September 17, 1997 Federal Reserve Districts Fourth District - Cleveland

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Business activity remains generally stable at a high level. However, reports of labor shortages have become more prevalent and there are a few indications that wage growth may have accelerated in certain areas and occupations. Temporary employment agencies in the District report doing a brisk business, and virtually all note an increase in the demand for temporary workers between July and August. Several agencies indicate difficulty attracting and retaining qualified workers, with clerical and light industrial laborers in especially strong demand. Agencies also report that an increased proportion of their workers' temporary assignments are becoming permanent positions, and most see a recent step-up in wages with even larger increases anticipated in the near future. There is growing concern over a potential lack of temporary help in retailing as the holiday shopping season approaches. Manufacturing Industrial activity is slightly softer than at the midsummer reading, and inventory levels have come up a bit. Orders growth is good, but also more moderate than it was a month earlier. Still, manufacturers report little concern over recent trends in business activity and rate conditions as good or better. Cost pressures continue to be light overall, with only scattered reports of higher prices for industrial commodities. Moreover, no significant labor shortages or wage increases were noted. Consumer Spending Retail sales picked up in the last month, building on the slightly stronger numbers seen since June. Most District retailers report year-over-year sales gains for the period. Apparel goods have been selling especially well. District contacts also indicate a year-over-year increase in furniture sales. Seasonal discounts were seen as helping to create a strong computer software market. General retail inventories are reported to be at good levels for the season, and little upward price pressure from suppliers is noted. District auto sales have been fairly strong in the past two months�a substantial improvement from earlier in the year. Most dealers report that sales are in line with�or slightly up from�last year's rapid pace. However, most of the recent improvement has been attributed to the generous incentives used to clear out last year's models. New car inventories are at or near desired levels for almost all dealers surveyed. Used car sales, while improved, are still not as strong as the new car market. Several dealers report that the portion of customers with good equity and credit has risen since earlier this year. Tourism in the District has been varied. New attractions have enhanced it, but it was hurt by cool, wet weather early this summer. Visits to campgrounds and state parks are down throughout the District, although better weather at summer's end improved these results. Occupancy rates at District hotels were mixed, depending on their location, but were generally soft in July. Agriculture Recent rains have allayed concern over the District's harvest of certain crops, but poor weather earlier in the year damaged plants and reduced yields for many crops. Corn and soybean yields are expected to be down from last year in Kentucky due to late planting, above-normal temperatures, and dry soil at season's end. Similar conditions are seen in western Pennsylvania. In Ohio, crops are in better shape and harvests are generally expected to top 1996 levels. Of Kentucky's tobacco, 70% is rated fair-to-good, though the real test of the harvest comes in November after the leaves have been dried. A late freeze this spring, followed by dry summer weather, has affected some of the District's fruit crops. Apple production in Kentucky is projected to fall 25% below 1996. Likewise, the Pennsylvania Agricultural Statistics Service is forecasting a 5% decrease in the pear crop and a 21% decline in grapes. In West Virginia, 77% of cattle and calves are rated in good-to-excellent condition. The winter wheat harvest is complete throughout the District, with yields above last year's. Banking and Finance Lending activity in the District has been flat, or perhaps slightly down, in the commercial and consumer areas. Mortgage refinancing is characterized as moderate. Consumer delinquencies are reported to be unchanged since the last District report. Most respondents feel the consumer debt situation has stabilized, although levels are somewhat high. Commercial delinquencies remain quite low. The spread between borrowing and lending rates remains narrow, and some small banks report trimming costs to remain competitive. Many said they had eliminated application and ATM fees. Credit standards are reportedly tighter. Banks note that there is very little evidence of speculative home building in the District. Return to top Philadelphia Richmond