing. New car inventories are said to be "cautiously lean," with the usual shortages of a few popular models. Used car sales remain weak, however, and a few dealers indicated deep price discounts on used vehicles. Agriculture District agricultural conditions vary substantially by region and commodity. Crops in central Ohio appear to be only a week behind schedule, and good harvests are anticipated for corn and soybeans. However, the wet spring and dry summer have hampered development of Kentucky's tobacco crop. As of mid-July, only 21 percent of the crop was rated as good to excellent, while 43 percent was fair. Moreover, hot, dry weather has caused 77 percent of Pennsylvania's corn to be rated as very poor to fair, and farmers in that region report that the corn fields are much in need of moisture as they enter the critical pollination period. Spring flooding affected strawberry farmers in southern Ohio and northern Kentucky, and an estimated one-third of the crop has been lost. Cold weather this spring has adversely affected the District's tree fruit industry. Banking and Finance Commercial loan demand remains strong, with only a few banks reporting otherwise. Consumer loans and mortgage refinancing has rebounded slightly since the previous District report, and some of this improvement has been attributed to lower interest rates. Consumer delinquencies have increased slightly, but most respondents are hopeful that consumers' credit situation is improving. Still, banks indicated a further tightening of consumer credit standards, and credit card debt is still a concern at some institutions. Commercial delinquencies remain low. Bankers indicate that the spread between borrowing and lending rates remains narrow, and a few are considering alternatives to traditional lending, such as investment banking and insurance, to help bolster profits. Return to top Philadelphia Richmond