January 22, 1997 Federal Reserve Districts Fourth District - Cleveland

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The District economy is holding steady at a good level, with many areas reporting joblessness near--or below--the national average. Business activity remains especially strong in the central Ohio and southeastern Ohio/northern Kentucky regions, although virtually every major area reports favorable economic conditions. Even in southwestern Pennsylvania, where business activity has been more moderate, joblessness has fallen to a six-year low. According to District employment agencies, hiring of temporary workers slowed slightly in December, mostly likely due to seasonal cutbacks. Still, employment growth remains above its rate at this time last year, and demand for general clerical, data processing, and technical positions continues to be strong. Wage growth has picked up somewhat, especially for technically skilled workers such as engineers. Employment agencies also report that benefit packages at smaller firms have increased as a result of tightened labor markets. Manufacturing Manufacturing production is rising and orders growth appears to have improved a bit recently. Capital goods producers continue to be especially upbeat in their appraisal of business conditions, although materials producers also see improvement. Local reports indicate that steel demand has strengthened and prices have risen, and many District producers plan to expand their production capacity this year. Elsewhere, commodity prices were unchanged, or only slightly higher from the last District report. Manufacturing employment is steady or moderately higher, and wage increases are reported to be light despite generally tight labor markets. Still, manufacturers say that finding qualified workers remains a challenge. Retailing District retailers report mixed results for late November and December sales. While retail spending appears to have been stronger than for the same time last year, some retailers expressed disappointment in holiday-season receipts. Sales of electronics remain soft (although large-screen televisions and satellite dishes are selling well). Items in demand during the holiday season included apparel, toys, and some household goods such as appliances. There was no strong consensus that the shortened shopping interval between Thanksgiving and Christmas had an adverse effect on total sales for the period. Retail inventory levels are reported to be "on plan," in part because of conservative stockpiling prior to this shopping season. Several major retail chains have plans to open stores in the District this year, whereas very few report plans to close stores. Auto Dealers 1996 was a good year for District auto dealers. All of those surveyed reported sales at or exceeding 1995's high levels. While October and November were somewhat weaker than in the previous report, the year ended on a positive note with a surprise surge in the last two weeks of December. Overall, the auto sales outlook for 1997 ranged from uncertain to fairly optimistic. Dealers describe their inventories as marginally higher than desired, but they anticipate very little difficulty returning to preferred levels by the end of February. Still, respondents characterize the new-car market as extremely competitive. Several dealers note a drop-off in demand for used cars, breaking a two-year upward sales trend in this market. Banking and Finance Lending activity in the District was good at the end of the year, according to District bankers. Growth in consumer loan demand is moderate overall, with strong gains in seasonal credit card use. Commercial loan demand is also reported as moderate-to-strong. The growth rate of delinquencies has leveled off somewhat, with some bankers reporting a drop in past-due loans. However, many bankers note a rise in household bankruptcies, which in some cases occur without experiencing credit delinquency. Most respondents describe competition for borrowers as fierce. The spread between lending and deposit rates has tightened as depositors continue to move savings into higher yielding money-market accounts. Bankers report mixed credit quality trends: about half see no recent change, while the others see a slight deterioration. Some lenders report a tightening in credit standards for credit cards. Return to top Philadelphia Richmond