May 4, 1987
Summary
The region's economy continues to expand slowly. Many respondents
are optimistic about prospects for the second quarter. Production,
new orders, and employment are reported to be higher in March than
at any time this year. While retail sales are sluggish, housing
construction and sales of existing homes remain relatively strong.
However, there is immediate concern that the jump in interest rates
may dampen the real estate market.
Retail Sales
Retailers reported a alight growth in sales in March. Although home
furnishings and other hard goods were stronger than some retailers
expected, unusually harsh weather in March slowed sales of spring
apparel and other soft items. However, the late Easter season and
more seasonal temperatures are expected to help sales rebound in
April. Projections of price changes over the course of the year are
the same as the January predictions of a 2 to 3 percent annual rate
of increase.
March automobile sales are on par with sales a year ago. However, dealers are still feeling the effects of the 1986 incentive programs and tax law changes as current sales remain sluggish. Domestic dealers expect moderate price increases (2 to 3 percent) as a weak dollar forces import dealers to increase prices. The increase in inventories of Japanese-built cars have prompted some Japanese automakers to consider sales incentives.
Labor Markets
Ohio's unemployment rate rose 0.3 percent from January to 8.6
percent in February, which is the same level as a year ago. Toward
the end of last year, it appeared that the state's unemployment rate
was converging toward the national rate, but since then unemployment
has steadily increased, as the estimated number of workers entering
the state's labor force outpaced the number employed.
Total employment in Ohio grew by only 4,000 jobs (.09 percent) from January to February. Services continued to dominate the increase in jobs. In February service employment increased by 7,000 while manufacturing employment grew by only 1,400. The trend toward services is even more dramatic over the last year: 56,000 additional workers were employed in services, while 12,000 fewer workers were employed in manufacturing.
Average weekly earnings of production workers declined by $2.68. This decline was due entirely to a reduction in the length of the average work week.
Manufacturing
A survey of purchasing agents in Ohio revealed that production, new
orders, and employment were higher in March than in previous months.
Although inventories were also rising, it was generally felt that
the strength in production was not due to a short-lived inventory
buildup but rather to new orders and a larger backlog of orders.
Exports accounted for only a small portion of the increase in
orders. One area of concern was the increase in prices. Commodity
prices continued to climb at a rate which was twice the three-year
average. Service prices were also increasing. Some respondents
expressed concern that prices are increasing faster than
productivity improvements.
Raw steel production in Ohio increased 17.5 percent during March. Much of this increase was presumably due to new orders since inventories continued to decline in recent months. The rate of capacity utilization was at its highest level in over a year, which may help to explain the increase in prices of many types of steel products.
Housing
The fall in conventional mortgage rates in March to the lowest level
in nine years continued to fuel the Ohio housing market. Building
permits for single family housing units increased an average of 25
percent over last year in many of the major cities in Ohio. Sales of
existing homes also increased substantially, jumping 31 percent in
Ohio in 1986 from the previous year.
With fixed-rate mortgage rates increasing as much as two percentage points in the past month, there is concern that the recent boom in the housing market may be short-lived. One loan officer that we contacted indicated that the number of new loan applications is down 75 percent from the high a month ago. He feels that many potential home buyers are taking a "wait and see" attitude before locking in at the current interest rate.
Banking
District loan demand has improved somewhat in the last month. Total
loans outstanding at large banks rose at an annual pace of 14
percent over the last seven weeks. This lending compares favorably
to the decline in loans in late January and February. Loan growth
has been concentrated in business and real estate loans, reflecting
moderate business loan demand and the popularity of home-equity
credit. Although consumer installment lending continues to subside,
the volume of consumer and real estate loans collectively has been
growing at an annual pace of around 6 percent.