October 18, 1988
Summary
Fourth District economic conditions have changed very little since
the last report. Manufacturing output continues to expand at
capacity rates, especially in durable goods sectors. New orders are
strong and inventories are relatively low. Unemployment rates in
many parts of the District are at or below the national level, while
factory workers earnings are stable. Retail and auto sales remain
slow. Banks report moderate loan demand.
Retail Sales
Major retailers in the District report that sales on average are 5
percent higher than a year ago. Since retail price increases have
ranged from 3 to 5 percent over last year the slight increase in
sales represents very little gain in real volume. Inventories are
reported to be lean, and ordering for winter and spring has been
very cautious. Most respondents have encountered no noticeable
capacity constraints at their suppliers, but one major firm has
noticed longer delivery times for sewn and woven goods.
Auto dealers report sluggish sales compared to a year ago, reportedly because inventories of 1988 model cars are low and manufacturers and dealers are not making large price concessions to clear them out. Initial dealer experience with sales of the 1989 models ranges from slow to very good. Those reporting slow sales blame the rather large price increase on various new models.
Labor Markets
Fourth District labor markets have shown signs of healthy expansion
without much accompanying wage pressure. For the last three months,
the Ohio amid Pennsylvania unemployment rates (currently 5.6% and
4.5%, respectively) have both been at or below the national rate.
This has been accomplished partly because the annual rate of job
creation in Pennsylvania and Ohio has exceeded the national rate
during the past year. In contrast, the unemployment rate in Kentucky
has risen partly because of loss of agricultural jobs from the
summer drought.
Hiring projections by employers in the District suggest that employment growth will continue to be strong in the fourth quarter. Substantial increases in employment are expected by employers in 19 of the 25 District cities covered in a recent survey of hiring expectations. Hiring is expected to be brisk in the four largest cities in the District: Pittsburgh, Cleveland, Columbus, and Cincinnati. Some smaller cities, such as Akron, are expecting even larger employment gains.
Across the district, new job opportunities are expected in wholesale and retail trade, manufacturing, services, and finance, insurance, and real estate. For example, two large automobile manufacturers have announced major expansions in Northern Ohio, which will directly add aver 2,000 new jobs.
Ohio manufacturing wages have fallen slightly, primarily due to a shorter workweek.
Manufacturing
Conditions in manufacturing remain very much the same as last month.
The manufacturing sector is continuing its strong performance:
production is up, exports are growing, and domestic production is
displacing imports. Sentiment among District manufacturers remains
optimistic.
Preliminary estimates of manufacturing output in Ohio show a 4.3 percent annual increase, after adjusting for unusual weather conditions. Most of the increase comes from the durable-goods sectors. Primary metals and fabricated metals showed particularly strong growth. For example, raw steel production in Ohio rose 9.0 percent during the last three months over the same three-month period a year ago.
Output growth is expected to continue as District purchasing managers report increases in new orders and declines in finished good inventories. However, some purchasing managers report that vendors are still having trouble meeting the demands of producers as firms continue to build up their inventories of raw materials.
Manufacturers report that production continues at capacity rates in chemicals, plastics, glass, ceramics, specialty steel, and container industries. 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. For example, steel prices are reported to be up 6 to 7 percent from a year ago, and since prices have risen 50 percent since January.
Banking
District loan demand has been moderate. Total loans outstanding at
large banks grew at an annual rate of 6 percent from mid-August to
mid-September. Most of the loan growth was in business and consumer
lending. Commercial and industrial loans rose at an annual pace of 3
percent and consumer installment loans increased at an annual pace
of 13 percent. In contrast, real estate lending has been flat, which
may be attributed in part to higher mortgage rates.