The Federal Reserve Board eagle logo links to home page

Beige Book logo links to Beige Book home page for year currently displayed April 15, 2009

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 remained weak through the end of March. The downward trend in factory output and steel shipments that began late in the third quarter of 2008 continued. However, we heard some reports of a leveling off in the decline for new orders. Residential construction remains very depressed, while commercial building activity was mixed. Sales by District retailers did show a slight improvement, and the precipitous drop in new motor vehicle sales has shown signs of stabilizing. Little change in energy production was noted; however, there is considerable downward pressure on spot and contract prices for natural gas and coal. Freight transport volume remains at low levels. Finally, regional bankers told us that commercial and industrial lending is down, while C&I loan portfolios at community banks are expanding. Core deposits showed strong growth.

Employment declines were seen in manufacturing, transportation, and banking, while healthcare care institutions continued hiring. Staffing firms reported an overall decline in job openings. Given the weak labor market, wage pressures are contained. Capital spending has been frozen or trimmed back significantly from 2008 levels. With the exception of commercial builders, survey respondents who participated in credit markets said they experienced little or no difficulty in obtaining financing for long- or short-term uses.

Reports from District factories were mixed. Manufacturers of products used in industrial applications said that they continue to see a downward trajectory in orders. In contrast, there was a slight pickup in orders for products oriented toward the consumer market. However, several respondents noted that any increased production could be attributed to seasonal adjustments or the exit of market competitors. On a year-over-year basis, factory output fell by about 24 percent on average. Manufacturers expect demand will remain very soft during the next few months. Almost all steel producers and service centers reported a worse-than-expected slump in shipping volume. The only end markets cited as showing some stability were agricultural equipment and defense-related firms. Most survey respondents believe that the demand for steel will stabilize at current low levels through the second quarter. District auto production showed a significant rise during February on a month-over-month basis. The upturn is attributable to the restart of auto assembly plants after an extended year-end shutdown. On a year-over-year basis, both domestic makers and foreign nameplates experienced a precipitous drop in production, part of which is due to the permanent closing of a plant that produced SUVs.

Almost all of our contacts reported that their capital budgets are frozen or have been trimmed back significantly. Little change in spending is expected in the upcoming months. Manufacturers participating in credit markets noted that they experienced little or no difficulty in obtaining financing for long-term or short-term uses. Since our last report, raw material prices and product pricing have remained stable or declined, with metals accounting for most of the decline. Little inflationary pressure is expected during 2009. Almost all of our survey respondents continue to lay off employees or increase the number of nonproduction days. Predictably, wage pressures are contained.

Real Estate
The residential construction industry remains very weak; however, builders are less pessimistic than earlier in the year. Contractors believe that low interest rates and tax credits for first-time buyers may contribute to a broader sales uptick in the coming months. Nonetheless, an industry turnaround will not occur until consumer confidence improves significantly and excess inventory is pared down. Two contacts noted that they are waiting for federal stimulus money to begin construction of low-income housing. Little change in list prices of new homes was noted, though some builders are discounting, especially for older spec houses. We continue to see some downward pressure on building material prices, particularly for lumber. General contractors reported that they are now operating with skeleton crews.

Reports on commercial and industrial construction activity were mixed. A couple of builders said that their business is down due in part to intense bidding competition. Others characterized business as good and said they are slowly adding to their backlogs. Market segments cited as showing some stability were education, healthcare, and public works. Although obtaining project financing remains a big concern industrywide, most respondents are guardedly optimistic in their outlook for the remainder of 2009. Construction material prices continue to decline, while subcontractors are readily available at very competitive rates. We did not hear any reports of layoffs.

Consumer Spending
February sales for District retailers showed a slight improvement on a month-over-month basis. However, most survey respondents expect sales will flatten out or decline during the second quarter of 2009. On balance, there has been little change in vendor or retail pricing since our last report. Accounts from auto dealers indicate that in most regions of the District, the precipitous drop in sales of new vehicles is leveling off, while purchases of used vehicles improved. Dealers are slightly more optimistic about future sales, but they are not expecting an industry turnaround during the next few months. Almost all of our auto contacts indicated that they are not having any difficulty obtaining floor-plan financing. On the whole, there has been little change in staffing levels at retailers and auto dealers. However, we heard several reports that pay plans are being changed to commission-based. Capital expenditures by retailers have been trimmed back significantly from 2008 levels.

Regional bankers reported that commercial and industrial lending is down, while C&I loan portfolios at community banks are expanding. Several community bankers commented that they continue to siphon business from regional competitors. On the consumer side, loan demand is best characterized as moderate, but steady. Most activity focuses around home equity lines of credit and indirect auto loans, especially for used vehicles. Consumer loan pricing showed little change. Refinancing applications for residential mortgages remain strong as interest rates fall. Core deposits showed strong growth across most of the product spectrum. Banks' interest margins are decidedly mixed. Credit quality for consumer and business loan applicants is mixed but leaning toward the downside. At the same time, the number of loan delinquencies has increased slightly. Almost all of our respondents said that they have not tightened credit standards since our last report. Major regional banks continue to cut a large number of workers, while staffing levels at community banks are stable to increasing slightly.

Energy production was stable to increasing during the past six weeks. Looking forward, little change in coal production is anticipated, although demand is weakening. Oil and gas production is expected to increase slightly; nevertheless, a majority of our respondents told us that they anticipate a substantial reduction in drilling activity. Reports indicate considerable downward pressure on spot and contract prices for natural gas and coal. At the same time, materials and equipment costs continue to fall. Half of our contacts said that capital expenditures fell below projections, and most intend to lower spending during the next few months. Energy producers participating in credit markets reported no difficulty in obtaining financing for long-term or short-term uses. Employment levels were stable, and no wage pressure was reported.

Freight transport executives reported that the sharp drop in shipping volume, which began in the fourth quarter of 2008, is showing some signs of leveling off. Nonetheless, February shipments declined, on average, about 20 percent on a year-over-year basis, and were spread across all market segments. Expectations call for activity to remain at current levels or to contract somewhat further during 2009. Several of our respondents noted that profit margins continue to shrink as shipping rates become increasingly competitive. Little change in capital spending was reported; though most companies have reduced expenditures to the replacement level. Further, trucking companies are trying to reduce their fleet size, while the market for used trucks has contracted significantly. Transport executives participating in credit markets noted that they experienced little or no difficulty in obtaining financing for long-term or short-term uses. On the whole, the industry is shedding jobs. However, some executives said there may be a limited amount of seasonal callback in the upcoming months.

Return to topReturn to top

Previous Philadelphia Richmond Next

Home | Monetary Policy | 2009 calendar
Accessibility | Contact Us
Last update: April 15, 2009