August 8, 2001
Federal Reserve Districts
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The Fourth District economy continues to move laterally, with large gains in a few areas offsetting modest declines in many sectors. Weakness in the region remains centered in manufacturing, although industrial softness has begun to exert downward pressure on other industries, such as shipping and construction.
Unemployment remains low, although District labor markets have loosened considerably this year and wage growth is reported to have moderated. Demand for temporary workers is off 10 percent to 15 percent from the levels seen in May and June. This falloff, combined with a seasonal increase in students seeking summer work, has created an excess supply of temporary workers.
Elsewhere in manufacturing, orders, production, and employment have shown little overall growth and overtime at many firms has been cut. Sources are not optimistic that industrial activity will improve soon; accordingly, capital outlays in manufacturing are well below levels seen a year ago.
Aggressive manufacturer incentives helped to bolster sales at District auto dealers in June -- the highest month on record for many dealers. Year-to-date sales (through June) appear reasonably strong, and dealer profits are on the rise. Still, sales activity appears to have peaked in June as the effectiveness of pricing programs waned. In general, auto sales were down between June and July, and additional price discounts are expected in August as manufacturers prepare inventories for the new model year.
Most commercial construction categories report weakness. Demand for office space, for example, seems to have dropped dramatically, particularly in central Ohio. Demand for retail and industrial space has fallen across the District, and vacancy rates for commercial building segments continue to rise. According to one source, the low level of new construction inquiries suggests that improvement in this sector is not imminent.
Overall, materials prices are said to be stable, although lumber prices have fluctuated widely and drywall prices have fallen further. Labor availability is mixed by trade: Unskilled workers are in ample supply, but shortages of framers, roofers, and masons have been reported.
Trucking and Shipping
Fuel costs have dropped substantially since the last District report, leading to a reduction in energy-associated surcharges by shipping companies.
Still, farmers appear to be faring better financially than last year at this time: Some have been able to make capital improvements to their farms this year, and very few banks report delinquencies on loans to farmers.
There has been no significant change in the rate of loan delinquencies at District banks. Some bankers are concerned that recent increases in layoffs will pinch household liquidity. The spread between lending and deposit rates has widened slightly.