Skip to main content

Cleveland: January 2021

‹ Back to Archive Search

Beige Book Report: Cleveland

January 14, 2021

Summary of Economic Activity
The Fourth District economy expanded only slightly in recent weeks as it lost some momentum amid rising COVID-19 cases. Contacts reported that the growing pandemic was adversely affecting both the demand for and supply of goods and services. Household demand softened as retailers, restaurants, and hotels reported weaker sales in late November and December, in large part because of rising COVID-19 cases. By contrast, demand was solid for manufacturers, freight haulers, and professional and business services firms, although some contacts in these industries suggested that labor constraints, exacerbated by rising COVID-19 cases, made it difficult for production to keep up with demand. A larger share of our contacts indicated that they wanted to increase staffing levels during the cycle, but hiring remained difficult. Contacts were encouraged that COVID-19 vaccines were becoming more widely available, but the most recent surge in cases left them less optimistic about the near-term outlook for demand than they were during the prior reporting period. Because of continuing uncertainty, firms generally limited capital spending. On average, wages and other input cost pressures were higher than earlier in the pandemic but lower than a year earlier, while output prices increased at a modest pace.

Employment and Wages
Labor demand increased modestly, on average, in spite of the broader slowdown in economic growth. Labor demand was strongest for those firms in sectors that reported strong increases in demand for their goods and services: professional and business services, freight and transportation, and manufacturing. Some contacts in these sectors noted that they had a little more success in filling open positions, but they also reported that competition for workers was intense and that they still needed more workers to keep up with demand. New orders continued to flow into staffing services firms, but their ability to fill those orders was limited by worker availability. Retailers indicated that they had increased temporary staffing during the holiday shopping season, but payrolls remained well below year-ago levels. In addition, retailers said that filling positions in fulfillment centers was made difficult by a general shortage of applicants and by competition from larger distribution and logistics firms that continue to add more permanent positions as more commerce takes place online. Restaurants and hotels said that fewer workers were needed as customer demand waned amid rising COVID-19 cases, yet they, too, faced challenges filling positions that were available.

Wage pressures were elevated relative to earlier in the pandemic. Some firms said that they were raising wages to fill open positions and to minimize turnover. Some contacts paid additional yearend bonuses to thank employees for working through a difficult year.

Nonlabor input costs also rose for many firms. Contacts from a variety of industries reported that shipping costs were up significantly because of capacity constraints. Construction firms said that costs for many materials were increasing, particularly those for steel, lumber, and some cement products. Manufacturers also noted rapidly rising steel prices, with one contact attributing the increase to supply chain disruptions and increasing global demand for steel products.

On balance, selling prices continued to rise modestly. Freight haulers said that exceptionally strong demand and limited capacity has allowed them to dictate terms to their customers, pushing shipping rates materially higher. Manufacturers also reported some success in pushing through price increases to cover rising input costs. In spite of softening demand, retailers and auto dealers said that prices firmed up in recent weeks because low inventories led to less discounting.

Consumer Spending
Reports suggest that consumer spending softened toward the end of the reporting period. Retailers noted that in spite of strong activity in October and November, the recent rise in COVID-19 cases and associated uncertainty weakened sales. Hoteliers and restauranteurs said that government-mandated restrictions on operating hours further reduced business activity. Auto dealers said that seasonal factors, along with low inventories, were limiting sales. Reports from general merchandisers and apparel retailers were mixed; while some said sales were up from those of the last reporting period because of the holiday shopping season, many noted that in-store sales were down and that online sales, while strong, were hurt by cost pressures from shippers. Looking ahead, contacts expected ongoing concerns about COVID-19 to restrain overall consumer spending in the next few months.

Overall manufacturing orders increased moderately this cycle, although demand varied by industry segment. Steelmakers reported that orders were strong and that they had difficulty maintaining inventory. Some noted particular strength in demand from auto producers, suppliers to residential builders, and transportation equipment manufacturers, along with increased demand from China. By contrast, orders for steel used in commercial aerospace and nonresidential construction applications remained depressed. A sizeable share of manufacturers said they were operating below their target capacity utilization rate because of a lack of available workers. Manufacturers' reports were replete with concerns about rising input costs, emerging supply chain disruptions in Europe, and persistent uncertainty about the pandemic. On balance, manufacturers expected demand to soften somewhat in coming months, although many indicated that this was part of a typical seasonal pattern.

Real Estate and Construction
Demand for residential construction and real estate leveled off in recent weeks, a circumstance which contacts attributed to a typical seasonal slowdown. Pent-up demand for home construction and remodeling helped mitigate the decline in activity normally experienced during this time of year. One residential real estate agent noted that while the pace of transactions slowed in recent weeks, activity was still much higher than it was a year earlier. Contacts expected activity to remain seasonally slow in the near term but predicted that demand will rebound in the spring.

Nonresidential construction and real estate conditions continued to vary by end market. Robust demand for industrial space persisted, with one general contractor indicating that his industrial backlogs had doubled over the past two months. By contrast, demand for retail and office space remained weak as COVID-19 cases continued to rise and corporate uncertainty persisted. Going forward, contacts remained concerned that the increase in COVID-19 cases would continue to hamper consumer demand, putting additional strain on retail and hospitality tenants.

Financial Services
Banking activity remained mixed by market segment during the reporting period. Contacts noted that low interest rates continued to support demand for household loans, especially for mortgages. However, demand for business loans reportedly was flat. Lenders indicated that delinquency rates for commercial and consumer loans were still low because of forbearance agreements and various fiscal-relief measures, although one banker noted that delinquency rates were up among hoteliers. Multiple contacts reported growth in core deposits as customers held off on spending and investment. Looking ahead, bankers expected loan demand to remain unchanged in the near term but were optimistic that conditions will improve as more COVID-19 vaccines are distributed in 2021.

Professional and Business Services
Demand for professional and business services continued to increase at a steady, modest pace since our last report. The surge in ecommerce brought on by the pandemic led to an increase in demand for cybersecurity, IT solutions, and transaction authentication services. Firms in these industries were optimistic about the future because consumers continue to shift to online transactions.

Freight volumes increased notably again in recent weeks. The rise in activity resulted from three primary factors, according to contacts: more online holiday sales this year (and subsequent home deliveries), strong imports, and firms' replenishing inventories. Seventy percent of freight contacts reported demand had increased in the last two months, and many had difficulty hiring enough drivers to keep up with demand. Looking forward, contacts expected shipments to remain strong in the near term as the pickup from holiday demand has historically continued into early February.

For more information about District economic conditions visit: