December 4, 1996 Federal Reserve Districts Fourth District - Cleveland

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The District economy remains strong overall and is growing moderately in most areas. Price and wage increases are light. Labor markets are characterized as "tight" in many parts of the District, but especially in central and southwestern Ohio and northern Kentucky. Many areas report unemployment rates under 4 percent, and in a few locations the rate has dipped below 3 percent. While several sources are expressing concern over the potential for substantially higher wage growth, there are few signs of any significant rise at present. Employment agencies report the demand for temporary workers is strong, with low-skilled workers in short supply. In the past few months, a growing number of corporate clients have begun hiring temporary workers on a permanent basis. Manufacturing Production at a wide variety of manufacturing facilities is holding steady at a high level. Capital goods producers generally note good production and orders numbers, although heavy truck manufacturing is still off substantially from earlier in the year. Firms with significant export markets have seen a recent strengthening in foreign orders, and one source indicated that orders growth in Latin America has been especially strong. Manufacturers continue to report pressure to hold prices down, and few are seeing any unusual cost pressure. A shortage of engineers and other technical workers has also been reported. In mid-November, a few large District auto assembly and manufacturing plants were temporarily shut down because of parts shortages stemming from the Canadian Auto Workers� strike against GM. Some plants were closed for up to two weeks, resulting in nearly 7,000 layoffs Districtwide. Production has since returned to normal, although no makeup of lost production is currently scheduled. Agricultural Conditions Recent cold and wet weather caused minor problems for the District�s farmers. Snow fell in parts of all four District states during the first two weeks of November, ranging from a few inches in some areas to as much as 70 inches in parts of northeast Ohio. Farm activity was curtailed in many places because of muddy fields, hindering winter wheat seedings. The soybean crop is reported to be plentiful and in good condition. Potato and apple harvests in Pennsylvania and Ohio are nearly complete, and reports for these crops are also favorable. However, as of mid-November, the corn harvest was still about 20 percentage points below average in Ohio. In Kentucky, blue mold has affected the weight and quality of burley tobacco. Retailing District retailers report mixed sales patterns, but overall, sales seem to be running behind last year�s pace. Sales of furniture and consumer electronics have been particularly slow, while major appliances and apparel have been moving well. Seasonal items, such as winter apparel, are also selling well, especially in areas of the District that received heavy snowfall early in November. Despite some disappointments with the overall sales picture, retailers seem cautiously optimistic about the holiday shopping season. Inventories are being expanded in line with expectations of increased store traffic. Prices are reportedly stable, except in electronics, where deep discounts are common. Many stores have already hired seasonal help, but a few report difficulty finding qualified workers for some positions. A variety of chain stores have recently expanded into the District, particularly in Ohio. Auto Dealers While dealers are pleased with year- to-date sales levels, the past few months have been disappointing, with most dealers reporting sales at or slightly below last year�s levels. Some of the slowdown has been attributed to the recent heavy snows, but in parts of the District where the weather remained mild, sales were only slightly better. Sales incentives have been unusually generous and widespread for a new model year. A few dealers are anticipating an end-of-year surge, but the majority note that year-end sales upticks have been negligible in the past few years. Inventories remain near desired levels, with shortages reported only for the most popular models and for light trucks. Banking and Finance Loan demand is mixed, as community banks report strong growth in credit while larger institutions are seeing more moderate gains. Overall, loan delinquency rates remainstable, although a few large banks have noted an increase in credit card delinquencies. Declining credit quality--based on fierce competition for borrowers--remains an issue at many institutions. To date, though, the deterioration is generally characterized as modest. In general, bankers are experiencing a narrower spread between borrowing and lending rates. Profits, however, are substantially improved from this time last year. Refinancing activity is picking up as mortgage rates drop. Return to top Philadelphia Richmond