The Federal Reserve Board eagle logo links to home page

Beige Book logo links to Beige Book home page for year currently displayed July 23, 2008

Federal Reserve Districts

Fourth District--Cleveland

Skip to content

New York
St. Louis
Kansas City
San Francisco

Full report

Economic activity in the Fourth District increased slightly since the beginning of June. Factory output was largely stable, though auto production declined. The housing industry remains weak, with no improvement expected for the remainder of the year. Most commercial builders reported that business is expanding and backlogs are up. Sales by District retailers were steady to improving. Demand for business loans grew, while lending to households was mixed. Energy production was stable to increasing. And freight transport volume has been flat.

On balance, employment levels were largely unchanged, and wage pressures were limited to energy producers. Staffing firms saw a slight increase in the number of job openings, while the number of job seekers was unchanged. Job vacancies were greatest in health-care, energy, steel, and chemicals. Reports of rising input prices, especially for metals and petroleum-based products, were widespread.

Output by District factories was largely stable during the past six weeks. Reports of higher production levels were attributed to seasonal factors and rising exports, while declining output was ascribed to weakening economic conditions. On a year-over-year basis, reports were evenly split between production slowdowns and increases. Most manufacturers are anticipating some slowing in orders during the upcoming months. Capacity utilization was at, or slightly below normal levels. Steel producers and service centers reported a softening market, which they attributed to a downturn in the auto industry. The strongest end users for steel include energy and capital goods producers. Our contacts expect steel demand to remain at current levels or decrease slightly during the third quarter. District auto production showed a small decline in May on a month-over-month basis, with decreases reported by domestic and foreign nameplates. In terms of year-over-year comparisons, auto production was down appreciably.

Capital spending remains on plan; however, about a third of our respondents said that they expect to cut back on capital projects in the upcoming months. Credit remains available to qualified applicants. Almost all of our contacts reported price increases for raw materials, especially metals and petroleum-based products. In response, three-fourths of them raised their product prices recently. Looking forward, expectations call for prices to continue rising--especially for commodities. However, only half of our respondents said that they would consider additional price increases in the near future. On net, employment at District factories showed a slight uptick, although some hires are on a temporary or contract basis. Wage pressure is not a major issue at this time.

Real Estate
Home builders reported little change in market conditions--flat to declining sales and a slowdown in traffic. Further, builders are not expecting any upturn in the industry for the remainder of the year. Half of our respondents reduced the list prices on new homes and discounting remained widespread. Accounts of price increases for concrete, shingles, metal products, and fuel were common; in contrast, lumber prices were stable to declining. Subcontractors are readily available at very competitive rates. Several general contractors reported employee layoffs during the past few weeks, and none is expected to increase wages during 2008.

Most commercial contractors said that business is expanding. Several mentioned that their companies have strong backlogs and a steady flow of inquiries. However, builders told us that they are concerned about rising input prices and their ability to maintain current margins and backlogs. Nevertheless, they do not foresee any dramatic downturn in business. Several contractors commented that although financing is available, lending standards are becoming tighter. Contract pricing remains stable outside of rising materials costs, especially for steel, concrete, and petroleum-based products. Workforce levels remain largely unchanged, and little wage pressure was reported.

Consumer Spending
District retailers reported stable to improving sales across most segments--food being the exception--since our last report. Grocery store managers said that sales were flat to declining. Our respondents were very cautious in their outlook for the third quarter, with the expectation of some slowdown in sales. Reports from auto dealers indicate that purchases of new and used cars were flat to down, the exception being fuel-efficient cars, which are "selling well." Purchases of SUVs and trucks were characterized as poor. Dealers anticipate little change in sales during the coming weeks. In general, vendor price increases were limited to food items and paper products. For the most part, capital spending remains on plan, though we heard reports of some retailers taking on additional projects. Employment levels and wages remain stable.

Demand for commercial and industrial lending has been growing, especially at community banks. Segments showing strength include commercial real estate and energy. On the consumer side, loan demand is best characterized as mixed. However, almost half of our respondents reported a slight increase in auto loans. Home mortgage origination was slow, with any pickup attributed to seasonal factors. Bankers told us that lending standards are very tight and will remain so for the foreseeable future. Reports on delinquencies and credit quality were mixed. Core deposits were stable to increasing, with several community bankers characterizing deposit increases as a "flight to safety" from equity markets and large banks. On net, there has been little change in employment levels across District banks. Wage pressures are not a major issue at this time.

Oil, gas, and coal production has been steady to increasing during the past six weeks. Looking forward, almost all our contacts told us that they expect to see a rise in production levels due to increased demand. Reports indicate that spot and contract prices have increased across the board, together with equipment and materials costs. Capital expenditures were on plan or slightly higher than projected. Half of our respondents told us they expect to increase the number of capital projects in the upcoming months. Most producers reported that credit remains readily available. Almost all oil and gas producers hired additional employees during the past six weeks or plan to expand payrolls in the near future. Wage pressures are an issue due to competition for skilled workers.

Freight transport volume has been flat during the past six weeks, with most carriers expecting current market conditions to persist through the second half of 2008. Reports indicate that auto shipments are down, while steel remains strong. Fuel prices continue to rise. Attempts to pass through these increases via a surcharge have met with mixed results. Over half of our respondents reported that capital spending has slowed considerably, with little change expected in the coming months. Hiring was limited to driver turnover, and any wage increases fell within industry norms.

Return to topReturn to top

Previous Philadelphia Richmond Next

Home | Monetary Policy | 2008 calendar
Accessibility | Contact Us
Last update: July 23, 2008