September 20, 1983
Summary
The District economy continues its mild improvement. Employment is
rising and unemployment falling. However, weekly earnings in
manufacturing declined along with the average work week. Consumer
prices are rising slowly in Cincinnati and Pittsburgh but rapidly in
Cleveland. Retail sales are well above year-ago levels but down from
June and July. Manufacturing activity continues to expand, but steel
and machine tool orders and output remain very weak. Productivity is
rising briskly in many firms as output rises. Investment in plant
and equipment is weak. Coal inventories remain too high while output
is stable. Commercial banks remain liquid as savings deposit growth
is strong. Real estate and consumer loan demand has increased in
recent weeks but commercial loan demand remains flat.
District Labor Market Conditions
Employment continues to rise in this District while unemployment
falls. In Ohio, total employment continued its uptrend in July,
despite a small decline in manufacturing and a larger decline in
nonmanufacturing wage and salary employment. The overall employment
gain outpaced labor force growth causing the unemployment rate to
fall from 12.8% in June to 10.9% in July (nsa). Unemployment rates
among ten of the District's largest SMSAs ranged from 8.5% to 14.3%
(nsa) in July and averaged 11.6%, down from 13.3% in June. Local
indexes of leading indicators for Pittsburgh and Cleveland point to
continued improvement in those industrial centers.
Prices, Wages, and Earnings
Average weekly earnings of Ohio manufacturing production workers
fell in July as both average weekly hours worked and average hourly
earnings declined. The decline in hours was the first since January
and the decline in hourly earnings was the first since October.
The Consumer Price Index for all urban consumers in Cincinnati rose 6.5% in the last twelve months and at a 1.8% annual rate in the last two months. For Cleveland, the index advanced 9.3% and 9.0% and for Pittsburgh 7.1% and 0.4% in the same two periods.
Retail Sales
Fourth District retailers are showing significant sales gains from
year-ago levels, although spending for most goods. has moderated
further from June highs. General merchandise sales by major
retailers in August were roughly 14 to 15 percent above last year,
but somewhat lower than in either June or July. Sales strength is
reported for most expenditure types, with softgoods and home
furnishings registering the strongest gains. Auto dealers are
reporting moderate-to-strong sales across the District. New domestic
car sales are generally above year-ago levels, but decidedly slower
than in June or July. Domestic new-car sellers indicate a mounting
inventory shortage, which should ease as 1984 models arrive. Lean
inventory positions more seriously restrained new import-car sales
in August and early September, but import showroom traffic is still
heavy.
Manufacturing
District manufacturing activity continued to expand in August. A
survey of purchasing managers in the Cleveland area reveals
production, employment, and new orders rose in August more rapidly
than in July. Inventories were little changed from July, but prices
accelerated from July.
A survey of purchasing managers in the Cincinnati area shows production and new orders rose briskly in August, albeit not as rapidly as in July. Employment and prices rose more rapidly than in July while inventories of finished goods continued to fall.
This Bank's survey of Fourth District manufacturers shows shipments, new orders, backlogs, inventories, and employment rose in August and are expected to rise, albeit somewhat less rapidly, in September. Prices are rising slowly. Several firms report productivity rising rapidly, limiting their need to expand employment and hours as output increases.
Producers of defense and aerospace equipment report continued increases in orders, production, employment, and investment. Suppliers of parts for cars report sales continuing good. Orders for truck components are rising.
New orders for machine tools have been rising slowly this year but remain weak as customers' capacity utilization is low. A major producer reports backlogs rose slightly in July for the first time in 30 months. Production is down from last year. Employment remains stable with no layoffs and no recalls. Prices remain soft.
Orders for steel have begun to rise slowly from very low levels. Capacity utilization remains near 55% and below the break-even point. Several producers report that orders and production for flat rolled products have been at or near current effective capacity. Nevertheless, prices remain soft and are heavily discounted from list, and currently idle capacity is unlikely to be brought back into production soon. Employment is stable, but one major firm is reported to be planning further layoffs of management personnel.
Investment in plant and equipment by major firms in this district remains weak and cautious. Most of current activity involves completion of long-lead-time projects, and replacement, which includes some upgrading of technology. A very few firms are initiating projects to expand capacity; these are in industries where product demand is currently strong, including aerospace, defense electronics, and road construction materials.