Beige Book Report: Cleveland
May 8, 1996
General Business Conditions
Business activity is expanding in the District, after having shown
only mixed and generally small gains since the first of the year.
Even in western Pennsylvania, an area that has not fared especially
well in the past year, production and employment are both up. That
region still lags Ohio, however, where growth has generally been
stronger.
Unemployment remains low in most parts of the District and is particularly low in manufacturing-intensive northwestern Ohio. Reports of labor shortages are still heard in some areas, although perhaps less frequently than at this time last year. Still, wage increases are running only in the 2 percent to 3 percent range.
Weather conditions this spring have been cool, but mild, and early crop production estimates are favorable. The combined effect of good harvests and substantially lower inventories compared to last year suggests the potential for a profitable agricultural sector in 1996.
Manufacturing
Industrial activity is still gaining ground after a relatively weak
year-end performance. Many manufacturers indicated that orders have
picked up since the first quarter. Capital goods producers continue
to lead most other manufacturers in growth and production rates.
Auto and auto-related companies are reporting higher production
levels following the strike-induced shutdowns last quarter, although
a few lingering aftereffects of the strike were noted. Firms with
significant export markets see business from abroad growing
moderately from earlier in the year. Only a few industrial producers
indicated higher-than-desired inventory levels, also an improvement
from the District report of a few months ago.
Cost pressures remain remarkably light given the continued high production levels seen here. Area purchasing managers report that prices have risen on only a limited assortment of commodities, including some metals and most energy goods. Only a few commodities are noted to be in short supply.
General Retailing and Auto Sales
District retail activity strengthened in March and April, but cool
temperatures were a negative factor, especially in building supplies
and lawn and garden equipment. Apparel sales were stronger in April,
with women's apparel, sportswear, and some categories of men's
apparel much improved from earlier in the year. Major appliances and
consumer electronics have also been selling well (although sales of
computing equipment are off substantially.) Still, the April retail
performance was generally good, and one contact suggested the
potential for the start of another retail growth cycle. Indeed, one
national retailer reports plans to add six or more stores in the
District by year's end. Inventory levels are "on plan" at most of
the retail establishments we contacted.
Auto sales were mixed across the District during March and April. Several dealers attribute much of the poor sales performance to colder-than-usual temperatures and most were optimistic that sales would improve this spring. Dealers are continuing to use special financing plans and factory incentives. Current interest rates seem to be having little or no effect on sales, but most dealers are quick to note the potential for a drop-off should interest rates rise appreciably.
The General Motors strike appears to have had only a small effect on sales, although inventory stocks were noticeably depleted. In most cases, the inventory decline helped trim excess supplies (although one dealer saw inventories plunge to a 4-day supply and reportedly lost some sales as a result.) The majority of dealers describe their stocks as "desired" or "slightly lower than desired," with the typical inventory ranging between a 50- and 75-day supply.
Banking
The majority of banks indicated that loan demand has picked up a bit
from earlier in the year. However, most of the recent growth in
credit extensions has centered in the commercial credit categories,
despite a rather pronounced drop-off in inventory floor plans.
Presumably, credit extensions for business expansion are rising
again. Some institutions also report a modest increase in new
mortgage credit. Consumer borrowing remains basically flat, although
a number of larger institutions report greater securitization of a
variety of consumer loans.
Competition for credit is keen and spreads between deposit and lending rates are said to be narrow. However, profit reports from District banks last quarter were good. Moreover, while a continuing deterioration in credit quality is noted, there are no reports of any significant rise in either commercial or consumer debt delinquencies.