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General Business Conditions and Labor Markets
Growth in economic activity in the Fourth District is moderately strong. Labor markets remain tight in some highly skilled occupations, although residential construction is experiencing layoffs. The price of steel is declining, and other non-energy producer prices are steady. Export markets for District manufactured goods are expanding, especially in Asia.
Demand for temporary workers has eased from the high levels of last quarter, consistent with a typical seasonal slowdown. Demand decreased most for manufacturing positions but increased slightly for clerical workers. The overall supply of workers has increased due to the seasonal availability of students. Agencies currently see no need to increase wages. Increasingly, firms are hiring higher-skilled workers from the temporary agencies in hopes of finding permanent employees. All contacts expect demand for labor to increase steadily through the end of the year, with the market becoming especially tight when college students return to school in the fall.
In contrast, contacts within the retail sector continue to experience difficulty in finding qualified employees, especially in middle management. Manufacturers in the District report difficulty in finding skilled employees, especially in information technology. The rate of union wage growth is slightly higher than it was at this time last year.
Construction
Commercial builders report that construction throughout the District remains brisk. In Pittsburgh, demand is reportedly strong in all segments of commercial building, as it is in Columbus and Cincinnati. In Columbus, there has been an especially strong demand for the reclamation and retrofitting of older, vacant downtown office buildings. In Cleveland, however, the pace of building activity has moderated. One Cleveland contact cited labor shortages as a possible cause.
District home builders report a slowing in the pace of demand--one builder noted a year-over-year decline in sales of 14 percent for the second quarter. Builders expect lower sales activity to persist for the foreseeable future. Declining prices for homes have cut into builders' profits.
Prices for materials remain generally flat. Bricks remain in short supply in the region. Labor market conditions in commercial construction remain tight; however, several residential construction firms reported laying off substantial proportions of their workforces--in some cases, as much as 20 percent to 30 percent.
Industrial Activity
The overall demand for steel has moderated and prices have fallen back to their first-quarter levels. Most producers report a drop in orders for the third quarter. Producers cite high inventories at "steel service centers" (middlemen in steel distribution) as the reason for the decline. Service centers had dramatically increased inventory early in the year as a hedge against expected second-quarter price increases. They are expected to sell off their extra inventory, prompting demand to pick up by the end of the fourth quarter.
Heavy-truck manufacturers report a slight increase in orders, but unless orders increase dramatically, industry sources anticipate layoffs due to the rapid diminishment of unfilled order backlogs. Construction equipment orders remain strong, especially in highway and residential construction. Durable goods production is described as good, with strong export markets. Orders for semiconductor manufacturing equipment continue to grow at very high rates. Manufacturers report that export markets in Asia are experiencing strong growth.
Despite higher fuel prices, transportation and shipping companies across the District report increased business relative to a year ago. One contact reported a 7 to 8 percent year-over-year increase in volume in the second quarter of 2000. Some firms report that they have passed some of the increases on to their customers as temporary fuel surcharges. As in other sectors of the economy, firms involved in transportation and shipping indicate a persistent inability to secure qualified workers. One contractor told of being understaffed for the last five years.
Consumer Spending
The strong retail sales growth of the first quarter has moderated, with contacts reporting steady--but not rising--sales in June and July, although year-over-year sales have still shown an increase. Some contacts reported operating successfully with new policies that allow lower inventories. Sales of men's and professional attire are reportedly down from last year; one contact cited the recent trend towards business casual dress as a reason. However, sales of children's and women's attire are described as strong. All contacts expect sales to strengthen over the next two months more substantially than is typical for the season.
Automobile dealers report that sales of new cars in June were even stronger than last year's record volume. July was slower, however, when compared to June or to the record sales of July 1999. Dealers attributed the softer July sales to three factors: higher interest rates, higher gasoline prices, and higher lease prices. They also report steady used car sales. Some dealers said that customers are opting for used cars because of rising interest rates and lease payments. Most dealers believe that sales will be steady, only slightly off from last year's high levels.
Agriculture
With the exception of the northernmost counties of the District, production is good, and farmers are expecting above-average yields. In the north of the District, heavy rains delayed corn and soybean plantings and reduced the yield of the wheat crop harvest. Prices for soybeans, corn, and dairy products are quite low, so many farmers expect low profits for the year. Beef prices are higher than last quarter, and livestock farmers expect high production and higher profits. Across the District, farmers of most crops are delaying capital equipment and land expenditures until future market conditions become clearer.
Banking and Finance
Lending activity in the District remains strong for commercial loans, with banks reporting continued strength in auto loans this month. Both mortgage and consumer lending are weaker than last quarter. Refinancing has declined, so that banks reported overall slowing activity. They report that credit quality remains good, and their willingness to lend is unchanged. Credit standards are also unchanged.
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Philadelphia