June 12, 2002
Federal Reserve Districts
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With a few exceptions, economic conditions in the Fourth District during the last half of April and the month of May remained much the same as in the last report. Manufacturing, retail, and banking contacts continued to report mixed conditions, while improvements continued in the trucking and shipping industry.
Unlike the last report, however, commercial construction, an industry that fared surprisingly well during the recession, experienced worsening conditions. On the other hand, the situation in the automotive industry has improved substantially. Area automakers reported that production activity was strong, as did suppliers of raw materials and parts for the industry. Auto-related shipping has expanded as well.
Labor markets showed little change since the last report. Contacts in automobile manufacturing and trucking and shipping reported increases in hours worked, but for the most part, hours remained stable. Demand for temporary labor was flat. Job security continues to be the principal concern of organized labor. As was the case in the last report, very few contacts plan to hire new workers or recall temporarily laid-off workers.
Most prices in the District appear to be holding fairly steady, but health care, insurance, and steel prices were notable exceptions. While in previous reports it was mostly union contacts who mentioned rising health care costs, in this report contacts across industries, including retail, trucking and shipping, and manufacturing, did so. Both construction and trucking and shipping contacts noted large increases in insurance costs. Spot prices for steel were up an average 33 percent in April from the start of the year, but these increases have not completely taken effect in the market. The increases are estimated to affect between 20 and 50 percent of total steel sales.
Automakers in the District reported significant amounts of overtime, with one plant reporting overtime during all seven weeks beginning April 15, two reporting six weeks with overtime activity, and another reporting five weeks with overtime. No plants reported closing during the last half of April or the month of May.
In the steel industry, reports ranged from "fairly strong" to "very slow" activity. In general, steelmakers that supply materials and parts to automakers reported strong conditions; those that supply construction companies reported stable conditions; and those that sell to others reported poor conditions (others include oil, tubular goods, commercial aerospace, and power generation companies). While steel producers still reported excess capacity in the industry, area contacts noted that capacity utilization has increased for most area plants.
Several contacts who have stores located outside the District noted that sales in the Fourth District were generally weaker than sales for the country as a whole.
Area automobile dealers noted that while showroom traffic has slowed considerably from the start of the year, current customers are more likely to purchase a vehicle. On balance, the pace of auto sales in the District slowed in April compared with March, but registered above April 2001 levels. Dealers noted that a large part of the fluctuations in current year-over-year figures are due to high volatility in sales throughout 2001--monthly sales in 2002 have been much more steady.
Commercial builders, on the other hand, noted a significant worsening in activity and outlook since the last report. Many projects that were in the planning stages remain delayed, and some clients have completely cancelled projects. Not only are commercial builders less busy than anticipated, their future prospects also appear to be poor. Contacts noted that work available for bid is attracting at least twice as many bids as usual, and companies are bidding for projects that they would normally not consider because they promise so little in revenue.
The Pittsburgh area is an exception for commercial builders, as activity remains robust there, but reports suggest that the construction boom in the area is nearing an end. Retail projects are becoming more infrequent as a glut of retail space has begun to develop in the area, and some concerns are emerging about the ability of the market to support more apartment space.
Trucking and Shipping
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