Beige Book Report: Cleveland
September 14, 1994
Overview
Many, if not most, sectors of the District report some slowing from
the unusually strong gains seen earlier in the year, although
business activity remains at a generally high level. While no broad-
based wage and price pressures are being noted, District
manufacturers continue to see increases among a range of commodity
prices, especially metals and chemicals. Retailers are still holding
the line on prices, though, and retail margins remain lean. Loan
demand continues to be strong, especially in the consumer lending
area. And although commercial lending growth has moderated somewhat,
no significant retrenchment in business credit demand is seen, or
apparently, anticipated.
Industrial Activity
Manufacturing production is still brisk in the District, with many
capital goods and steel producers continuing to operate at near
capacity. Auto-related production has rebounded from the summer
slowdown, and District suppliers to the industry note solid
production gains in August Capital goods producers are still
reporting strong orders, although the growth rate of order books has
apparently eased from the blistering rates of early summer. Order
backlogs for machinery goods are running five months or more for
many District manufacturers, several of whom note a further
improvement in foreign operations and orders from abroad.
Price increases in the industrial sector are apparently sticking, among them a sharp rise in industrial chemicals prices. A number of District sources are also reporting a further upward movement in metals prices--steel prices are up about $10 per ton in the past month or so. Domestic capacity problems in the steel industry are evidently propping up foreign steel production as well, with imports reported to be 80% above last year's level.
A major food processor also notes improving business conditions, with both domestic and foreign sales volume on the rise. Abundant harvests are keeping foodstuff price increases moderate, however, up about 1% to 2% on average from last year.
Consumers
Retail spending apparently soared during the Labor Day sales
weekend, but this spike in activity is not viewed as a trend. Retail
business around the District in August was mixed, but generally
growing; early returns from back-to-school sales were good, though
not spectacular. Apparel store sales are thought to have declined a
bit from the previous District report, but hard goods, namely
appliances, have been selling at an improved pace.
The rise in retail inventories during the second quarter was generally small relative to sales. In fact, several large retail chains saw the higher inventories as a welcome development in light of their increasingly short-stocked situation, and one retailer characterized the inventory turnover rate as "very good."
Auto sales are much improved as dealer inventories are refreshed by the model-year changeover. Most vehicle types are selling well, even imports, but light truck sales are especially strong. Dealer inventory shortages are not as prevalent as they were during the summer, although some models remain scarce.
Competitive pressures at the retail level are severe, and price increases here are still modest. Consequently, retail margins remain lean.
Lending Activity
Loan demand around the District continues to grow, although the
strength of the credit expansion is somewhat mixed by category and
institution. The credit market has become increasingly competitive,
and a few banks note losing business to competitors or other credit
sources. Some District banks report a modest decline in commercial
lending activity, presumably as large commercial borrowers have been
lured away by alternative finding sources. Business credit demands
are generally reported to be steady and strong, however. Consumer
lending in the District is vigorous, although again, alternative
funding sources (particularly for new autos) are seen as having cut
into some of the commercial bank activity. Mortgage refinancing has
slowed to a virtual standstill, and the growth of new mortgage
credit has been mixed by area.