Beige Book Report: Cleveland
October 27, 1987
Summary
The Fourth District's economy has picked up since the last report.
Employment has increased in nearly every sector, pushing area
unemployment rates to their lowest levels during the current
expansion. The manufacturing sector appears to be heating up; new
orders and backlog orders continue to rise, inventories are lower,
and overall capacity is reportedly above 80 percent. The increase in
production has put upward pressure on commodity and service prices
and has left some commodities, including steel and paper products,
in short supply. Weekly earnings of factory workers have also
increased, but much of this is due to overtime pay.
Retail Sales
Retail sales continue to fall below expectations. Sales of household
durables have been sluggish, partly because of the slowdown in
housing construction. Area merchants report that higher-than-
expected import prices of many apparel lines during the past five
months have dampened sales in soft goods. Both domestic and foreign
automobile sales in the area are flat despite recent incentive
programs. Some dealers report that the recent incentive programs
have helped to clear out remaining 1987 models, but many dealers
feel that last year's incentive programs have drained the local
demand for autos.
Labor Markets
Unemployment rates in the Fourth District continue to edge downward.
In Ohio, the unemployment rate fell to 7.0 percent in August from
7.1 percent in July as the number of unemployed workers declined by
8,000 and employment increased in nearly every division. Similar
declines in unemployment rates were experienced in western
Pennsylvania and eastern Kentucky. The Pittsburgh area's
unemployment rate fell below 7.0 percent after hovering around 8.0
percent for most of the year. The decline was due principally to a
combination of recalls of laid-off manufacturing workers and
industrial growth in nonmanufacturing sectors. The Lexington area,
bolstered by a protracted building boom, once again registered one
of the lowest unemployment rates in the District at 4.4 percent in
August.
Factory employment rebounded slightly in August in many parts of the District. Manufacturing employment in Ohio was up 11,000 from July, signaling the first solid gains in the state's manufacturing employment since February. Most of the increase came in the durable- goods industries. For instance, the Youngstown-Warren area, which over the last year lost 4,000 manufacturing jobs, saw a healthy increase of 2,000 factory workers, as a substantial number of transportation equipment workers were recalled.
Employment prospects for the fourth quarter are generally favorable throughout the District. Employment gains in wholesale and retail are expected to exceed those of other industries. However, both durable and nondurable manufacturers appear much more positive about hiring additional workers than in comparable periods of the past two years.
Average weekly earnings also increased in August primarily due to an increase in the workweek. In Ohio and Pittsburgh, the average workweek lengthened by one-half hour to 42.5 hours.
Manufacturing
The Ohio Manufacturing Index rose in August by a seasonally adjusted
rate of 1.4 percent. All major sectors registered monthly gains,
except for clay and glass products. Primary metals showed the
largest increase (3.2 percent), with instruments (2.2 percent) and
nonelectrical machinery (1.8 percent) close behind. August marks the
third straight month that the index has increased, after falling
throughout the first half of 1987.
The Purchasing Managers survey supports this outlook by reporting an increase in production and new orders. In addition, a backlog of orders and a reduction in inventories has put upward pressure on commodity prices. The Cincinnati survey reports that increases in commodity prices are the highest since the survey began in 1982. Purchasers in the area report problems with late deliveries and a shortage of some paper and steel products. A similar, though less dramatic, situation is reported for Northeast Ohio.
Steel shipments from Ohio's mills increased by less than 1 percent in August over July, compared with a 2.3 percent increase nationwide. However, shipments in the Pittsburgh area increased 15 percent between July and September as USX continued to increase output after its six-month work stoppage.
Banking
District loan demand has improved in recent weeks. Total loans
outstanding at large banks rose at an annual rate of 8 percent from
mid-August to the end of September. The recent pickup in lending has
been broadbased, with real estate loans and business and consumer
installment loans increasing at an annual rate of 7 percent and 14
percent. Home-equity lending also continues to rise.