May 6, 1998 Federal Reserve Districts Fourth District - Cleveland

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Conditions in the Fourth District continue to be strong. Both residential and commercial construction remain healthy throughout the District, with high activity in Columbus and Pittsburgh. District bankers do not detect any extraordinary speculation in the real estate market. Price pressures for goods and services are generally slight. Temporary agencies report great difficulty in finding workers. Metropolitan agencies have a particularly high demand for administrative assistants and other high-end clerical workers, while suburban firms are experiencing a shortage of general laborers. In addition to the traditional want ads, agencies are recruiting at churches, job fairs, colleges, and state employment agencies. All say that wages have risen, with estimated increases ranging from 5% to 20%. Retailers, pressed to find qualified individuals at all skill levels, have changed their incentives and recruiting procedures to attract new employees. Some manufacturers report a long-term problem in hiring people with a strong electronics background. Organized labor is seeing modest increases (averaging about 3% to 3.75%) in annual wage growth for skilled manufacturing and government workers. There have been no increases in employee benefits; in fact, some firms are shifting a larger share of premiums to employees. Job security continues to be a high concern for unions, whose success in obtaining more job security provisions and longer contracts has been mixed. Manufacturing Production has increased, and new orders continue at the high levels of previous months. Inventories may have risen, largely because of a planned effort to balance production with increased demand. Firms report no price pressure in raw materials, with smaller increases than in previous months. Back orders have also increased. Auto suppliers report strong sales, although intense competition for their product is keeping prices low. In general, conditions in the chemical industry are good. Most companies are doing well in year-over-year terms, and they expect sales to continue improving in 1998. Several of them have recently expanded their capacity. Many companies are feeling the effects of the currency crisis in Asia, where aggressive pricing is increasing competition for manufacturers of chemical raw materials, while benefiting companies who use these materials to manufacture more specialized chemicals and plastics. Companies with less exposure to the Asian crisis tend to be more confident about the future. Consumer Spending Overall, March and April sales have been much better than expected. Retailers are optimistic for this quarter, expecting sales to increase 2.5% to 10%. Much of this gain is expected to occur in the "discount stores," because consumers continue to be extremely price conscious. Suppliers' and retailers' prices remain steady, with only one source reporting an increase of 1%. Inventory levels are considered quite satisfactory. March and April sales of vehicles have offset a slight weakness in January and February. Most dealers report a significant year-over-year increase in new vehicle sales. Their supply of key vehicles remains a problem, because sports utility vehicles, pickups, and some minivans are still selling fast, as are used vehicles. As a result of these strong sales, manufacturers' incentives, such as low interest rates or cash back, have tapered off slightly from their previous high levels. Most dealers expect sales in the coming months to be up significantly from the same period last year. Transportation Trucking firms report increased business in March and April after two slow months. Steady growth is expected for 1998, and business has increased on a year-over-year basis. Competition is picking up, making it difficult to raise prices. Agriculture District farmers intend to devote less acreage to corn than last year. There will be little to no change in the land planted in soybeans and tobacco. Unusually warm, wet weather has allowed early sowing of vegetables and other spring crops. There is some concern that standing water may affect the corn crop adversely, but most tobacco is rated good to excellent. Barley and winter wheat are growing well in all District states, and the unusual weather has produced excellent pasture conditions. Banking and Finance District lending activity remains flat for both commercial and consumer loans. Mortgage refinancing continues strong. Consumer loans delinquencies are also flat, with some banks noting improvements, and commercial loan delinquencies are unchanged at low levels. Some small to medium banks in the District believe that recent mergers activity may allow them to acquire a larger share of the small business and consumer loan markets. Return to top Philadelphia Richmond