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Federal Reserve Districts

Fourth District--Cleveland

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Economic activity in the Fourth District grew at a modest pace since mid February. Manufacturing was stable to increasing with District auto assembly plants--domestic and foreign--reporting increased production. Activity in commercial construction held steady while new home sales remain at low levels. Retailers, including auto dealers, saw a pick-up in sales during March after a disappointing February. Loan demand at banks improved slightly while credit quality remained strong. Energy-related activity was mixed. And demand for trucking and shipping services showed a slight uptick.

On net, reports point to a slight increase in employment levels across the District. Staffing firms reported positive trends in job openings over the past six weeks and on a year-over-year basis; however, the number of job seekers appears to have declined year-over-year. Although openings are found across all industries, the greatest demand was seen in health care, IT, and accounting. With the exception of energy-related businesses, wage pressures are largely contained. Most manufacturers, commercial builders, and coal producers reported that input prices, especially for metals, are rising.


District manufacturers reported production levels were stable to increasing during the past six weeks and on a year-over-year basis. Top performers were found in air transportation, fabricated metals, chemicals, and food processing. Looking forward, almost all our contacts anticipate production remaining at current levels or increasing. District auto assembly plants reported increased production during March with increases evenly distributed between domestic and foreign brands. On net, auto production decreased slightly on a year-over-year basis-foreign brands showed an increase while domestic makers reduced production. A majority of our steel contacts report shipments have strengthened during the past six weeks and expect moderate growth to continue for the remainder of the second quarter. Stronger markets include commercial construction, machinery, aircraft, and ethanol production.

Almost all manufacturers reported that capital expenditures were on plan since mid February with more than half of the respondents saying they plan to increase spending in the next 12 months. Of this latter group, several are planning aggressive expenditures which will include plant expansions; however, some spending will be outside the District or country. A majority of producers reported a rise in input prices--particularly for metals--over the past six weeks. Several attributed the increase to global demand. In response, about half of our contacts said they increased their prices or used surcharges to pass through increased costs. Most were successful except in the auto and housing markets. About a third of our contacts reported a small increase in employment during the past six weeks including some who recalled laid-off workers. Hiring in the near future is expected to be slow with only a third saying they plan to add workers. Wage pressures are largely contained.


New home sales over the past six weeks were reportedly stable--but at low levels--and down on a year-over-year basis. Looking forward, most residential contractors expect activity in 2007 will be similar to the second half of 2006 and don't foresee an uptick until late 2007 at the earliest. Even though real estate markets show rising inventories, prices and sales activity of existing homes continues to hold up across several District markets. New home prices continue to be relatively high when compared to existing homes. Material costs are holding steady for the most part with a majority of contacts reporting a decline in lumber prices.

Activity among the District's commercial contractors has been steady since mid February and increasing on a year-over-year basis. Segments showing strong activity include health care, public works, and manufacturing. Backlogs are stable to increasing. All contractors reported moderate price increases for building materials-especially steel; however, most builders held their prices steady. On net, there has been a slight increase in employment levels over the past six weeks due to increased demand.


District retailers reported an uptick in sales for March after a disappointing February; however, most contacts said activity was below plan. Looking forward, all retailers expect sales to increase during the second quarter. In general, supplier prices and other input costs have remained steady over the past six weeks. New car sales showed improvement on a month-over-month basis with several contacts citing better weather as the reason for the uptick. In addition, many dealers report they now have better products to sell. Improved sales were seen in both domestic and foreign brands. Retail hiring continues to be limited to new store openings and turnover. Reported wage pressures were limited to in-store pharmacists.


Since mid February loan demand has been flat to slightly up. On the commercial side, real estate projects accounted for many loans. Several bankers noted an increasing demand for auto loans. The market for mortgage products was mixed with two contacts reporting increased volume during March, mainly for new activity versus refinancing. Bankers located in larger markets said they have recently tightened mortgage credit standards. Almost all contacts report no change in credit quality and delinquencies were stable or declining.


Coal production decreased during the past six weeks and on a year-over-year basis while oil & gas production was flat to increasing. In general, spot prices for oil, natural gas, and coal have remained flat or declined since the beginning of the year. All our contacts said that capital spending remains on plan with little change anticipated during the next few months. Oil & gas producers reported modest hiring since January whereas some layoffs have occurred in the coal industry with more anticipated. Most energy producers are experiencing wage pressures. Alternative energy representatives continue to see growth in advanced energy technologies-especially solar and wind power.


Although overall demand for trucking and shipping services remains soft, half our contacts reported a slight uptick since mid-February. Opinions on capital spending were mixed; however, a majority said that spending will be lower on a year-over-year basis-many companies pushed up purchasing timetables for truck engines to 2006 due to new EPA regulations that went into effect January 1. Wages were flat during the past six weeks. On net, employment was steady with hiring attributable to driver turnover.

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Last update: April 25, 2007