Beige Book Report: Cleveland
March 10, 1993
Summary
District business activity continues to improve. Consumer spending
is stronger than retailers expected after the December buying spree,
with spring apparel and household durables selling particularly
well. Orders and production schedules for many manufacturers,
including steel, autos, and capital goods, are higher this quarter
than last. Increased production and orders have led some companies
to rehire workers, but employment gains still lag far behind output
growth. Lenders report an increase in credit-card use and mortgage
refinancing, but little growth in business loans.
Consumer Spending
District retail sales continue to be stronger than retailers
expected, with sales reported to be 5% to 10% higher than last year
at this time. The post-holiday performance has been particularly
impressive because the companies interviewed have not been
discounting prices heavily, as inventories of leftover winter goods
are low and early orders for spring merchandise were conservative.
Demand for spring fashions is significant, and consumers appear
particularly interested in new design items as opposed to basic
apparel. Retailers see this trend as indicating that consumers are
moving beyond basic needs to more discretionary items. Durable
goods, including high-end entertainment electronics, have also been
moving well. Pittsburgh area retailers point to an improving new
home market as a major source of increasing demand for household
durables, such as furniture and appliances.
Motor vehicle sales continue to improve, with truck sales faring better than autos and Big Three models outselling their foreign- nameplate counterparts. Dealers say that sales are generally up over last year, but that improvement is gradual. Every dealer interviewed reports a favorable inventory position. Stocks vary widely between a 60-to-120 days' supply, reflecting different stages of spring inventory buildup.
Manufacturing
Capital goods producers generally anticipate continued and
broadening strength in orders and production this quarter from last,
with weakness mainly in the aerospace industry. Orders for
industrial controls in January and February rose more than was
expected late last year, but controls and instruments for the
electric utility industry eased in January following the best
quarter of the year last quarter. One producer suspected that some
customers may be holding back on orders pending the outcome of
energy tax legislation. Heavy-duty truck suppliers also report that
orders during February are off the strong pace set during the last
half of 1992. One supplier points to the effect of the proposed
diesel fuel tax on marginal truck buyers as a reason for the
slowdown in orders.
Auto manufacturers anticipate a nearly 7% year-over-year improvement in U.S. motor vehicle sales during the first quarter of 1993. Most of the expected increase in demand continues to be in light trucks and sport/utility vehicles, although some of the newly designed car models are selling exceptionally well, according to industry sources. With dealer inventories well under control, factory orders have been rising with greater vehicle demand. The three U.S-based automakers expect March assemblies to meet schedules that call for an increase of more than 20 percent over a year ago.
District steel producers report that the surge in new orders since late last year has continued into February, which has led to rising backlogs of unfilled orders and stretching out of deliveries. Some producers report that order books for flat-rolled steel producers for the first half of 1993 are virtually at capacity, and some mills are taking orders for June delivery. Auto and appliance producers have led the order surge, which has induced other steel customers to place their orders Steel industry respondents assert that a strengthening economy and a drop in steel imports have contributed to strong demand. Despite a steel price hike in January and another increase announced for April, price hedging is not believed to be much of a factor in the current market, according to some producers.
Employment
Few respondents report near-term plans to rehire or to add new
workers, although a number of business officials indicate that they
are more likely to increase hiring than to reduce their employment
this year Nonetheless, employment gains have not matched output
growth in many industries. For example, while manufacturers of
industrial controls, truck components, and steel note a high level
of operations in recent months, they are resorting primarily to
outsourcing, extra shifts, and overtime to accommodate output growth
instead of adding workers. One exception is the auto industry. As
many assembly plants have increased their production schedules, most
employees on temporary layoff have been recalled, and some
facilities are hiring additional workers.
Retail employment followed normal layoff patterns after the holiday season, and most companies anticipate little more than replacement hiring for spring. However, several retailers have announced the opening of new stores and the expansion of existing outlets later this year, which will increase employment.
Financial Developments
District lenders report that loan growth is still confined largely
to consumer and mortgage loans. Some large banks report another
strong month of consumer lending in January, which followed a spurt
late last year. Several lenders note an increase in the use of
credit cards and home equity lines of credit in recent months. Most
lenders also report another surge in mortgage loan refinancing,
although not yet as strong as early last year. Business loans are
generally described as showing little growth because business firms
have access to strong cash flows and to equity and capital markets.