May 6, 1992
Summary
Economic activity in the Seventh District continued to expand in
recent weeks, with some sectors appearing to gain momentum. Retail
sales moved higher, and several industry contacts offered more
optimistic interpretations of sales trends than they did earlier in
the year. The recent flood in downtown Chicago resulted in lost
sales and substantial property damage for area businesses. Reports
from auto dealers were mixed but generally positive, and auto
suppliers expect little revision in auto production schedules for
the second quarter. Purchasing managers' surveys and reports from
manufacturers indicated a continued upward trend in industrial
activity. Commercial lending activity in the District was mixed;
previous reports had been more uniformly indicative of sluggish
credit markets.
Retail Sales
Retail sales activity in the District continued to improve in recent
weeks, with several retailers indicating that sales in the Midwest
outperformed the national average. A large national retailer
reported a year-over-year sales gain in March despite the lack of
the Easter holiday in this year's results, and noted that sales of
durable goods (which are less sensitive to Easter spending patterns)
posted a double-digit increase. A retailer specializing in women's
apparel stated that sales exceeded plan in March, and business was
especially brisk (and above plan) in the first half of April.
Another large retailer stated that apparel sales strengthened in
early April, joining continued solid gains in sales of home
furnishings that developed beginning in the first quarter. A large
discount retailer reported sales of small appliances and home
furnishings have been particularly robust in most Midwest markets in
recent months. Reports from other businesses related to the
retailing industry reinforced a picture of improving conditions in
this sector of the District economy.
However, the recent flood in downtown Chicago resulted in significant property damage and lost output for area businesses. Retailers reported significant losses from damaged inventory and curtailed store hours, although much of the retail sales lost in the downtown area were shifted to other local and suburban stores. A regional analyst noted that other offsetting effects are expected to include higher levels of construction employment in the downtown area.
Motor Vehicles
Auto industry contacts indicated some improvement in the motor
vehicle market in March and early April, especially in the light
truck segment. Using its own seasonal adjustment factors, a large
automaker reported that industrywide sales of light vehicles
increased in February and March, and expected a solid gain in the
second quarter. An owner of several rental car franchises noted that
rental frequency started to improve in March, then increased
dramatically in April. An auto dealer in downstate Illinois reported
that sales increased sharply in early April, after a normal seasonal
pickup in sales failed to materialize in March. This contact noted
that the April gains came in spite of increasing tension during the
Caterpillar-UAW negotiations, and that the recent progress in
resolving the dispute has begun to relieve tension among area
consumers. However, a large auto dealer based in Southeast Michigan
stated that a sales upturn started in March but dissipated in April,
noting that consumer uncertainty had risen following new auto
industry restructuring announcements.
On the production side, a large supplier to the auto industry stated that "automakers are acting as if second quarter is sacred," and noted that schedules for at least one large automaker are more likely to be revised upward than downward. A supplier linked to light truck production reported that shipments in March and April were sharply higher than a year ago. In March, heavy-duty truck order backlogs reached their highest level since early 1990, according to an industry analyst, although build rates have not yet shown similar improvement Still, the orders received by a truck engine manufacturer indicated that a heightened level of activity held through April.
Manufacturing
Surveys and contact reports suggested continued upward movement in
industrial activity in the Seventh District. The Chicago purchasing
managers' survey (seasonally adjusted) indicated expansion at a
somewhat faster pace in April, and the employment component of the
survey reached a level above 50 percent for the first time since
June 1990. Reflecting the slow improvement indicated by reports from
the auto industry, the Detroit purchasing managers' survey (also
seasonally adjusted) indicated expansion in manufacturing activity
in both February and March. Surveys conducted in Western Michigan
and Southwest Wisconsin continued to post solid results in March. A
steel producer reported that it has become more optimistic about
industry conditions than it has been over the past 18 months, citing
a noticeable improvement in orders. Machinery orders received by a
large manufacturer of heavy equipment continued to post solid year-
over-year gains through March, although much of the strength came
from large individual orders from overseas. New strengthening in
expected shipments was reported by a boiler manufacturer, as
customer orders were again being released after postponements in
1991. This firm views the Midwest as its strongest market A
manufacturer of office furniture delayed a planned layoff after some
strengthening in orders. An appliance manufacturer stated that
retailers' orders have improved in recent weeks, "but they don't
seem to be ordering for the back room yet." A machine tool
manufacturer expecting a solid sales gain in 1992 reported that
orders haven't accelerated in recent weeks, noting that customers'
capital spending on its products showed little sensitivity to the
business downturn experienced in 1990 and 1991.
Real Estate/Construction
Continued strength in housing activity was joined by scattered signs
of increased commercial construction. A large realtor reported that
residential transactions (primarily for home resales) continued to
run at record levels through March and early April, while commercial
sales and leasing activity remain slow. At the same time, this
contact stated that on the commercial side "we are seeing some light
at the end of the tunnel for the first time in 6 to 8 months," as
institutional investors have begun to indicate some willingness to
consider financing new projects. A large contractor who had been
expecting no new commercial construction in his market area reported
some unexpected activity had arisen in recent months. Several
financial institutions reported higher levels of activity in the
residential real estate market m the Detroit area. An association of
construction contractors specializing in homebuilding and small
commercial projects throughout Wisconsin reported that the recent
recession had little impact on construction activity among its
membership, and activity is now improving along a normal seasonal
pattern. The association itself recently broke ground on a new
headquarters facility in order to accommodate the need for new
space. A large cement producer reported that higher levels of
bidding for small industrial construction projects joined increased
public works activity in March and April.
Banking
Reports from borrowers and lenders on commercial lending in recent
weeks were mixed, after more uniform indications of sluggish credit
markets in previous reports. A large commercial bank reported that
its lending department has been marketing more aggressively in
recent weeks. Much of the new lending that has arisen has been in
the residential mortgage area, although the bank has also emphasized
lending to manufacturers. A middle market lender reported sluggish
demand for commercial loans financing plant or equipment expansion.
On the other hand, a law firm reported that its commercial loan
documentation business quickened in recent months, and the nature of
the work indicated that banks were making more -- and bigger -- new
loans to businesses. Separately, a large bank reported that its
commercial lending (outside of real estate) has increased over the
past few months. A large construction contractor stated that its
banking contacts have indicated a greater willingness to lend in
recent weeks.