Beige Book Report: Cleveland
June 19, 1996
General Business Conditions
District business conditions remain firm and are generally expanding
at a moderate or better pace. Although employment growth has been
lackluster over the past few months, many regions report jobless
rates well below the national average. In a few areas, such as
central Ohio and northern Kentucky, unemployment stands at less than
4 percent. Although firms are having difficulty finding and
retaining qualified workers in a variety of industries, occupations,
and regions, only scattered reports of significant wage acceleration
have been noted.
Manufacturing
Manufacturing activity continues to move ahead, although at a
slightly uneven pace by industry. New orders growth, which had been
quite strong in March and April, appears to have waned a bit
recently. New export orders have been reasonably robust, however,
and steel producers are noting reduced competition from imports.
Orders strength is also reported in areas related to passenger cars
and building and construction materials. Two notably weak areas in
the industrial orders data are heavy trucks and industrial
hydraulics.
Production continues to rise at a moderate pace. However, as has been the case over much of the past few years, higher output levels appear to be supported by increased hours and productivity gains, rather than by a significant growth in payrolls. Capital-goods production continues to lead the industrial growth categories, although stronger production levels are reported in most industries.
Increased cost pressures are centered in petroleum-based products, including diesel fuel and a variety of plastics. Downward price movements are reported in paper products.
Consumers
May was a relatively good month for District retailers. Sales of
men's and women's sportswear were especially strong. However, wet
weather may have been a negative factor for sales of home
improvement and lawn and garden items, which were heavily promoted.
Retail inventories continue to dwindle, and most are reported at or
very near their desired levels. The labor market for skilled retail
workers is characterized as tight.
Auto sales were fairly strong across the District in May, and most dealers reported improved sales over the previous few months. Warmer temperatures and the continuation of factory incentives are generally credited for the enhanced performance. Several sources indicated that replenished inventories were also a contributing factor. Dealers currently report that inventories are at or just slightly above desired levels, although some of the most popular models are still in short supply.
Agriculture
Heavy rains and cool weather delayed the start of the District's
planting season. Virtually all Fourth District acreage is currently
underplanted, although conditions improve as you move south into
Kentucky. Wet weather also has exacerbated plant disease, reduced
suitable grazing acreage, and slowed the harvest of feed crops,
including alfalfa. Timely breaks in the weather have allowed
significant progress in planting during the past few weeks, however,
easing what was a critical situation for many crops, particularly
corn.
With high grain prices and low stocks, some farmers are having difficulty delivering on "hedge-to-arrive" contracts with grain elevators. This, in turn, has created problems for some grain elevators that have sold futures in commodity markets, and a portion of these are reported to be seeking additional credit to meet margin calls. In Ohio, only a few such cases are considered to be serious.
Banking and Credit
Loan demands appear to have firmed somewhat in the past month,
particularly in the consumer sector, where borrowing activity is
generally described as strong. Lending patterns are quite mixed by
institution, however. Credit extensions are reportedly up in both
the automobile and credit card categories. Commercial credit growth
is said to have slowed since the last District report, though, and a
few large institutions have noted a substantial drop-off in
commercial credit extensions over the past several weeks.
Competition for borrowers remains fierce, and credit quality is an ongoing issue at many institutions. Still, judged against historical patterns, loan delinquencies and charge-offs are low.