November 4, 1998 Federal Reserve Districts Fourth District - Cleveland

Skip to content Summary Districts Boston New York Philadelphia Cleveland Richmond Atlanta Chicago St. Louis Minneapolis Kansas City Dallas San Francisco Full report

Business activity in the District remains good overall, although a softening in the industrial sector has been seen. Price increases are still slight, despite reports of a continued acceleration in wage growth. Temporary employment agencies in the District report labor shortages in practically all occupations. In the District's southern regions, many customer service and general labor jobs remain unfilled, while in the northern regions, skilled industrial workers are in short supply. In an attempt to fill vacant positions, employers have increased wages and shown some flexibility in work hours: Every agency surveyed indicates at least one upward wage adjustment in the past three months, mostly in the 3% to 4% range. A few agencies report that employers have become more willing to negotiate hours with potential employees. Union sources also report a shortage of skilled workers, although wage growth in this sector is thought to have been traded off for greater job security in response to increased outsourcing of jobs to foreign locations. Moreover, several contacts note a move toward longer-term contracts, some as long as 5 years. Agriculture Favorable weather conditions during the harvest season have benefited the District's agricultural sector. Crop production is generally above last year's high levels, and crop quality is good. However, crop inventories, including corn, soybeans, and wheat, are up substantially from this time last year; wheat stocks in particular are reported to be at their highest level in several decades. As a result, the prices of virtually all the District's major crops have dropped sharply since a year ago. Tobacco production in the District is expected to be down about 5% from last year and the crop's quality has declined somewhat. Business Activity Reports from the construction industry indicate brisk activity, especially in central Ohio. Building materials costs remain flat, but a further run-up in land prices has been noted, mostly in the central Ohio region where speculative construction activity is also seen. District builders indicate a tight labor market for skilled craftsmen, such as carpenters, and a slight increase in wages. Industrial activity has been moderating, especially in materials areas such as steel, where a drop-off in exports and a surge in imports has put downward pressure on prices. Sales at chemical companies have been flat or slightly down from last year. Several of the region's chemical companies are being adversely affected by economic weakness in Asia, which has reportedly produced worldwide overcapacity for the industry. Prices in this industry are generally holding steady, however. Capital goods producers note a recent slowing in the growth rate of orders and production. Still, business activity in this sector remains good and domestic demand is strong. Heavy-truck manufacturing shows continued vigorous growth in orders and production. Backlogs in this industry remain at historical highs. Auto-related production is also advancing at a pace that is rated good or higher. However, a flattening in construction equipment orders has been observed and agricultural equipment manufacturing has seen a sharp fall-off in orders and production. International freight companies report a huge backlog of goods waiting to be shipped out of Asia. Moreover, shipping companies note little demand from abroad, and the shipment of empty containers back to Asia has prompted surcharges on some Asian shipments. Similar accounts come from the domestic transportation industry. A contact in the railroad industry reported a recent increase in container traffic traveling by rail and greater numbers of empty containers moving west. Consumer Spending After a slow September, the District's retail sector has shown strength in October, up between 3% and 5% over the same sales period last year. Moreover, national retailers indicate that spending in the Fourth District has exceeded U.S. averages. Sales of seasonal items, electronics, housewares, and furniture have been especially improved between months. Retail inventories are said to be "on plan," with sales projections and prices holding about even. As retail outlets add staff in preparation for the holiday shopping season, many report worse-than-normal trouble finding workers. Auto dealers say that September sales of new vehicles were up from August and remained at or above their September 1997 pace. However, special dealer incentives may be contributing to recent sales strength. Banking and Finance Demand for consumer loans has softened since the last District report, although mortgage refinancing activity is still high and there has been a significant increase in demand for commercial loans. Delinquencies remain flat in virtually every loan category. A few banks report a slightly wider spread between borrowing and lending rates, although none report any change in lending attitudes. Nonbank credit, however, is thought to have become more scarce since August. In particular, liquidity in the high-yield credit market has "dried up." This development is reported to have made it more difficult for firms to finance certain mergers and acquisitions, pushing some borrowers to equity-related financing. Return to top Philadelphia Richmond