August 2, 1988
Summary
The Fourth District's economy continues to grow. Ohio's unemployment
rate fell for the fourth straight month to 5.9 percent as a result
of employment gains in both manufacturing and nonmanufacturing
sectors. Manufacturing firms report steady gains in production, new
orders, and employment. Retail and auto sales remain sluggish. Banks
report relatively strong growth in commercial and consumer
installment loans.
Retail Sales
Retailers report sluggish sales, and they continue to be cautious
about prospects for improvement in the fall. Furniture and appliance
inventories are higher than a year ago, and stores have had to
resort to considerable discounting of summer merchandise to trim
large inventories. Merchandisers expect that rising interest rates
will keep furniture and appliance sales soft in the months ahead.
Retailers generally are ordering very cautiously for the fall
because they expect to have difficulty passing through to their
customers the large price increases being paid on imported goods,
especially apparel. Retailers report that, where possible, they are
shifting to domestic sources.
Auto dealers report that sales picked up in the last half of June but turned sluggish in the first half of July. Some suggest the early July slowdown is seasonal and will be reversed in the last half of the month. Recent minor adjustments in incentive programs seem to be having little impact on sales. Dealers generally see no indications that customers are becoming less willing to spend, and one dealer reported that customers seem to be choosing more expensive models and options. Some dealers complained they have lost sales because inventories are too low while others expect to have difficulty clearing out some models at the end of the model year. Foreign cars continue to sell well.
Labor Markets
Labor markets showed broad-based improvements during the last
several months. Overall, Ohio's unemployment rate fell to 5.9
percent in June, the lowest in the last several months. The decrease
resulted from both a decrease of 10,000 unemployed workers and an
increase of 23,000 workers. Much of the increase came from the
service sector, especially business services, hotels, and recreation
services. However, manufacturing employment has increased steadily,
with durable goods employment showing strong improvement,
particularly in the smaller cities. Recent employment projections
indicate improved job prospects for these cities, which were
recently severely affected by the decline in manufacturing. Most of
the employment gains in the large urban areas were outside the
manufacturing sector.
The average workweek for Ohio production workers increased by .2 hours in May to 43.2 hours. Weekly earnings were up $2.84. The largest increases in earnings were in motor vehicles and equipment and blast furnace and basic steel products.
Manufacturing
Manufacturing in the Fourth District continues to rebound, with
increases reported in production, new orders, and employment.
Comments from purchasing managers in Cincinnati and Cleveland
indicate that production levels are taxing capacity and that orders
are being scheduled into next year. The increase in production and
new orders continues to exert pressure on the prices and
availability of a wide range of commodities, particularly bearings,
electric motors, and a variety of chemical and steel products. The
higher prices and the unpredictability of lead times have led some
purchasers to increase raw material inventories. However, most
businesses report that the high volume of new orders and the steady
backlogs of existing orders should absorb the additional
stockpiling.
Favorable exchange rates continue to benefit many industries in the region. For example, through the first five months of 1988, orders for machine tools have increased 83 percent from the same period last year. Raw steel production in the Youngstown, Pittsburgh, and Lake Erie regions rose 15.8 percent during the last three months over the same three-month period a year ago. Improvement in the steel industry has prompted several large steelmakers to modernize and expand existing plants in the District.
Banking
District loan demand has been quite strong. Total loans outstanding
at large banks rose at an annual pace of 22 percent from mid-May to
the beginning of July. Consumer installment loans, which grew at an
annual rate of more than 50 percent, accounted for much of the
overall loan growth. Nevertheless, the demand for business credit
and mortgages was also relatively strong with commercial and
industrial loans growing at an annual pace of 11 percent and real
estate loans growing at 13 percent.