Beige Book Report: Cleveland
June 22, 1994
General Business Conditions
District business conditions remain positive and manufacturing
activity is brisk. The agricultural sector appears to be off to an
excellent start this year and increased investment in farm-related
equipment has been noted, although a drier-than-usual spring
threatens to affect crop size. Consumer spending is thought to have
cooled some from the strong first-quarter pace, although spending on
durable goods is still growing at a substantial rate.
Manufacturing
Manufacturers are reporting similar conditions to those seen here
since last fall--orders remain high and generally growing, and
orders backlogs have lengthened somewhat. However, cost pressures
are moderate for most materials, including steel scrap. The
industrial employment picture is still somewhat mixed, with only
limited signs of new hires. Hours worked in manufacturing remain at
historically high levels.
Many District manufacturers report a modest improvement in foreign orders, although the domestic economy, led by automobile-related manufacturing, is apparently providing the primary thrust to the region's industrial sector. Capital goods orders and shipments are reportedly running 10% or more above year-ago levels, and of these, metal-forming equipment is noted to be particularly strong, perhaps because of the rapid expansion of consumer durable-goods production.
Consumers
While nor sounding as optimistic about summer prospects as in their
April report, District retailers appear confident that sales will
hold steady over the next few months. Part of the dampened
expectations stems from unseasonably cool weather in May, but
retailers also report a generally more cautious consumer.
Apparel sellers were the least positive of the respondents. Specialty stores are "struggling" to boost sales with promotions and special pricing, and clothing demand at department stores has been flat. Colder-than-average temperatures in May account for some of the slowdown. Cool weather is being blamed for slower-than-desired sales of seasonal building materials and garden supplies.
However, sellers of appliances and, to a lesser degree, furniture continue to report a very positive performance. Appliance dealers note that while year-over-year sales at comparable outlets are not improving at the double-digit rates seen in the first quarter, high single-digit gains are not uncommon. Sales growth has been broad based, but demand for computers and related equipment has been especially strong.
Autos
Similar to other District retail numbers, auto spending appears to
have shifted to a slightly slower gear. Although auto sales continue
to improve on a year-over-year basis, the pace has slowed from the
first quarter. Dealers blame decreasing consumer confidence and
continuing shortages of some popular models (mostly trucks and
sport-utility vehicles) for the slowdown. Floor traffic is not quite
as strong as earlier in the year, and demand for higher-priced
vehicles and options has diminished somewhat.
In contrast to dealers of domestic nameplate vehicles, Japanese auto dealers report sufficient stocks of most vehicles. They also note slower sales improvements relative to U.S. manufacturers.
Although auto lending rates have risen 1/4 to 1/2 percentage point in the past month or so, area dealers see little direct effect on sales. Some dealers suggest that the rapidly expanding lease market may have partially insulated consumers from the cost of higher interest rates.
Banking and Credit
Although lending activity has slowed from its winter peak, major
banks in the District report a steady growth in loans. With the
exception of the widely noted falloff in mortgage refinancing,
rising interest rates have not yet appreciably impacted borrowers.
Although automobile loan growth has slowed somewhat, sources
conjecture that this may be due to shortages of certain popular
models that have dampened the pace of auto sales.
Business lending is generally growing, with one respondent reporting that activity is stronger now than six months ago. Inventory financing needs and capital spending plans that had previously been financed internally lead some observers to anticipate a continuation of business loan growth. However, a cautionary note was sounded by at east one respondent, whose institution saw commercial loans dip in May.
On the deposit side, flows of funds into small certificates of deposit and money market mutual funds appear to have increased substantially, apparently attracted by the recent rate increases on these instruments.