Beige Book Report: Cleveland
May 4, 1994
General Business Conditions
Business activity in the Fourth District continues to be strong,
particularly in areas related to automobile and capital goods
manufacturing. Although retailers noted some slowing in sales and
traffic during April, the overall performance of' the retail sector
appears to be holding steady. District auto dealers continue to
report shortages in many models, including some imports. A strike of
roughly 70,000 Teamsters has virtually shut down major union
trucking establishments; nonunion operations and alternative
transport firms appear to have filled the void. There were no
reports of transportation bottlenecks.
Manufacturing
In February, manufacturing employment in Ohio was up 1% from a year
earlier, somewhat dampened by the severe winter weather in the
region. Reports from manufacturers suggest that production recovered
fully by mid-April and that new hires are slowly becoming more
common. Although domestic orders appear to be holding at a
relatively high level, many manufacturers noted improved demand from
foreign sources.
Capital goods producers were uniformly upbeat concerning business conditions. Orders books were active across a broad range of capital goods categories, and were particularly strong in the vehicles area. Heavy and light truck production was at or quickly approaching capacity, and orders backlogs were thought to be commonplace. Respondents cited continuing softness in defense-related and aerospace industries, however.
Retailing
According to most sources, retail spending in March was very strong,
although some spending retrenchment and a reduction in consumer
traffic was noted during the first half of April. It is unclear
whether the slowdown represented a payback from the strong March
numbers, or was a downshift in underlying demand. Several retailers
thought April tax payments may have had a damping influence on
spending. Confidence may have been affected by interest rates,
although rates on most types of revolving credit were reported to be
little affected by the recent upward pressures.
Some concern was noted that higher mortgage rates suggested the potential for slower home sales that may eventually damp durable goods spending, although no such slowdown was thought to have occurred yet. Durable goods sales continue to lead the retail categories. Apparel sales have picked up from the low levels posted earlier in the year, although pricing of apparel goods was still characterized as very competitive.
While interest rates in the market for auto loans have headed slightly higher (about 1/4 to 1/2 percentage point), new car demand remains robust. A few auto dealers noted increases in the popularity of leasing, which may have minimized the interest-rate effects. Auto dealers reported inventory shortages in several models, even some import makes.
Auto producers have not altered their sales forecast for the year, although the full impact of the recent interest rate increases has apparently introduced an element of uncertainty. More hiring is occurring in some areas, but few auto-related manufacturers plan to expand capacity to meet current demand.
Loan Demand
Bankers in the District report mixed loan demand, although consumer
lending activity continues to outpace business credit needs. While
some bankers reported growth in various commercial and industrial
loan categories in early April, most indicated that credit demands
here remained about even. Some bankers suggested that high corporate
profitability and improved liquidity may be prompting businesses to
fund investments internally.
Consumer lending activity was reported to be brisk, even outside the auto-related categories. Loan demand has picked up from mid-March and the early April numbers appear to be good. Competition from nonbank credit sources remains stiff, however.
All of the bankers contacted anticipate further increases in the federal funds rate this year, although they differ in opinion concerning the timing of such actions.