March 18, 1992
Summary
The tone of District comments is mixed, but a little more optimistic
than in recent months. Retailers are buoyed by better-than-expected
sales in recent weeks, and automotive sales are expected to rise
next quarter from this. Several District respondents expect an
impending recovery in manufacturing production, in part because
inventory liquidation appears to have about ended. A recent flurry
of consumer traffic and new mortgage loans suggest better home sales
and starts this year than last, according to both builders and
lenders. Loan demand, except for mortgages, remains relatively flat.
Consumer Spending
Retailers are a little more sanguine about second-quarter sales
prospects than they were a few weeks ago because of better-than-
expected sales in both January and February. A national chain
described its performance in this District as being somewhat
stronger than in the nation. Retail sales in an upscale shopping
center, and a large discount chain excelled February 1991 levels,
and a large retailer described its sales as being better than
consumer confidence surveys would suggest. Some large retailers were
able to reduce their excess stocks, substantially, although one
indicated that inventories are still higher than desired.
Automotive
Auto producers and dealers continue to be cautious about new car
sales and production over the next few quarters. Motor vehicle sales
in February rose a few percent from January, but still fell short of
the pace last December. Big Three auto makers apparently plan to
trim production from earlier projections again in March, with some
weeklong furloughs likely, according to a producer. Motor vehicle
sales in the first quarter are estimated at just below the level of
last quarter, but economists in the industry still expect a second
quarter increase of 5% to 8%. These sources believe that consumer
confidence is no longer declining.
Auto dealers in the District are also cautious about near-term sales prospects, and apparently do not plan much change in factory orders from recent months. The present 60-day supply of new cars is considered satisfactory in view of an uncertain outlook. Despite the "Buy American" campaign, dealers of Japanese cars and Japanese and domestic cars report higher sales than dealers of only Big Three models.
Manufacturing
An impending rebound in output is expected by some manufacturers,
who are encouraged by recent improvements in orders and profits.
They point out that manufacturers are no longer liquidating stocks,
and that rising numbers of inquiries and requests for prompt
delivery of small orders suggest that inventories may be low
relative to sales.
A major appliance producer, however, sees little prospect for an early comeback in appliance production even though shipments are expected to climb slowly over the next few months. In this view, inventories will be trimmed further in order to reduce costs and improve profits. In contrast, a producer of small appliances posted record sales and earnings last quarter.
Capital goods production is recovering slowly and unevenly. Industrial controls used in machine tools are strengthening, but orders for the construction and farm machinery industries remain weak, according to some producers. An industrial instrument manufacturer reported an unexpected decline in January and February orders, following a bubble late last year. Orders for heavy-duty trucks soared in February, which sharply boosted the January- February average from the second half of 1991. A small computer producer experienced a surge in sales and profits last quarter, and expects an even better year in 1992. Orders for forgings rose sharply in January from December levels, and shipments were relatively unchanged, which some producers believe will add to production and shipments in the months ahead.
Steel output has held up better than some producers had anticipated for this quarter. Steel service centers have been ordering more than expected because of growing optimism about the capital goods outlook, according to a producer. Operating rates of some steel producers are between 80% and 83% of capacity, but steel prices are still declining, and the outlook for profits remains depressed.
Housing and Construction
Home builders and lenders are encouraged by the step-up in consumer
traffic and sales in January and February, and several expect that
home sales this spring will top that of a year ago. Home buying and
starts have been especially strong in Cleveland and Cincinnati,
according to builders and realtors. Some officials believe that the
recent runup in mortgage interest rates has not deterred buying, and
may indeed be an incentive for consumers to buy before rates advance
further.
A large builder of single-family homes and condominiums reports good demand for units priced between $100,000 and $125,000. Credit is available, according to those contacted. Some builders complain that environmental and other regulations are increasingly a constraint on new housing starts.
Financial Conditions
Most large commercial banks contacted report little change in
commercial and industrial loans, although one noted its first signs
of a pickup since early 1991. A banker also states that a
combination of developments improved its capital position, and that
the bank is now more aggressively seeking loans. Both banks and
thrifts report a slowed pace in mortgage refinancing. Until the
latest runup in mortgage rates, several lenders temporarily
suspended accepting refinancing applications. New mortgage loan
demand, however, has been rising even since recent hikes in the
mortgage rates, according to several banks and thrifts. Depositories
contacted reported that they have ample funds available for what
they expect to be better spring sales this year than last.
Commercial real estate loans, however, are still difficult to get,
but are available to qualified borrowers.