Beige Book Report: Cleveland
January 27, 1988
Summary
The year 1987 closed on several optimistic notes. Manufacturing,
boosted by increased export activity, continued its recent rebound
with output, new orders, and employment up over the previous month.
Holiday retail sales were slightly better than expected, aided by an
increase in auto sales. Many local area unemployment rates remained
at or below the national rate. District loan demand continued to
Increase at a modest rate.
Retail Sales
An increase in auto sales in December helped boost Holiday retail
sales in the Fourth District above last year's sales levels. Most
car dealers reported increased sales in December over the previous
two months, as incentive programs once again attracted consumers.
Sales volume differed widely across cities and across product lines. For instance, one major retailer reported that sales were up 12.5 percent in their Pittsburgh stores but up only 5 percent in their Cleveland stores. Sales of apparel were up, due partly to the deep discounting before Christmas. On the other hand, sales of durable home goods were down, reflecting consumer caution after October's stock market decline. Discount retailers reported a greater increase in sales than top-of-the-line outlets. The consensus among retailers was that sales will slow down during the first half of 1988. Prices are expected to show only a modest increase as price pressure from imports eases.
Manufacturing
The manufacturing sector continued to show positive signs. Output,
as measured by the Ohio Manufacturing Index, increased by 0.2
percent in November, rebounding slightly from the previous month's
decline. Gains in durable goods, especially primary metals,
transportation equipment, fabricated metals, and instruments, were
primarily responsible for the November turnaround. Manufacturing in
nondurable goods fell 0.1 percent in November, due to continued
decline in printing and publishing and food processing.
Reports from purchasing managers concurred with the uptick in the output index. In the Cleveland area, all indicators were higher in November than in previous months. Respondents to the purchasing managers survey indicated higher employment, higher raw material, supply, and finished product inventories, and an increase in new orders. Two-thirds of the respondents reported higher prices. Specialty steel items and plastics products were reported to be in short supply. Purchasing managers in the Cincinnati area reported these indicators to be "at strong levels," but down slightly from the three-year highs of the past few months.
Steel production in the Youngstown and Pittsburgh areas remained strong. Youngstown producers shipped 6 percent more steel in December than they did in December of 1986. Pittsburgh producers shipped 13 percent more than a year ago.
Exports continued to be largely responsible for the increase in manufacturing activity. Machinery, chemicals, and instruments contributed significantly to the increase in export activity. One local business person remarked that for the first time he is now able to sell machine tools to various Asian countries.
Labor Markets
Ohio's total employment increased by 14,000 workers, led in part by
a 4,000 worker advance in manufacturing. However, despite the recent
increase in manufacturing employment, Ohio lost 7,500 factory jobs
between November 1987 and November 1986. The largest losses over the
year occurred in fabricated metals, machinery, autos, and aircraft
and parts. Primary metals posted the largest gain of the major
manufacturing sectors, adding 5,400 workers. Continued strength in
the service sector boosted the year-to-year increase in total
employment for Ohio to 111,500, a 2.4 percent increase. November's
unemployment rate stood at 5.9 percent, up slightly from previous
months but still equal to the national rate.
Area businesses anticipated moderate hiring in the first quarter of 1988. In Akron, 43 percent of local employers surveyed by a nationwide employment agency planned to increase staff, while only 3 percent expected cutbacks. Pittsburgh area businesses were less optimistic. Only 17 percent of those surveyed planned to increase staff during the next three months. Twenty percent said that they anticipated cutbacks. The Cleveland area hiring outlook appeared mixed. Twenty-five percent of local businesses expected to increase their workforce, while the same percentage expected to cut back. Overall, job opportunities looked best in services and durable manufacturing.
Banking
District loan demand continued to be modest. Total loans outstanding
at large banks grew at an annual rate of 5 percent during November
and December. Most of the loan growth was in business and consumer
installment lending. Commercial and industrial loans rose at an
annual rate of 5 percent over the last two months, up slightly from
October's pace. Consumer installment lending increased at a double
digit rate in November and December, but much of the growth may have
been attributed to seasonal factors. Mortgage rates generally rose
in October and November, contributing to a slight fall in
outstanding real estate loans in November and December.