Beige Book Report: Cleveland
November 1, 1995
General Business Conditions
Restrained in part by a generally sluggish manufacturing sector, the
District economy continues to follow a path of moderate expansion.
Construction activity appears strong for the season, perhaps a
reflection of mild temperatures. Elsewhere, District conditions
remain nearly the same as in the previous few reports.
Low rates of unemployment, among other employment indicators, suggest that District labor markets continue to be somewhat tight. Labor shortages are being reported in many areas and job categories, including construction workers, nurses, engineers, and some business service occupations. At a recent meeting of District small businesses, several employers noted difficulty in retaining skilled workers and indicated that training costs were increasing as workers moved into more skilled job classifications. These costs are seen as a large and growing component of noncompensation labor costs in the region. Employers note that the migration of workers into skilled positions is pushing up wages for unskilled workers, who are reportedly in short supply in many parts of the District.
Manufacturing
Manufacturing has been slow in the District, especially in
September. A Cleveland source states that very little growth
occurred last quarter, purchase orders are down, and capital
spending for major projects is being deferred until a later date.
However, in a view that is more representative of most responses, a
Cincinnati manufacturer reports that although orders growth has
fallen from the pace of the previous six months, production levels
remain relatively high. Much of the moderation in manufacturing
activity has come from a softening in domestic business, while
export orders are continuing to strengthen.
Steel prices are still roughly 5 to 15 percent above last year, but have been falling in recent months. Material costs for construction have remained relatively high compared to two years ago, especially in southwestern Ohio. Prices for paper and some chemicals are also reported to be moving sharply higher. However, earlier reports of rising materials costs have dissipated, and in many cases, prices have begun to come down recently.
Manufacturing employment is holding about even with the second quarter, although hours have come down and many manufacturers have eliminated overtime. Project managers, supervisors, engineers, and other skilled workers are reported to be migrating from western Pennsylvania to Ohio, where labor market conditions are considerably stronger. A report from Dayton indicates difficulty in finding civil engineers and other skilled workers such as machinists and some construction workers.
Retailers
Retail sales in the District have been disappointing this season,
showing little improvement following a slow start. Home improvement
goods, women's apparel, toys, sporting goods, and certain domestic
items have been selling weakly, only partially offsetting an
increase in sales of computers, home theater systems, and infant
clothing. Some retailers attribute poor sales to the warm weather
that has persisted into the beginning of autumn. In any event,
inventories are generally characterized as heavy as retailers head
into the holiday shopping period.
Respondents continue to report pressure to hold prices down, and margins are still being squeezed by rising costs, especially for labor. As companies prepare to hire temporary workers for the holiday season, there is a strong demand for qualified workers in southwest and northeast Ohio. Cincinnati has many unfilled jobs in the retail sector. One large retailer in northeast Ohio says that hiring difficulties have been partially accommodated with more flexible work schedules.
Autos
Sales across the Fourth District were mixed in September. Dealers in
northern Ohio reported better results than their counterparts
elsewhere in the District. Compared to last September, most dealers
reported stronger sales. Overall, inventories are currently at
desired levels across the district. Dealers in the Fourth District
have not been significantly affected by a limited trucking strike,
although the arrival of domestically produced vehicles at
dealerships has been somewhat slow.
Price increases on 1996 models have varied from above 5 percent to less than 1 percent, although most have been around 3 percent. Dealers report that higher interest rates are having little negative effect on sales. Although dealers are optimistic that sales will pick up further this quarter, several expressed concern that we are nearing the end of what has historically been the strongest sales period for a new model year.
Banking and Credit
Credit demand remains strong and generally growing, although some
slowing in both consumer and commercial credit growth has been
observed. Commercial credit growth remains the stronger of the two
credit categories, however, much of which appears to be targeted for
business expansion. Mortgage credit demand continues to be mixed by
area. Loan delinquency rates are still reported to be quite low.
Several sources have seen a falloff in deposit growth recently, and
a move to shorter maturities was noted.