June 15, 1988
Summary
Economic activity in the Fourth District has changed little from the
last report. The region's economy continues to benefit from the
export boom. Labor market indicators are uniformly positive, with
the unemployment rate in Ohio resuming its downward trend over the
last two months to 6.2 percent in May. Production, employment, and
orders are generally up at manufacturing firms. Although department-
store sales remain sluggish, auto sales continue at a steady pace.
Banks report relatively strong growth in consumer installment and
real estate lending.
Retail Sales
Department-store sales in the Fourth District continue to be
sluggish, and are falling short of targets. Although sales improved
somewhat in late May, it is unclear whether that reflected a true
pickup in demand or just a temporary response to increased
markdowns. Some retailers say that sluggish sales reflect unpopular
styles, especially in women's wear, rather than consumer
unwillingness to spend.
Higher prices for apparel have also hurt sales. Merchants don't expect much marc strength in sales this summer, although same expect stronger results in the fall. There is a sense among department- store executives that they are in a consumer recession, and they are puzzled by reports of strong growth of overall personal consumption expenditure. Department-store inventories are generally at comfortable levels. However, some contacts complain that they have had to offer unusually generous markdowns to avoid an inventory buildup, contributing to weak earnings.
Auto sales have been steady but not robust. Dealers consent that financing and rebate incentives seem to have lost their power to stimulate showroom traffic and sales. Several dealers report that an unusually high number of inquiries have recently been coming from qualified buyers (those who can afford to buy). Dealers do not sense any tendency among consumers to cut down on their spending. Dealer inventories are at comfortable 55- to 60-day levels, with occasional shortages of popular models. One import dealer reports being down to a 10-day supply.
Labor Markets
Labor market indicators in the region were uniformly positive in
May. In April and May, the trend toward narrowing the gap between
the national unemployment rate and the Ohio rate was reestablished.
The seasonally adjusted unemployment rate for Ohio fell from 7.7
percent in March to 6.3 percent in April and 6.2 percent in May. The
decreases came primarily from fewer unemployed workers, rather than
from employment growth.
Nevertheless, May surveys of manufacturing and nonmanufacturing companies in Cleveland, Cincinnati, and Pittsburgh metropolitan areas consistently reflect an increase in workforce expansions and/or a decrease in employment reductions. For all three areas, the number of surveyed firms that reported employment expansion outnumbered those that reported a contracting workforce. Cleveland- area factories reported hiring additional workers to reduce overtime, adding second shifts, and adding salaried personnel. The Cleveland help-wanted index (which tends to lead unemployment changes by three to six months) was also up in recent months.
Manufacturing
The export boom continues to boost economic activity in the
District. Surveys by Cleveland and Cincinnati purchasing managers
indicate that businesses continue to experience a favorable economic
climate. Production, employment, and orders are all up, and few see
a recession occurring in the rest of 1988. The groups report
problems in obtaining a variety of materials and supplies, including
aluminum, bearings, electric motors, paper products, and ethylene-
based chemicals.
Raw steel production in Ohio rose 5 percent from March to April, as the steel industry continues to enjoy strong demand for its products. In the three-month period from March to May, raw steel production In the Youngstown, Pittsburgh, and Lake Erie regions rose almost 6.5 percent over the same three-month period a year ago. Purchasing managers in Cleveland and Cincinnati report price increases and shortages in stainless steel, steel plate, and sheet steel.
Another positive sign of the strong regional economy is the rising number of freighters sailing the Great Lakes. Eleven more freighters are now flying the U.S. flag than at this time a year ago. These freighters are primarily used to haul iron ore, stone, cement, sand, and other construction materials. Sources report that the U.S. lake shipping industry is getting close to its cargo-handling capacity, particularly in iron ore.
Banking
Loan growth has been moderate at District banks. Total loans
outstanding at large banks grew at a 2.2 percent annual rate between
the end of March and mid-May. After expanding at an annual pace of
22 percent during the first quarter, business loan growth has been
relatively flat so far in the second quarter. In contrast, real
estate and consumer lending has picked up even though loan rates
have increased. Real estate loans outstanding grew at an annual rate
of more than 20 percent, and consumer installment loans outstanding
rose at an annual clip of 19 percent.