Beige Book Report: Chicago
March 10, 1993
Summary
Seventh District economic expansion continued in January and early
February. Labor markets strengthened, with some indications of
increased hiring momentum. Consumer spending growth held up
relatively well following the better-than-expected holiday season,
but adverse weather may have dampened sales in February. Expansion
in production continued along the pattern of improvement in the
fourth quarter of 1992, although several producers noted increased
concern about overseas markets. Reports from banks suggested
commercial loan demand strengthened in recent months.
Employment
Reports from recruiting firms, individual companies, and employer
surveys generally indicated that District labor markets strengthened
in early 1993. with some indications of increased momentum. A large
survey conducted by a temporary help company found continued
improvement in hiring plans among Midwest businesses, with modestly
stronger plans indicated for the region than the national average.
After bottoming out in early 1991, the employment component of the
Chicago purchasing managers' survey reached a five-year high in
January, then slipped back slightly in February. A number of
respondents to purchasing manager' surveys in Western Michigan
reported hiring previously laid-off workers in recent months. A
January survey of over 150 metalworking firms in the Chicago area
showed strengthening in employment among respondents, and the survey
director stated that some businesses are "beginning to scramble to
try and find people." A number of personnel firms reported that
client companies increased their permanent hiring of employees
previously working on a temporary basis. One recruiting firm
reported a "pretty good pickup" in permanent placements in early
1993. Increased demand remained centered among small-to-medium sized
employers, where a recovery began in mid-1992, but this contact also
said that a "sprinkling" of a recovery was emerging among larger
companies, and at higher salary levels. One firm noted that
inquiries from potential employees have declined about 50 percent
since peaking in the second quarter of 1992. An auto parts and
industrial equipment manufacturer stated that "we're doing all we
can to keep from hiring," but employment has been moving higher with
the current upturn in the firm's business, and is expected to
continue to go marginally higher in the second half of the year. A
number of large firms stated that employment gains were not expected
to follow recent increases in business activity, citing productivity
gains, and some large companies expect restructuring to adversely
affect their employment in the District during 1993.
Consumer Spending
Retailers generally indicated that sales growth held up well after a
better-than-expected holiday season, although some contacts noted
that bad weather impacted sales in February. A large department
store chain indicated that year-over-year same-store sales growth
improved from January to February, with above-average sales gains
reported for new seasonal merchandise, household goods, and big-
ticket items in general. This contact stated that it is still
planning conservatively, however. A retail chain with stores located
primarily in the Midwest noted modest softening in year-over-year
sales gains in early 1993, but after a better-than-expected holiday
season and over a relatively good year-earlier period. A large
retail chain stated that sales of durable goods, particularly
appliances, continued to improve in early 1993, although inclement
weather hurt overall sales in February. This firm's year-over-year
sales gains reportedly lagged the national average in several
Midwest markets in recent months. A number of retailers in the
Detroit area reported better-than-expected sales gains in January,
and sales held up relatively well in February in view or the bad
weather. The average year-over-year sales increase for dealers
surveyed at a recent recreational vehicle trade show in the Midwest
was over 40 percent. Attendance at a recent auto trade show in
Milwaukee surpassed the record set last year in spite of bad
weather, with dealers generally reporting that the share of
potential buyers in total attendance was higher than it was last
year.
Manufacturing
Purchasing managers' surveys and reports from individual firms
indicated that expansion in District manufacturing activity
continued in recent months, in line with the rate of improvement
seen in the fourth quarter of 1992. The production components of
purchasing managers' surveys in Chicago, Milwaukee and Detroit
continued to indicate moderate expansion in production in early
1993. In January, the production component of the Chicago survey
reached its highest level since 1988, then slipped slightly to a
still-healthy level of 69.8 percent in February. Production and new
orders improvement were evident in surveys conducted in Western
Michigan, and one respondent stated that "our suppliers are getting
a little arrogant." Output by producers of basic materials used in
durable goods production continued to move higher, although weakness
lingered in some markets, and several contacts noted further slowing
in sales into Europe. A large steel producer reported that a slow
recovery in orders continued, with above-average strength noted for
several sectors where District production is specialized, including
autos, appliances, and industrial machinery. Steel shipments growth
continued in January, but difficult weather impacted shipments in
the District in February. A large oil refiner reported that the
underlying trend in investment spending related to domestic
exploration remained weak, and a heavy equipment manufacturer stated
that sales of petroleum equipment have softened worldwide. An
electronics manufacturer reported continued gains in domestic
markets in line with those posted in late 1992, but this contact
stated that "Europe is beginning to look like a basket case." A
diversified manufacturer noted that weakness persists in overseas
markets for several product areas, although domestic orders for auto
servicing equipment have been a bright spot. A large auto parts
manufacturer stated that demand has been getting stronger over the
last 90 days, both from the aftermarket and OEM customers. A large
appliance manufacturer stated that "we had a fantastic fourth
quarter," also noting that new energy standards induced accelerated
dealer procurement in the fourth quarter of 1992. A large retailer,
however, stated that consumer demand remained strong in early 1993.
Banking
A survey of large District banks indicated that commercial loan
demand was unchanged to moderately stronger in recent months, with
increased demand distributed across small, medium and large
customers. A middle-market lender stared that loan demand continued
to pick up, but slowly and "is not yet robust." although loan
marketing intensified in recent weeks. Another bank reported that
outstanding commercial loan volume increased in recent months,
driven by customers' needs for financing growth in inventory and
receivables. This contact said that commercial loan quality has been
improving along with borrowers' earnings, but some financing
challenges remain. Several banks in Michigan reported increased loan
demand from firms in heavy equipment industries. One large bank in
the Chicago area stated that commercial lending activity "picked up
dramatically" in January, citing capital investment by large
manufacturing firms. Several banks stated that home mortgage
refinancing picked up renewed momentum. One bank reported a record
year for new consumer installment lending in 1992, as rising demand
for auto loans promoted increased strength in lending toward the end
of the year.