January 17, 1996
General Business Conditions
Most indicators of the District economy have changed little since the last report, although some seasonal slowing in industrial activity has occurred. Despite the poor weather that has plagued the region, most areas note a pickup in home sales, and construction employment starts, compared to the fall.
November jobless estimates jumped in Ohio and Pennsylvania, perhaps reflecting temporary cutbacks in the auto industry. But overall, district businesses are reporting a generally strong and stable employment situation.
Cost pressures remain mixed by area and industry, with wages apparently rising more rapidly than materials costs. However, most respondents report a low inflation environment.
Manufacturing
District manufacturing activity remains strong, although net new
orders growth has varied by industry. Auto and auto-related
production is still generally flat, but a modest strengthening has
been seen very recently. Steel orders have improved, and order books
in the industry are reportedly full through the first quarter.
Demand for structural steel has been particularly strong. No change
in manufacturing inventories is noted.
Capital-goods makers continue to see a moderating pace of net new orders. Still, the industry reports extremely high production levels, and order backlogs, though diminishing, remain substantial. While domestic demand for capital goods appears to have waned a bit, demand from foreign sources has picked up some of the slack.
Industrial price pressures appear to have moderated from midyear, although some raw materials are said to be in short supply, including a variety of metals. Equipment prices are holding steady, but some pressure on employment costs is noted.
Retailing
After a rather hopeful start, retail sales in the District were
generally disappointing during the holiday season. Few retailers
reported that sales receipts were above last year--only a couple of
large department stores met their sales expectations. According to
several sources, the recent holiday shopping season was the weakest
since 1990. Although not a large factor in the sales numbers, poor
weather in the region was noted to have disrupted last-minute
Christmas shopping and typical post-Christmas sales activity.
Sales of women's specialty apparel were particularly soft, as were apparel sales generally. However, jewelry, toys, electronic goods, and stationery were reasonably strong. Retailers in Ohio, particularly in the northeast, regarded holiday sales levels more favorably than did respondents elsewhere in the District. One major department store chain reported that its Ohio stores led the company in December sales.
Retail inventories are adequate to somewhat high. Price discounting, now common during the holiday period, was evidently even more severe this year. Retailers continue to worry about narrow profit margins.
The outlook for the next few months was reported to be generally positive in the durable-goods areas, specifically home improvement items and furniture. However, some fallout in area retailing is anticipated this year, as several retailers have hinted at an increased number of store closings.
Autos
Contrary to national reports, December was a somewhat disappointing
month for the District's auto dealers. For the most part, sales were
at or below expectations, and were off as much as 40 percent from
December 1994. Dealers in northern Ohio are a notable exception,
however, with luxury vehicle sales reportedly quite strong. Various
promotional incentives -- some offering rebates of up to several
thousand dollars on luxury models -- were reportedly ineffectual.
Inventories are on target or slightly higher than planned, ranging between a 30- and 70-day supply. Higher stocks were noted in the southern part of the District. After-Christmas sales growth, typical for this industry, apparently did not materialize this year. Again, poor weather in the region is partly to blame. The dealers we contacted seem optimistic about the first quarter of 1996 and are expecting a better year ahead.
Banking and Credit
Commercial banks continue to report reasonably strong lending
activity. Commercial, industrial, and consumer borrowing all remain
high, and mortgage lending has picked up. Furthermore, a flurry of
mortgage refinancing requests is anticipated.
Bankers note a deterioration in credit quality. Delinquency rates
are still rising, as they have for several straight months. Loan
delinquency levels, however, are considered low by historical
standards.