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Fourth District--Cleveland

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Reports on economic activity from across the Fourth District were mixed in the eight weeks ending in mid-August. Activity continued to slow in some sectors, while others saw sales and production rebound in recent weeks. For most District manufacturers, production remained well above year-ago levels; however, increases in activity in recent weeks were largely confined to durable goods producers. In the retail sector, sales continued to be weak for most firms. Residential construction also continued to slow somewhat in recent weeks, and nonresidential builders continued to confront weak demand. By contrast, District banks reported steady loan demand from commercial and consumer clients alike, although mortgage refinancings remain weak. The transportation sector continued to report robust rates of activity.

As has been the case for many months, elevated input costs continued to confront firms for items such as steel, food, and petroleum products. Plans to add equipment and employees are still not broad based; however, companies that provide staffing services reported an increase in openings and placements in the last several weeks.


Most durable goods manufacturers reported increases in production in the eight weeks ending in mid-August. On a year-over-year basis, activity remains much improved for most manufacturers. Steel producers continued to see strong shipment volumes, with some firms indicating that the usual summer slowdown in shipments was not as pronounced this year. However, some steel-industry contacts expect demand growth to slacken in the months ahead. District auto production appeared to be down on a year-over-year basis. For nondurable goods producers, production levels were typically reported to be flat for the last few weeks, although above year-ago levels.

While most durable goods manufacturers characterized their inventory levels as acceptable, several nondurable goods manufacturers indicated that their inventory levels were higher than desired. Moreover, while durable goods manufacturers indicated increases in utilization rates, nondurable goods manufacturers noted that their utilization rates were flat or falling slightly. Finally, most durable goods manufacturers expect to add to payrolls and to their capital stock in the next few months; however, nondurable goods manufacturers remained less likely to report plans to expand levels of employment or equipment.

Input costs continued to be a concern for most manufacturers. Prices paid by District manufacturers for petroleum-based products and for steel and other metals reportedly rose further in recent weeks. Food processing firms also again reported increases in the prices for some foods, including milk, chicken, and beef. Durable goods producers reported raising prices to largely offset increases in input costs; however, nondurable goods producers were less able to pass input cost increases along to their consumers.

Retail Sales

District retailers reported weaker spending in July and early August. For most firms, sales in the late spring and throughout the summer have not met expectations. In particular, the back-to-school selling season, which many firms had hoped would revive weak sales, has been disappointing. Firms cited general concerns about the economic environment--including increasing gasoline prices and lackluster labor markets--as a possible reason for recent weakness. However, most contacts also noted that the causes of weakness were far from clear.

Firms reported fewer markdowns, in part from more strictly managed inventories. Compensation costs continued to be a concern for many firms, especially with respect to health care costs. For food-service firms and grocers, higher prices for food products were also reported again. In general, however, other input price pressures remain muted.

New car sales were generally weaker across the District in the eight weeks ending in mid-August. Some contacts cited seasonal factors for the slowdown. After attempts to reduce incentives earlier in the year, incentives are again at high levels. Finally, contacts indicated that inventories are at about a 90-day supply.


In July and early August, the pace of home sales slowed further for District homebuilders. Sales during this period were also below those of the same period a year ago. Unlike in the previous report, the slowing sales pace was reflected across various price points. Some builders suggested that the recent weakness reflected weaker economic conditions in the Midwest and reported stronger home sales for their firms elsewhere in the country. Changes in the cost of materials in recent months were mostly flat, though they remain significantly higher than they were last year. Labor and subcontractor costs were largely unchanged. Overall, builders now expect that total sales in 2004 will be below or equal to those in 2003; however, most builders have not changed their expansion or land-purchase plans.

Most nonresidential building contacts reported a recent slowing in inquiries and activity across nearly all building categories, continuing the pattern of recent months. Whatever improvement was reported appeared to be among smaller-scale projects, which were often industrial in nature. Year-over-year comparisons were more mixed. Contacts generally reported that their materials costs increased in the last six weeks, though less rapidly than earlier this year. Labor and subcontractor costs were generally unchanged, as were the prices charged by commercial contractors. Most firms do not anticipate much change in the economic environment in the months ahead.


Most banks characterized consumer loan demand as steady to slightly increasing for the eight weeks ending in mid-August, despite declining levels of mortgage refinancings. Several smaller banks also reported increases in loan demand from their commercial clients. Changes in core deposits were mixed across institutions, with several smaller institutions reporting flat or falling deposit inflows. Larger banks, however, have been able to increase their deposit inflows in recent weeks. Delinquencies reportedly remain at low levels. While smaller banks plan to keep staffing levels steady, many larger institutions reported plans to add additional personnel in the months ahead.

Trucking and Shipping

Activity in the trucking and shipping services sector continued to be strong in July and early August. Demand continued to come from an array of industries. Strong shipping demand has led to bottlenecks on overland distribution channels, such as roads and railroads, and an increasing use of port facilities. Trucking firms reported having attempted to add to their staffs, but continued to confront high turnover rates. Most also plan to purchase trucks to expand their fleets soon. While fuel prices reached historical highs in recent weeks, contacts reported that they could pass these increases through to their customers using surcharges.

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Last update: September 8, 2004