May 4, 1988
Summary
Economic conditions in the Fourth District generally continued to be
positive. Auto sales remained strong, but other retail sales
continued to be sluggish. Although the unemployment rate in Ohio
rose to 7.7 percent, employment levels remained above 1987 levels,
and further hiring is planned at businesses throughout the District.
The manufacturing sector continued to show strength, though fewer
firms reported increases in orders. Bank loans outstanding rose
significantly, largely from a pickup in business lending.
Retail Sales
Department store sales in this District are growing slowly, if at
all, in current dollars and are constant or declining in constant
dollars. Apparel sales are the weakest, while furniture and
appliance sales are still increasing, albeit more slowly than in
1987:IVQ. Furniture, appliance, and apparel sales are weaker in
specialty stores than in department stores. A major department store
chain reports that only part of its decline in current dollar sales
in the first half of April compared to a year ago is accounted for
by this year's earlier-than-usual Easter shopping season. Following
its disappointing first-quarter results, another major chain lowered
its forecast for sales growth for 1988 from 6 percent nominal to 3
percent nominal, which is expected to mean 0 percent real growth.
Inventories rose last quarter at most department stores, and are uncomfortably high at some stores. In general, inventories are higher than desired levels at specialty stores rather than at department stores. A representative of one major retail chain asserts that although the retail inventory/sales ratio is too high, it is nevertheless overstated because the sales reflect price discounting, while inventories do not.
The auto market is quite strong in this District. Dealers report strong new car sales, and several report that inventories are, or soon will become, inadequate. Used car sales are also robust. Dealers say that sales incentives have become much less important in closing sales than in previous months and have little effect in stimulating customer inquiries. They attribute the first-quarter decline in imported cars' market share to the improved price competitiveness, quality, and style of domestic cars. Dealers expect the trend to continue and do not think it is a result of the domestic manufacturers' sales incentives.
Labor Markets
After a year of progress in narrowing the gap between the national
unemployment rate and the state rate, the seasonally adjusted
unemployment rate for Ohio rose from 6.1. percent to 7.7 percent in
March.
However, other indicators of labor market activity remain strongly positive. The labor force continues to grow, and employment remains above the level reported in the latter part of 1987. In addition, employment prospects for the second quarter of 1988 are up over those of a year ago in most metropolitan areas in the District. Hiring plans are particularly strong for companies in Cleveland, Dayton, Toledo, Warren-Youngstown, and Erie, Pennsylvania. Industries with the most consistent hiring plans in the District are construction, finance-insurance-real estate, services, and wholesale-retail trade. Durable and nondurable manufacturers appear to be mixed in their hiring plans.
Foreign companies have continued to open facilities in the District. For example, in March, a Brazilian windshield wiper maker announced its intention to establish a subsidiary and warehouse in Dayton. At the same time, a major Japanese electric-equipment manufacturer made public its plan to manufacture jumbo television tubes in Dayton.
Manufacturing
Area economists are continuing to predict a good year for Ohio.
There is some concern about the possibility of rising inflation and
interest rates, but most analysts see the lower dollar keeping area
manufacturers busy, particularly those in heavy industry such as the
machine tool and steel sectors.
Reports from purchasing managers indicate continued broad-based strength in manufacturing, though there are some mixed signals for the future. In the Cincinnati area, output, employment and orders continued to be strong in March, but raw materials inventories rose at a large number of firms. In Northeast Ohio, purchasing managers generally indicated that inventory levels have stabilized. One-third of the Cleveland area producers surveyed reported increases in output and orders, though this number is down from February. Seventy-one percent of respondents reported higher prices. At least one survey participant cited the increase in exports as the cause of shortages, and expects continued upward price pressures, particularly in paper and plastics, where capacity is tight.
The steel sector in the District continues to enjoy favorable economic conditions. Raw steel production climbed almost 2 percent in the Youngstown, Pittsburgh, and Cleveland regions from February to March 1988. Prices have increased in most types of steel products, particularly in stainless steel (flat rolled and strip). Galvanized and cold-rolled steel coils are reportedly in short supply, and price increases are expected for corrugated steel.
Banking
Loan demand has been relatively strong at District banks. Total
loans outstanding at large banks grew at an annual rate of 22
percent from mid-February to the beginning of April. The loan growth
was concentrated in business lending. Commercial and industrial
loans outstanding rose at an annual pace of more than 40 percent.
Marginal gains in consumer installment lending represented an
improvement over the decline in personal expenditure loans
outstanding during January. In addition, real estate lending
continued to increase at a moderate pace.