June 21, 1995
General Business Conditions
The growth rate of business activity in the District has slowed,
with many industries indicating production levels about even with
the first quarter. Construction activity is mixed: Residential
construction remains mostly flat, but the District continues to see
growth in commercial construction, especially in Ohio. The region's
agricultural producers are expecting excellent harvests, and some
downward pressure on crop prices has already occurred.
Unemployment has risen in the region, but is still low relative to the national average. Despite scattered reports of labor shortages, wage pressures remain generally moderate.
Manufacturing
Although District manufacturers have seen a slowing in the growth
rate of production and new orders over the past few months, they
still note generally high production levels.
Excluding makers of transportation equipment, capital goods producers are continuing to enjoy strong production and orders, albeit at a somewhat more moderate pace. Heavy truck production has weakened, with new orders down by about half since March, and some cancellations of earlier orders have occurred. On balance, the region's automakers have seen lower-than-expected new vehicle sales and associated inventory buildups and several assembly plants in Ohio have cut production. Auto suppliers have also scaled back production plans in the face of a noticeable drop in orders. While there has been a sharp falloff in auto exports to Mexico, shipments of auto parts to Canada appear to be holding firm. Other export markets continue to strengthen, particularly in Europe, presumably reflecting both the rise in foreign currency prices and a strengthening in foreign economies.
No widespread manufacturing layoffs have been reported. To date, production slowdowns have been accommodated with a reduction in the workweek, mostly from fewer overtime hours. Nevertheless, the industrial sector is currently operating at a slightly-more-than- typical work schedule.
Industrial price pressures have eased in the past several months, although some commodities, including aluminum, paper, plastic resins, and stainless steel, are still reported to be in short supply, and their prices continue to move sharply higher. Energy and copper prices are noticeably lower.
Retailing
District retailers report mixed results. Retail spending gains in
the region seem to be somewhat better than along the East Coast, but
below levels in the Central and Southeastern U.S. Nondurable goods
are generally selling better than durables, although the market for
consumer electronics is reportedly booming, including computers and
telecommunications equipment. Demand for home improvement products
has been very soft, and while apparel sales have strengthened in the
past few months, the gains have been limited mostly to large chain
stores.
Retail inventories are generally described as a little heavier than desired, but there are no reports of any substantive imbalance.
Auto Sales
District auto dealers report that May and early June sales were a
little better than April's dismal performance. On a year-over-year
basis, second-quarter sales are coming in much lower than in 1994.
Shortages of popular car models that were noted in the previous
District report have vanished. Dealers also report lower-than-usual
profit margins for the spring market, and more intense price
competition. New vehicle loan rates are hovering in the 10 percent
range for a 60-month term, although a few dealers have noted an
easing in auto loan rates recently.
District auto dealers say that inventories are high at current sales rates. Local dealers report a 70 days' supply--about 10 days less than the national average. In fact, District dealers say that current inventory levels would be appropriate in a normal market.
Banking and Credit Loan demand in the District has softened somewhat, although new mortgage lending and mortgage refinancing have improved with the recent decline in rates.
Consumer lending patterns have been mixed, with auto credit off substantially and revolving credit somewhat stronger. Commercial lending activity is still growing, although not in all regions or at all institutions. Some of the commercial credit expansion originates from higher inventories, but some reflects borrowing for plant expansion. Although delinquency rates remain very low, several District bankers are concerned about a further decline in credit standards.