Beige Book Report: Cleveland
June 23, 1987
Summary
The region's economy continued to show positive signs. Increases
were reported in production, new orders, and employment, while
inventories remained steady. Commodity prices continued to increase,
and shortages were experienced in a number of areas, particularly
specialty steels. Retail sales were mixed, with hard goods
outselling soft goods. Housing permits continued to increase as the
building season progressed. Consumer installment loans picked up
once again, and the volume of real estate loans continued to grow,
despite higher mortgage rates.
Retail Sales
Retailers reported mixed growth through April. Retail sales growth
in Ohio was roughly on a par with the national growth rate of 6
percent in April. This growth was concentrated in a few regions and
types of items. Retailers in the Cleveland area reported sales
increases substantially below the national average, while Akron and
Columbus reported the opposite. Some retailers reported strong hard
goods sales, especially home furnishings. Meanwhile, sluggish sales
were reported in soft goods, such as apparel, perhaps stemming from
the double-digit price increases reported in the April CPI. Slow
sales growth in consumer electronics has been attributed largely to
foreign exchange rates and quotas.
Sales of domestic automobiles in Ohio grew at a slightly faster pace than those in the rest of the nation. Although dealers reported lower sales than last year, they have tried to avoid financial incentive programs, preferring to lure customers with package deals. Import dealers reported that sales in the area are keeping pace with the nation. Dealers indicated that modest price increases have reduced sales. They also have avoided financial incentive programs because they feel their profit margins are at the lowest acceptable levels.
Manufacturing
A survey of purchasing agents in Ohio continued to show positive
signs of growth in manufacturing. An increasing percentage of firms
indicated that production was higher than the previous month. New
orders continued to improve, and inventories remained low.
Purchasers expressed concern about increases in commodity prices
growing faster than productivity. Prices of steel products were most
often mentioned as being higher and in short supply. Also mentioned
was the steady increase in the price of services.
Raw steel production in the region was up 26 percent in May from the previous month. This marks an increase of 12 percent since the beginning of 1987. With employment increasing by only 3 percent and average weekly hours roughly constant, much of the increase in output is attributable to higher labor productivity.
Labor Markets
The employment picture in the region has improved from previous
months. In April, Ohio gained 22,000 jobs, while the number of
unemployed fell 14,000. These changes resulted in an unemployment
rate of 7.2 percent. Most of the employment increase occurred in
nonmanufacturing. Construction, retail trade, and services (notably
business and amusement and recreation services) registered the
largest gains. Manufacturing employment remained unchanged from the
previous month.
Regional employment projections for the third quarter of 1987 are generally optimistic. A greater number of employers expect to add workers than to reduce employment. Employment opportunities are predicted by durable and nondurable manufacturers, wholesalers and retailers, the construction industry, and services. Staff reductions are forecasted in finance/insurance/real estate. Columbus, Dayton, and Akron report the most positive employment forecasts; Pittsburgh and Youngstown report the least positive.
Factory production workers in Ohio worked an average of 42.1 hours per week in April, down .4 hours from March. Their average weekly earnings dropped $5.12 to $493.41. Reduced overtime lowered earnings significantly in many industrial sectors. A notable exception occurred in blast furnace and basic steel products in which average weekly earnings rose $22, due primarily to an increase in the average workweek of 1.3 hours.
Housing
Housing starts in Ohio during March were up 39 percent over a year
ago. Sales of existing homes continued to rise as we move into the
traditional house-buying season. Average house sales for the first
quarter this year over last year rose 7.5 percent in Cleveland and
60.8 percent in Pittsburgh. Although interest rates have risen one
percentage point since March, loan officers felt that the panic over
expected large future rate increases has subsided.
Banking
District loan demand has been soft. Total loans outstanding at large
banks fell at an annual rate of 6 percent from mid-April to the end
of May. Commercial and industrial loans accounted for the vast
majority of the recent contraction in loan volume, at least partly
because of the higher cost of borrowing. In contrast, consumer
lending picked up. Installment loans outstanding grew at an annual
rate of nearly 30 percent over the last six months. Real estate
lending also continued to increase at an annual pace of over 20
percent.