Beige Book Report: Cleveland
September 11, 1996
General Business Conditions
The growth in District business activity appears to have moderated
recently. Although most industries continue to report high levels of
production and employment, construction activity has slackened
noticeably, mostly because of a decline in residential housing
construction. Commercial construction remains generally strong,
however.
Unemployment is still remarkably low in most parts of the District, but there is little evidence wage growth is rising. Wage gains for existing employees reportedly remain in the 2% to 3% range. A few firms, however, note that the cost of new hires is accelerating, creating concern that these wage increases may spill into existing labor agreements.
Agriculture
Crop conditions are generally good, though crops are still under-developed for this late in the season. While 81% of Ohio's corn crop
is rated fair-to-excellent, corn crop development is about two to
three weeks behind schedule. Similar reports are heard for the
state's soybean crop. The oat harvest was nearly complete as of late
August, but hay cutting is behind schedule.
In Kentucky, the soybean crop is considered "promising," with a solid 18% rated as excellent. Also, the recent hot and dry weather has been beneficial to the state's tobacco crop. Corn development in Pennsylvania is near normal for the season.
Manufacturing
The District's industrial sector has leveled off, with production,
employment, and orders all reportedly at high levels. Auto and auto-
related production remains generally strong, despite increased
concern about a possible UAW strike this fall. Steel production has
fallen somewhat from its extremely strong first-quarter level, but
is still running 1% or more above this time last year. Steel orders
are also reported to be good. Orders growth remains strong for
machinery. Orders softness continues to be felt in heavy truck
manufacturing, however, and producers anticipate additional
production cutbacks by year's end.
Employment conditions in manufacturing are holding firm. Hours have come down a bit from earlier in the year, and hiring rates are considered about average. While skilled labor shortages are still reported to be a problem, the situation does not seem to have worsened much in the past few months. Cost pressures are also said to be relatively light. Cold-rolled and scrap steel prices have risen, as have a variety of chemical prices, but downward price adjustments are noted for paper and wood products.
General Retailing and Autos
Fourth District retailers report mixed results, with no significant
overall change in sales activity from earlier in the summer. Retail
spending has picked up in the area of children's apparel and is
holding strong or women's and men's sportswear. Sales of household
items, including furniture and major appliances, continue to
disappoint District retailers.
General retail inventories are in good condition and prices remain steady. Competition for qualified workers remains a problem for most retailers and hiring difficulties are noted.
District auto sales slowed somewhat in July and August, although year-to-date sales are still relatively strong. Most dealers attributed the recent downturn to lean inventories and slack fleet activity. While a few dealers see waning consumer demand as a contributing factor, dealer optimism over the new model year is high.
Banking and Credit
Loan demand is holding steady at a relatively high level, although
the mix of credit extensions has changed somewhat in the past few
months. Commercial credit demand is generally stronger than consumer
credit, with the possible exception of credit card debt, which
continues to rise at a moderate pace. Business credit growth appears
to be funding business expansion, while loans for inventories have
been negligible. Most categories of household debt, including new
auto credit and home equity loans, are little changed from earlier
in the summer. The strength of new mortgage loans varies by region.
A number of District bankers continue to see a deterioration in household balance sheets. Still, while loan quality has fallen and delinquencies continue to rise, most bankers report relatively healthy credit markets.