January 19, 2000
Federal Reserve Districts
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The District economy remains on a strong growth trajectory, with continued low rates of joblessness and, possibly, a small uptick in wage growth. Still, underlying price pressures appear to be somewhat light.
District temporary employment agencies reported a seasonal downturn in demand for general laborers. However, strong demand for administrative assistants, clerical workers, and legal secretaries continued unabated. Demand for seasonal retail help was also quite strong in December. Overall, our contacts expressed continued difficulty finding and retaining qualified workers, and an increasing number of temp agencies are offering improved benefits packages and bonuses to attract experienced workers. Continued strong demand for temporary workers is expected at least through the spring.
Union sources reported that wage growth continued to edge up in most industries, with estimates ranging from 3 percent to 3 ½ percent. Job security is still the focal point of union contract negotiations, however, and our contacts indicated that, where possible, workers seem willing to trade some wage gains for added job protection.
Commercial builders noted a steady improvement in project startups, and business in this sector is reportedly quite good. In the Cincinnati/northern Kentucky region, the pace of commercial building seems to have picked up in the past several months. In northern Ohio and western Pennsylvania, a recovering manufacturing sector is beginning to spur demand for more warehouse and industrial space. Columbus builders reported high activity levels, although the brisk pace of new building in this region seems to have slowed down a bit as of late.
The availability of building materials has improved in the industry, and accordingly, price increases appear to have eased a bit after having peaked at midyear.
Most steel industry contacts reported an improving demand for steel. Book orders for all steel products are improved for the first quarter. Prices are strengthening and are expected to increase further this spring. All companies reported inventories commensurate with current sales levels, although there is a general anticipation of even stronger sales numbers later this year.
Purchasing managers in the District reported a modest increase in the growth rate of commodity prices in November. Primary metals, paper, and chemicals prices were notably higher in November than earlier in the year. Manufacturers' Y2K stockpiles were small (generally less than one week's inventory), and no significant disruptions due to inventory overhangs are expected. Virtually all companies reported that business and plant operating computers were functioning normally following the transition to 2000.
Few retailers built up inventories as a precaution against Y2K-related disruptions. Much of the stockpiling took the form of earlier-than-usual shipments of spring merchandise. Indeed, some retailers reported lower-than-usual inventories for the season.
Retailers with online sales outlets reported exceptionally strong sales for the holiday period. Internet sales were about four times higher this holiday season than last year. One Fourth District retailer reported that sales via the Internet were so strong that the company experienced inventory shortfalls.
Sales of new vehicles varied from steady to brisk for District dealers in December. Contacts believe that unseasonably warm weather may have helped boost new car demand. For many District auto dealers, 1999 was their second consecutive record sales year. Consumer demand for light trucks was a key factor in last year's strong sales numbers, and District auto dealers are attempting to bolster their inventories of new trucks. Our contacts foresee continued strong sales for the next few months.
Banking and Finance
Credit quality is high as banks have become increasingly selective in their loan applications. Willingness to lend remains high, but banks reported that it is very difficult to attract deposits at rates that provide an adequate margin above lending rates. Indeed, as has been the case for much of the past several years, the spread between borrowing and lending rates is reportedly narrow because of fierce competition in the loans market.
No significant Y2K-related disruptions were reported in the District, and Y2K-related currency withdrawals by bank depositors seem to have been modest overall and much less than had been anticipated. However, deposits were reportedly down slightly in December, as people satisfied their liquidity demands by cashing their regular paychecks rather than depositing them.