September 23, 1992
Summary
Activity in the Fourth District shows scattered signs of picking up
from the summer slowdown. Retailers report strengthening in early
September sales, and manufacturers -- except for automobile
producers -- note a recent spurt in their new orders. Third quarter
housing starts in Ohio may have edged down from the second quarter,
but mortgage interest rates dipped further. Except for home equity
loans and mortgage refinancing, bank loans eased in August.
Consumer Spending
Retail sales in the Fourth District apparently showed reduced year-
over-year gains in August, but some retailers report larger
increases in early September, helped by back-to-school buying.
Retailers have apparently cleared summer inventories and are
planning to hold stocks of fall and winter merchandise close to
estimated sales levels. General merchandise sales during the fall
are forecast to rise by about 5% from a year ago, compared with a 4%
increase in spring sales, according to a retail source. Retailers
anticipate less-than-usual hiring in the months ahead in order to
improve productivity.
Auto sources were disappointed by the unexpected drop in new car sales in July and by a further decline in August. They report that dealers have recently cut orders below sales in order to prevent an unwanted buildup of new car inventories.
Manufacturing
Output in the District appears to be picking up, except for
automobiles. High-tech producers are benefiting from sizable gains
in orders and shipments, and more recently, total output is being
supported by a slowly reviving industrial equipment market and by a
spurt in heavy-duty truck business. Orders for heavy-duty trucks in
July and August are said to have climbed to their beat levels in
recent years, although helped by some price-hedging. A producer of
industrial equipment components notes a boost in July orders, but
revival in recent months has been relatively small. An electronics
producer reports double-digit increases for its products in recent
months.
Shipments of major household appliances in July and August showed larger year-to-year gains than in preceding months, according to a producer. Nevertheless, not much more additional growth is anticipated during the balance of this year because of a flattening in housing starts since spring.
Near-term growth in manufacturing output may be restrained because of spottiness in auto output. Auto sources forecast that the annual rate of production in the fourth quarter will remain about unchanged from the third-quarter rate, even if the production loss of GMC is fully made up. They are concerned that dealer orders have been running below sales recently.
Steel producers anticipate little change in production over the next few months from the present 80% operating rate. According to one source, September orders are rebounding from the summer slowdown in July and August, but the pace of new orders for October and November is slower than expected.
District suppliers to the aerospace industry note that cutbacks in defense purchases as well as deferment of orders for commercial aircraft are dampening their orders and backlogs.
Manufacturers indicate that inventories continue to be lean. Some are adding slightly, while others are still cutting stocks as a result of improving operating and inventory techniques. Industry sources anticipate continued intensive use of their existing work force, and do not expect either layoffs or worker recalls in the near term.
Residential Construction
Thrift institutions report some letup in new mortgage loans in
August and early September, despite a further reduction in interest
rates.
New housing starts in Ohio may be off a little in the third quarter from the second, according to a building official, with wide variations within the state. Building contracts in the high-growth area of Columbus sustained their strong pace through most of the third quarter. In Cleveland, however, a large builder of higher- priced, single-family housing reports a sag in consumer traffic and buying during August and early September, which, if continued, will result in layoffs. Home remodeling contractors, however, are said to be operating at capacity.
Banking
Several major banks in the District report that business loans
declined again in August, mostly because the volume of new loans
continued to fall short of repayments and write-offs. In their view,
businesses have been generating sufficient cash flow in recent
quarters to meet working capital needs. Some borrowers, however,
assert that banks are unwilling to take risky loans that might
damage their capital positions.
Bankers note recent declines in consumer installment credit and slower growth in credit card usage. Home equity loans are the major source of loan expansion, according to several lenders.
Some depositories have made further interest-rate cuts on deposits and mortgage loans in recent weeks.