Beige Book Report: Cleveland
September 8, 1993
Summary
Growth in District business activity has been driven by brisk retail
sales and steady gains in production. Strong demand for furniture
and appliances and exceptional new-car sales have helped to sustain
significant overall retail sales growth during the last two months.
Manufacturers generally report strong orders. Steel producers
(except for plate steel) continue to operate near capacity, and
automakers expect higher production this quarter compared with
1992:Q3. Mortgage refinancing accounts for much of the moderate rise
in loan demand, and some banks have noted a decline in deposits.
Consumer Spending
While total retail sales have continued to make significant gains in
July and August, product demand has varied by type of retailer and
product. The larger department stores appear to be the major
beneficiaries of higher sales, although certain discount chains
continue to do well. Despite heavy sales promotion by some specialty
stores, this segment of the market continues to lag.
Retailers report that durable goods, including furniture, hardware, and appliances and electronics, have been moving well. Respondents attribute the strong demand to factors such as improving home sales, weather, and some pent-up demand for durables. Sales of apparel and of other nondurable items have been sluggish. Yet, aggressive clearance promotion has prompted some movement of these items, pushing inventories below the excesses reported earlier this year, particularly by department stores.
Although back-to-school sales have started slowly, retailers are cautiously optimistic about the fall season. This positive attitude is buttressed by the region's better-than-average sales performance and by the anticipation of only moderate price increases on fall items.
Dealers of domestic new cars and light trucks report the best summer sales season in more than five years. While the most dramatic increases occurred earlier in the summer, demand has continued to improve in August, with sales running 5 to 10 percent above the same period a year ago. Some sources insist that sales could have been even better were it not for shortages of many popular models and options. In contrast, unit sales of Japanese nameplate vehicles are lower than last year.
Manufacturing
The durable sector continues to spearhead gains in manufacturing
output. Orders and production of appliances surged in July, spurred
by the heat-related demand for air conditioning and refrigeration
units. Heavy-duty truck makers report that operations continue to be
at capacity, and they expect that output this year will be the
highest since 1977. Producers also note a steady pickup in orders
for medium-sized trucks.
Steel producers anticipate that output for the remainder of the year will exceed levels attained during the first half. Sheet steel facilities continue to operate at virtual capacity, and order books are full well into the fourth quarter. Plate steel producers, however, report a softening in orders for the second half of the year. They attribute the slowdown to the deferment of investment in barges and fright cars until facilities destroyed by the Midwest floods are rebuilt.
A producer of power-generating equipment reports that domestic demand has slowed considerably in recent months. The respondent speculates that customers have delayed projects because of uncertainty about the economy and about pending legislation affecting energy and waste disposal.
District manufacturers anticipate that exports to Europe may be dampened by the latest run-up of the dollar vis-a-vis European currencies. Some also note scattered signs that the yen's appreciation may have slowed the growth of Japanese imports, although the impact to date is thought to have been moderate. A large steel producer reports some resistance from auto transplants to switch existing relationships with Japanese steel producers even though the strong yen may have temporarily left Japanese steel at a competitive disadvantage. However, some respondents anticipate that the yen's rise will allow domestic automakers to gain greater market share at home.
Employment
Several manufacturers emphasize that near-term revival in employment
growth is unlikely, because curbing labor costs appears to be the
most appropriate option for improving profits in view of uncertainty
over sales. For instance, although auto producers expect higher
output this quarter, they plan to add on only a minimal number of
workers. Retailers also report cautious hiring for the balance of
this quarter.
Financial Institutions
Depository institutions continue to report that home mortgage
financing is the main source of new loans, as interest rates in the
District have receded to as low as 7.0 percent for a 30-year fixed-
rate mortgage. However, several lenders note that the low rates have
not spurred as many new mortgage applications as expected,
particularly in Cleveland, where home sales and starts trail last
year's pace.
Respondents describe business loan volume in July as slow or shrinking, but they indicate that consumer installment loans continue to grow moderately. Bank officials also report further declines in deposits, resulting largely from losses of maturing certificates of deposit.