May 10, 1995
General Business Conditions
Overall, the District economy continues to move solidly ahead, with
only scattered indications of a falloff in business activity, mostly
in retailing. A strong industrial sector continues to pace the
expansion. Production and orders growth are continuing, even in the
automotive area, where sales have been somewhat soft this year.
Construction activity has been mixed, with commercial building
significantly stronger than residential. In farming, a cold, wet
spring has delayed the planting season by a few weeks.
Several District sources note a rise in labor turnover in recent months, and applications for job openings are reportedly down. Skilled workers are particularly difficult to find, although shortages of unskilled workers are also seen in some areas. However, wage growth in the District remains moderate, reportedly in the 2 to 4 percent per year range.
Manufacturing
District manufacturers report continued growth in production and
orders, with capital goods producers operating at a particularly
high level. In some instances, orders backlogs for capital goods now
extend well into 1996. A few District producers indicate that orders
are hedging against potential price increases next year. Moreover,
these orders are not secured in the event of a deterioration in the
economic climate. Several manufacturers report continued orders
growth from foreign customers, presumably the combined response of
strengthening foreign economies and a further drop in the value of
the dollar.
Industrial space is said to be in short supply. and this has apparently put some upward pressure on rents. Likewise, we continue to hear reports of rising prices for a broad range of industrial commodities, particularly aluminum, steel, caustic soda, and paper. However, resistance to finished goods price hikes continues, with capital goods producers in the District appearing to hold the line on any increases.
Retailing
Fourth District retailers report weaker sales during much of the
period since early March. However, most also say that sales have
improved somewhat in the past few weeks. Large discounters are
enjoying much of the recent sales improvement, while specialty
shops, such as women's apparel stores, appear to be faring the
worst. Unseasonably cold weather was the most consistently cited
reason for retail sales sluggishness last quarter, and indeed,
observers have seen a marked improvement in traffic and sales
whenever spring-like conditions have occurred. Contributing to the
weaker first-quarter retail numbers was the late Easter. One
District source also suggested that the first-quarter numbers
represented a "payback" for the strong fourth quarter.
Within the overall sales picture, some nondurable goods have been strengthening slightly, while the demand for durables has flattened or declined. Furniture sales have eased slightly, as have home decorating products more generally. One observer linked the sales slump here to the drop-off in home sales last fall.
Retail profit margins are said to be very thin as higher wholesale costs continue to squeeze flat finished-goods prices.
Autos
Mixed impressions have emerged from the District's major auto
markets, with sales in Ohio better than in southwest Pennsylvania On
balance, however, District auto sales during the last six weeks are
down from the same period a year ago.
Dealers cite a number of factors, including the unseasonable weather and higher interest rates, for this weakness. New car loan rates are approaching, or in some cases have already reached, double-digit levels. Surprisingly, auto credit is reported to be readily available, and local finance markets are said to be aggressively competing for borrowers. Moreover, higher bank rates for vehicle loans are being partially offset by factory incentives, including special financing arrangements and cash rebates.
Auto inventories are higher than desired in many District markets. However, there are still shortages of a few popular vehicles, apparently resulting from production glitches rather than a shortage of capacity.
Banking and Credit
Loan activity is reported to be good, although some softening has
been felt very recently, particularly in consumer lending.
Competition for borrowers continues to intensify, and several
sources note an easing in credit standards, although this may simply
be an adjustment to the "artificially" tight standards coming out of
the last recession. Indeed, delinquency rates in the District are
reported to be extremely low. Deposit levels were generally
characterized as steady or growing slightly.