October 30, 1996 Federal Reserve Districts Third District - Philadelphia

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Reports from businesses in the Third District during October suggested that the region's economy continued to expand but the pace of growth had eased recently. Manufacturers posted gains in shipments and orders in October, but the improvement was not as widespread as it had been in the summer months. Area industrial firms noted increased prices for some of their purchased inputs but there did not appear to be a general increase in the cost of raw materials. Retailers reported mixed results for early October. Apparel retailers said back-to-school buying carried over from late September into the first few weeks of the month, boosting their year-over-year gains; but, in general, merchants said sales growth was slow. Auto dealers said sales have been steady. Reports from several area banks indicated that growth in consumer lending had eased in the most recent few weeks while commercial lending had picked up slightly. Employers in the Third District have had increasing difficulty finding qualified workers for certain job openings, especially clerical and administrative positions requiring computer skills. In addition, some firms reported that the recent implementation of stricter licensing or qualification standards by governments or industry groups has reduced the pool of qualified applicants for certain manufacturing and other jobs. Manufacturing Manufacturers in the Third District continued to report improvement in October, but accounts of increased business were not as widespread as they had been during the summer months. About one-third of the firms polled said they were seeing gains in shipments and orders in October while about one in five said they were experiencing declines. Among the major industrial sectors in the region, manufacturers of lumber, rubber and plastic products, chemicals, primary metals, and machinery noted improvement; producers of textiles and furniture reported decreased demand. On balance, area industrial firms indicated that order backlogs were edging down. Looking ahead, one-third of the firms contacted said they expect orders to increase over the next six months while one-fourth anticipate further declines. In line with these modest expectations, manufacturers were trimming payrolls. Industrial prices in the region, while mostly steady, have shown some signs of increasing. One-quarter of the firms commenting on prices noted higher costs in the past month for the goods they buy. Most, however, said the cost of raw materials has not increased despite the rise in prices for some other purchased inputs. With regard to the prices of the products they make, three-fourths of the surveyed firms are holding the line; only a few report they have raised prices. Retail Third District retailers gave mixed reports for October, with the overall picture apparently one of modest year-over-year gains. Some department stores and apparel retailers said there appeared to have been some continuing momentum in back-to-school sales in early October, especially for women's and youth apparel and sporting goods. Some merchants pointed out, however, that the increased sales were due in large measure to storewide price cuts during late September and early October. Auto dealers said sales have been steady recently. General Motors dealers expect some slowdown in new vehicle deliveries because of the strike at Canadian plants; this slowdown will result in some lost sales in the last quarter of the year. Several retail executives noted that there appeared to be growing use of cash and debit cards rather than credit cards recently. They speculated that consumers may be starting to limit their buildup of debt and that this may portend slower growth in consumer spending. Finance Banks in the Third District have seen some slowing in the growth of consumer lending recently, and some reported actual declines in outstanding loans. Bankers contacted in October said the easing in consumer lending is due partly to a tightening of credit standards for new credit card customers and partly to reduced borrowing by current customers. Some banks have seen recent increases in borrowing by businesses, especially local companies, while others have just been able to keep outstandings level. Also, some bankers said they were declining to participate in large loans with low margins. On balance, real estate loan volumes at banks in the region have been steady in recent weeks. Labor Demand Employers and employment agencies in the Third District have been reporting increased difficulty in finding qualified entry-level workers despite the large number of applicants for employment openings. A major part of the problem, according to these sources, is that minimal qualifications for many jobs now typically include at least some ability to use computers and computer-based systems. This is especially the case for clerical and administrative jobs, and some employment agencies have initiated training programs to prepare workers for these jobs. Employers note that entry-level clerical workers with this type of training are now being paid 10 to 20 percent more than such workers received just a year ago. Besides clerical workers, employers say there are inadequate numbers of truck drivers, computer programmers and other data processing workers, and skilled trades workers in high-tech manufacturing and construction. Some of these shortages are at least partially due to the recent implementation of higher skills standards for certain manufacturing trades and stricter licensing requirements for truck drivers, both of which have reduced the pool of qualified applicants for these jobs. Where feasible, some employers have established training programs to provide new workers with the required specialized skills, and some are cooperating with educational institutions to develop such programs. Return to top New York Cleveland