June 18, 1997 Federal Reserve Districts Fourth District - Cleveland

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Economic activity in the District has been mixed by industry and area, with some weather-related softness noted. The home building season got off to a quick start in March and early April, but construction slowed appreciably in late April and May due to unusually wet weather. Poor weather is blamed for the recent rise in unemployment among construction workers, with many building projects delayed. Still, overall business activity remains strong in most areas, and the jobless rate is extremely low in many parts of the District. Temporary employment agencies continue to have difficulty finding workers in some areas and occupations. Labor shortages are becoming an increasing problem for a variety of skill levels and for seasonal jobs, with the demand for summer workers exceeding the summer influx of students into the workforce. According to several temporary help agencies, the increasing number of marginally qualified workers has translated into higher training and screening costs at some firms. No appreciable change in the rate of wage growth has been noted. Manufacturing District manufacturers are reporting continued high levels of production. Generally, orders growth is similar or slightly higher than earlier in the year, and the orders backlog appears to be holding even or increasing slightly. Export orders growth appears to be especially strong. Some flattening in steel orders is noted, although production is steady at a high level. Demand for capital goods remains strong. Prices are rising for a variety of commodities, and none (with the possible exception of some energy goods) are noted to be falling. Still, manufacturers see little ability to raise finished goods prices. Profit margins are apparently being maintained through continued gains in productivity. Retailing The cool and rainy weather has reportedly dampened retail sales to varying degrees throughout the District. Apparel sales have been notably soft, with the exception of specialty clothing (better sportswear and business casuals), which has sold well. Still, several District chain stores saw May sales rise moderately above last year's level. Retailers are generally satisfied with current inventory stocks, although a few noted slightly higher-than-desired apparel inventories. Personal computer sales dipped in May after a strong April showing. The unseasonably cool weather has hurt air conditioner sales and is also blamed for a small drop in auto sales. Most car dealers indicate that year to date, unit sales are down somewhat from 1996's high levels, and a deterioration in profit margins has been reported. Used car sales have been particularly hard hit, and some dealers have discounted used car prices to wholesale levels. Auto dealers remain somewhat optimistic about sales prospects, although a few anticipate a new round of promotions. New car inventories are reported to be at, or near, their desired levels, with shortages noted in a handful of models. Agriculture The heavy rains and cooler temperatures have not substantially affected District agriculture. Although fieldwork has slowed recently, and some replanting of corn and soybeans has occurred, farmers have had a better-than-average number of days in the field since April, and crop production is generally ahead of schedule. Only winter wheat is noted to be underdeveloped for the season. Tobacco transplanting is lagging slightly. The price of farmland has increased dramatically in some parts of the District--as much as tenfold for certain properties. Sources indicate that these higher prices stem primarily from farmland purchases for real estate development, a pattern that is concentrated around urban areas. The absorption of farmland for real estate development appears to be part of a longer-term pattern of "urban sprawl." Banking and Finance Commercial loan demand remains generally strong, with only a few community banks stating otherwise. Consumer loans are off a bit, reportedly due to higher interest rates and a softer automobile market. Mortgage refinancing has also fallen in the wake of higher interest rates. Consumer delinquencies have declined slightly. However, several bankers continue to note a rise in bankruptcies, and credit standards on credit card debt have been tightened further. Commercial delinquencies remain very low. Competition for borrowers is strong in the District, and bankers report that depositors are moving funds from passbook savings accounts into higher-yielding investments, including money market deposit accounts. Return to top Philadelphia Richmond