September 6, 1988
Summary
The Fourth District economy continues to enjoy a healthy expansion.
Manufacturing production and new orders are at reportedly high
levels is with only moderate labor cost increases. Unemployment
rates around the District have fallen to equal the national rate,
but factory workers' average weekly earnings remain flat. Retail and
auto sales are sluggish, and banks report strong business lending
but slow consumer lending.
Retail Sales
Major retailers in the District report a noticeable upturn in sales
in recent weeks compared with meager sales volumes during July.
Sales of men's and boys' wear are brisk, and sales of women's fall
fashions are picking up as the weather cools. Nonetheless, retailers
have been conservative in placing fall orders. Firms report that
they have encountered no capacity constraints when purchasing
merchandise from domestic suppliers.
Local auto dealers report that sales in the last two or three weeks have been slow to moderate. One dealer attributed the slow sales to higher interest rates, and another noted that buyers don't want variable-interest rate loans because they expect rates to rise further. Another dealer suggested that frequent changes in incentive programs over the last several months have confused potential buyers, making them more reluctant to make a purchase decision. However, dealers report that those who do buy show no sign of becoming more cautious in their spending and continue to purchase many options for their cars. Dealers are generally satisfied with inventory levels, but are prepared to offer discounts or rebates if necessary to make room for the 1989 models.
Labor Markets
Unemployment rates in Ohio and Pennsylvania have converged to the
national rate for the first time in a year. The current reduction in
Ohio's unemployment rate marks the sixth straight month of steadily
falling rates. The latest improvement results both from the addition
of 62,000 workers to the ranks of the employed and from a reduction
of 49,000 (or 15 percent) in the number of unemployed workers.
The new jobs appear to be slightly less concentrated in the services than they were earlier in the year. For instance, durable goods employers added 5,200 jobs in Ohio. According to industry sources, most of these jobs are in the smaller companies that supply the major manufacturers, rather than in the large manufacturers themselves.
Ohio's lower unemployment rate has not yet affected factory workers' hourly earnings, which have remained flat over the last few months. However, the liberal use of worker overtime by District manufacturers to meet production schedules has increased the average workweek by 0.2 hours to 43.3 hours, pushing average weekly earnings up $4.47.
Manufacturing
The District's manufacturing sector continues to enjoy a healthy
expansion. According to the Federal Reserve Bank of Cleveland's Ohio
Manufacturing Index, production rose 5.8 percent during the last
three months over the same period a year ago. Optimism about further
expansion is buoyed by the high rate of incoming orders, as reported
by purchasing managers. However, recent surveys indicate mounting
concern about rising material costs, capacity constraints, and
recent signs of somewhat higher labor costs. However, these concerns
are tempered by reports of sizable profit and productivity gains.
A wide variety of commodities, particularly bearings, electric motors, and a number of chemical, steel, and aluminum products, remain in short supply, leading in some cases to price increases. Producers are coping by increasing their inventories of raw materials. The high volume of new orders and the steady backlogs of existing orders are expected to absorb this slight inventory buildup.
The metals sector continues to boom. Raw steel production in Youngstown, Pittsburgh, and Lake Erie regions rose 12.4 percent during the last three months over the same period a year ago. Although production has expanded significantly, upward price pressure is reported on many steel products.
Banking
District loan demand has been mixed, with strength in business
lending, moderation in real estate lending, and softness in consumer
installment lending. Total loans outstanding at large banks fell at
an annual rate of 4 percent over the first half of the third
quarter. After increasing at a rapid race during the second quarter,
consumer installment lending has subsided, which led to a slight
overall contraction in loan volume. Also, real estate loans have
been increasing at a slower rate than during the spring when
mortgage rates were lower. In contrast, business lending has picked
up considerably, with commercial and industrial loans outstanding
growing at an annual clip of more than 20 percent.