September 3, 2003
Federal Reserve Districts
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Most Fourth District contacts reported increased economic activity since the last report, although growth appears to be modest. For the third consecutive report, manufacturers cited steady or improving production and sales. Residential homebuilders reported continued sales growth. Demand for commercial loans increased since the last report, while consumer loans remained constant.
Reports from other areas of the economy were mixed. Retailers and auto dealers experienced continued slow sales, though these were not necessarily unanticipated. Activity in commercial construction accelerated in parts of the District, but it remained sluggish in others. After a more optimistic report in July, conditions in steel did not show further improvement. Though overall prices of inputs were flat or declining, utility prices rose. Employment levels did not change for most contacts; some added employees, and a few firms reported layoffs. While there is plenty available labor, contacts stated there is less available now than during the same time last year. Rising insurance costs have caused a number of firms to change features in benefits offered to employees, both by passing some costs to employees and curtailing some benefits.
Most contacts in manufacturing, residential construction, banking, and trucking and shipping expect conditions to continue improving throughout the rest of the year, while contacts in steel, commercial construction, and retail were more mixed with regard to continued activity.
This District was affected by the blackout in mid-August. Though most contacts could not immediately discern the total impact, retail and manufacturing experienced the greatest impact as a result of closures. Other sectors of the economy experienced minor or no problems due to the electricity problems.
Auto production fell again at most District plants in July and early August compared with June, but it should be noted that many facilities re-tooled in early July. Regardless, same-model production was about 4 percent lower than 2002 levels. In July, three new models began production in the District. A few facilities reported the use of overtime.
In the steel industry, production was fairly stable between July and August, though there was some mention of increased sales between July and August. However, overall demand was characterized as "soft" in August, and both sales and production levels during this period were substantially down from last year. Inventories are down from a year ago, and firms anticipate holding inventories at their current low level. New orders for steel for the fall are coming at a steady rate, and contacts expect the demand to remain the same till the end of the year. To meet current demand, plants are running normal-to-shortened work schedules. Most contacts have held employment levels constant since the previous report although a few are reducing jobs. Steel prices were mixed, with slight movement in both directions.
Many manufacturers in the areas affected by the blackout were closed up to three days; however, most firms stated that they were able to tap into inventories and anticipated being able to use overtime production, as needed, to make up for the loss. Manufacturing contacts stated that supply chains were largely uninterrupted and orders were unaffected.
Retailers in the District reported electricity-related losses on Thursday, though many were able to open on Friday. Overall impact on the sector is not yet known. Restaurants were particularly hard hit because of the water problems that continued after electricity was restored.
Automobile dealers noted flat-to-declining new car sales throughout the District. Overall sales this period were lower than during the same time last year. Sales continue to be dependent on incentives, though their impact on consumers has deteriorated. Used car sales, on the other hand, continued to increase. New car inventory levels are more favorable than in previous months.
Commercial building continues to be slow, though parts of the District show signs of improvement. Within the last several weeks in the Cleveland area, the number of new projects in several building segments, including manufacturing, warehousing, and distribution had accelerated. There also appears to be increased activity in the Pittsburgh area, while in the Columbus area and the southern part of the District demand remained sluggish.
Trucking and Shipping
During the blackout, many banks lost ATMs and some branches closed, though it was toward the end of the business day, and most areas had power restored by the following morning for business.