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Following significant increases in activity in recent months, the pace of economic
activity appeared to slow in the Fourth District through the eight weeks ending
June. The pace of production increases slowed for most District manufacturers,
though production typically remained above year-ago levels. In the retail sector,
several firms reported that sales gains slowed in the late spring. Residential
builders reported that sales continued to slow as well, especially in the lower-price
part of the market, while business conditions for commercial builders remained
weak. By contrast, District banks continued to report rising commercial loan
demand. Trucking and shipping firms continued to see strong activity.
Input price pressures remained a persistent feature of the economic environment,
with a wide array of metals, energy, and food prices rising in recent weeks.
Few firms reported any significant hiring plans for the remainder of 2004.
The increases in production that were typical throughout the District in the
early part of 2004 appeared to taper off in the eight weeks ending June. Nevertheless,
production for most manufacturers remained above year-ago levels. These trends
were largely the same for both nondurable and durable goods producers. Among
durable goods producers, domestic steel manufacturers continued to report strong
shipment volumes at a time when they would typically expect demand to decline
due to seasonal patterns. In fact, many mills continued to limit the amount
of steel they provide to their contract customers. District auto plants appeared
to see an increase in production levels in the late spring, but these levels
remain below those of a year ago.
Manufacturers typically reported that they were running their plants at or
above normal utilization levels. While capacity utilization rates remained particularly
strong among steel producers, some noted that they continued to be constrained
by shortages of some raw materials. Several durable goods manufacturers reported
that their inventories had risen above acceptable levels. Nondurable goods manufacturers,
by contrast, continued to report that their inventories were at acceptable levels.
Regarding hiring, most firms reported that they had not added additional staff
recently, and several durable goods firms foresaw staff reductions in the months
ahead. Wage rates reportedly remained stable in recent weeks.
In general, input costs continued to increase for manufacturers in May and
June. Prices for various metals, including aluminum and steel, rose further
recently; these prices reportedly remained significantly above their levels
of a year ago. And several food processing firms reported that prices for some
foods increased sharply in recent weeks, including milk, chicken, and beef.
Finally, prices for petroleum-based products also continued to rise. Several
producers reported that they could partially pass these input cost increases
through to their customers.
Several District retailers reported that sales gains slowed in the late spring.
This follows the robust increases in spending that occurred earlier in 2004.
Many contacts attributed the recent sluggishness in sales to unseasonably cool
temperatures throughout the District in the eight weeks ending June. Some also
noted that fewer markdowns might have held consumers back. On a year-over-year
basis, discount stores saw sales gains, while sales at department stores were
typically weaker. Several contacts also indicated that the Midwest has tended
to see slower sales growth recently than other parts of the country.
Retailers reported holding less inventory than at this time last year. While
wage rates remained steady, increases in input costs were more widely reported
than in the recent past. Increases in food prices were especially pronounced
recently, affecting restaurateurs and grocers. Nevertheless, the prices of many
other categories of goods continued to fall, for example, electronics and apparel.
In general, new car sales were sluggish throughout most of the District in
May and June, though sales in northeastern Ohio were reportedly robust during
this period. In addition, several dealers reported that sales of larger vehicles
remained strong despite high gasoline prices.
Reports from residential builders pointed to a further slowing in sales in the
last several weeks. The decline in demand seemed particularly evident in the
lower-price part of the market, which builders view as being more sensitive
to increases in interest rates. Indeed, many builders attributed the recent
slowing in sales to rising mortgage rates and are altering their financing products
accordingly in an attempt to make them more attractive. In contrast to previous
reports, many homebuilders now expect that sales in 2004 will not surpass those
seen in 2003. While input costs are still said to be higher than in the winter
and at this time last year, they have reportedly remained steady in the last
After some signs of improvement in previous months, business conditions for
commercial builders reportedly remained weak through the eight weeks ending
June. One exception was school construction, which continued to be a bright
spot in an otherwise weak environment. It is reported that input costs continued
to rise for commercial builders, especially for items such as steel, lumber,
concrete, and petroleum products. Only a few contacts reported that they could
fully pass input cost increases on to their end consumers.
Loan demand from commercial clients reportedly remained strong in the eight
weeks ending June and has also increased from this time a year ago. District
banks have reported stronger commercial borrowing consistently since the beginning
of this year. By contrast, consumer loan demand was mixed in May and June. Some
institutions continued to report strong residential real estate lending, though
the rate of refinancing activity has continued to slow. Delinquency rates reportedly
remained largely unchanged in recent weeks, and applicant credit quality was
characterized as stable or slightly improving. Contacts reported that their
core deposits had grown both in recent weeks and relative to this time a year
ago. With respect to hiring, some institutions indicated some difficulty finding
qualified entry-level employees, despite an abundance of applicants.
Trucking and Shipping
Contacts from the trucking and shipping industry continued to report robust
conditions in May and June, with shipment volumes rising in recent weeks and
advancing ahead of those from this time a year ago. As has been the case for
some time, demand came from an array of industries. It was reported that requests
to ship steel were especially strong, and foreign shipments of steel were said
to be the strongest in approximately three years. All trucking companies reported
running their fleets near capacity. Several noted that they plan to purchase
trucks to expand their fleets soon, though truck orders can take up to six months
to fill. Input costs continued to be high, with fuel prices fluctuating in recent
weeks but reportedly staying stable on average. Finally, firms reported that
drivers were demanding higher wages recently.