January 25, 1989
Summary
The Fourth District economy continued to post gains in most sectors.
Increases were reported in production and new orders, while
manufacturing employment has remained generally flat. Retail sales
over the holiday season were better than expected, marked by brisk
sales of luxury items and automotive products. Service jobs led
recent employment gains, and unemployment rates hovered around the
national average. Loan demand continued to increase at a moderate
rate.
Retail Sales
Retailers in the District reported larger-than-expected sales gains
in December. Many reported that sales were up by 8 to 10 percent
from a year ago. Price markdowns were smaller and less widespread
than usual, both because demand was strong and because merchants had
kept their inventories quite lean. Luxury items, particularly
electronic goods and fine jewelry, sold especially well, suggesting
higher consumer confidence. Sales of small appliances were strong,
and apparel sales seem to have recovered from their slump.
Local auto dealers reported that December sales were very good, particularly for light trucks and minivans. Sales were slow during the first week of January, after which they rose moderately. Inventories are considered to be sufficient, but there are shortages of the most popular models. Although manufacturers' buyer incentive plans are widely available, dealers say they are not an important contributor to sales. Financing is readily available, and rising interest rates have not yet increased monthly payments enough to deter buyers.
Labor Markets
The latest unemployment figures continue to show Pennsylvania at
slightly below the national rate and Ohio at slightly above the
national rate. Despite the relatively low unemployment rates, the
average length of the workweek has remained constant and wage
increases have been modest. However, many employers reported that
benefit costs have risen significantly, driving up total
compensation.
Since last year at this time, Ohio added 90,000 jobs, raising employment by about 2 percent while the number of workers unemployed fell by 12 percent. The picture is similar in Pennsylvania, where jobs rose by 60,000, increasing employment by 1 percent while decreasing unemployed workers by 17 percent. Although the labor market in these areas is generally strong, employers reported ample supplies of qualified workers.
Eastern Kentucky, on the other hand, continues to experience a weak labor market. For example, a recent automobile plant opening there drew fifteen times as many applicants as there were job slots.
Most of the new jobs in the District have come from the service sector, with business services continuing to show the largest increases. Manufacturing employment has been flat throughout most of Ohio, while Pittsburgh experienced its first annual increase in manufacturing employment in almost a decade.
Manufacturing
The Fourth District's manufacturing sector continues to expand.
Purchasing managers reported increases in output and new orders.
However, their production index dropped well below the survey average over
the last two years, even when seasonal factors are considered. The
slowdown in steel production contributed to the slower production
rate. Steel production in the Youngstown, Pittsburgh and Lake Erie
steel districts fell 10.4 percent in the last four weeks over the
previous four-week period. This decline is greater than the 2.3
percent decrease for the U.S. steel industry as a whole.
Price increases continue to be moderate. Only 41 percent of the respondents to the purchasing managers survey reported higher prices, which is the lowest percentage in over a year.
Commercial Banking
District loan demand has continued to be modest. Total loans
outstanding at large banks grew at an annual rate of 4 percent from
the beginning of November to the end of December. Lending to
financial institutions and other businesses accounted for most of
the credit growth. Commercial and industrial loans rose at an annual
pace of 2 percent, about the same pace as in September and October.
Loan rates have increased, and consumer installment and real estate
loans outstanding have contracted somewhat in the last two months.
Also, the pace of home equity lending has tapered off considerably,
with growth falling to the single-digit range.