August 7, 1996
General Business Conditions
The District economy continues to expand at a moderate pace amid
relatively modest price increases and low unemployment. Joblessness
has dropped below 5 percent in many areas, with northern Kentucky
and central Ohio posting rates of less than 3-1/2 percent.
The construction sector has reported the highest growth rate in the
past few months, following a relatively lackluster spring.
Residential construction has been especially strong in central Ohio
and western Pennsylvania.
Agriculture
The condition of crops in the District has improved considerably in
the past eight weeks, and in some cases (notably tobacco),
production has been good. Still, many crops, including corn and
winter wheat, are underdeveloped for this time of year. Rainfall in
early July facilitated pollination of corn crops, but cool weather
during the last half of the month has been counterproductive. As of
mid-July, only 4 percent of Ohio's corn crop was in the silking
stage of the pollination process, compared with a five-year average
of 42 percent. The corn crop in Kentucky and Pennsylvania is also
underdeveloped (by 18 and 12 percentage points, respectively).
Potentially good harvests are being reported for a variety of fruits, including strawberries, cherries, and tomatoes in Ohio, and peaches in West Virginia. In Kentucky, apples are reportedly in good condition.
Manufacturing
Manufacturing activity in the second quarter was much improved from
the first three months of the year. Although orders growth dropped
off slightly in June and July, order books are reportedly full
enough to keep industrial activity at a high level through the fall.
The slowdown in industrial orders has been most prominent in foreign
markets, especially Western Europe. Industry sources with business
interests in Asia continue to report strong demand.
Capital goods firms are still producing at a high level, and suppliers to the light vehicles industry report a sharp increase in production between the first and second quarters. Several sources note that lean inventories and recently raised production schedules in light vehicle manufacturing are responsible for the increased production at auto suppliers. Heavy truck manufacturers, which cut production earlier in the year, have noted a leveling off this summer. Elsewhere, demand for machine tools and electronic machinery are both reported to be good, especially in areas related to housing, such as electrical components and light construction machinery. Off-highway machinery and industrial controls are noted to be flat, however.
Cost increases are said to be modest. Reports from area purchasing managers indicate price hikes for a variety of chemicals and agricultural commodities, but price declines are noted for a broad range of metals, wood products, and fuels. Although a few firms indicate increased difficulty in attracting and retaining workers, wage growth is reported to be between 2 percent and 4 percent, similar to earlier in the year.
Consumers
District retail sales have been mixed. Apparel sales are said to be
brisk, while sales of furniture and other home goods have dropped
off. Computer sales continue to moderate from last year's pace, and
audio products remain in their nearly yearlong slump. Many retailers
indicate that June receipts exceeded their expectations, but sales
appear to have stumbled in July. One large chain store said that
sales at its recently opened Ohio stores are not up to par with
other regions.
Non-auto retail inventories are reported to be adequate, and prices are holding steady or declining slightly.
Although auto sales were essentially flat in the region during June and July, year-to-date receipts remain above last year's levels. The slip in early-summer sales has been attributed to lack of product. Indeed, many dealers report that they had adequate buyer interest, but were unable to provide desired options and equipment. In general, dealers remain very optimistic about the upcoming months.
Banking
Loan demand is holding steady overall, although reports are quite
mixed by institution. Consumer borrowing has been especially
variable, as a number of institutions reported recent strength in
this category while others noted a significant drop-off. Consumer
credit delinquencies have leveled off recently, breaking the erosion
of household credit quality seen over the past year. Commercial
credit demands are continuing to expand in most areas.