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Growth in economic activity in the Fourth District has slowed recently, particularly in durable goods industries, which are vulnerable to the strong dollar abroad. Prices are stable for most goods except for fuel prices, which are rising, and the price of steel, which is falling.
The demand for most categories of temporary workers has declined since the summer, and contacts do not expect demand to increase by year's end. Even so, administrative secretaries remain difficult to find. Banks and trucking firms reported difficulty in finding and hiring qualified permanent employees. In the retail sector, store clerks are expected to be in especially high demand during the holidays. Union contacts reported strong wage increases in companies that have experienced large growth. In other companies, particularly those in which workers could be replaced with machinery or low-skilled labor, unions are seeing only modest wage increases.
Construction
Residential construction has been steady for the last six weeks, although at a lower level than last year. Prices for new homes have fallen. The number of residential building permits has declined, a fact that some contacts see as indicating a longer-term slowing in the industry. The shortage of construction workers seen at the beginning of the year has disappeared.
Although commercial building activity is not growing as briskly as it was at the beginning of the year, it continues at a fairly steady and high level. However, construction for the retail trade industry has grown, while office and hotel building has declined. Contacts reported difficulty in finding high-skilled trade workers, although the scarcity seems to have abated in the last two months. Prices have fallen slightly for many materials and noticeably for drywall.
Industrial Activity
The demand for steel has declined, and inventories at the steel service centers are high. Even though rising energy prices have increased the cost of production, producers of hot-rolled steel have cut prices 20 percent since May and expect to cut prices an additional 5 percent by the end of the year. Demand for U.S. steel has declined partly because the high value of the American dollar has made U.S. steel more expensive than steel produced elsewhere. However, the auto industry has maintained a high demand for American steel. Heavy truck manufacturers continue to expect large cuts in production. Equipment and machinery orders have decreased slightly. The high exchanged value of the dollar has also reduced the demand for machinery.
Trucking and Shipping
Demand for trucking services reached record levels in September. Demand is expected to decline slightly in October but still be considerably higher than at the same time last year. High petroleum prices have made profit margins slim, particularly for smaller shipping companies and are said to be behind recent price increases for trucking services.
Consumer Spending
District retailers reported stronger sales than expected in the third quarter. Year-over-year growth is about 2 percent. Women's apparel and household goods are selling well, while menswear is not. Contacts expect unusually strong end-of-the-year sales.
Auto dealers that reduced the price of new autos because of manufacturers' incentives saw steady sales for the last six weeks, while those who did not have suffered declines of up to 10 percent. Despite this, overall auto sales are only slightly below last year's record levels. Used cars are also selling at a steady pace, although used-car inventories are at a high level. In spite of high gasoline prices, consumers are still buying light trucks and larger autos.
Agriculture
District yields are reportedly above average, even though weather was wet in the north of the District. Oil prices are beginning to affect farm profits, especially through the higher price of fertilizer, and prices for farm output have fallen since last year. Most farmers reported that they still expect a small profit at the end of the year.
Banking and Finance
Most contacts reported a slight increase in commercial lending over the last six weeks. Demand for consumer loans, especially mortgages, was softer than earlier in the year. Bankers connected the decline to consumers who were waiting to see if interest rates would fall. Some contacts reported a sharp decline in auto loans, which some attributed to increased use of financing through car companies. Credit card delinquency went up slightly. Although agricultural loans are usually a small proportion of area banks' loan portfolios, there has been an increase in these loans for capital improvements. Many banks reported that high oil prices posed some risk to their portfolios, particularly because of loans to trucking firms.
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Philadelphia