October 29, 1997 Federal Reserve Districts Fourth District - Cleveland

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District business conditions remain strong overall, with modest growth noted in production, orders, and employment for a variety of industries. Price and wage increases continue to be slight, and unemployment is extremely low in many areas. Temporary employment agencies are having difficulty meeting demand; a few of them report as much as a 20% increase over the previous month as employers step up seasonal hiring. Information analysts and workers for light industry are in great demand. The agencies also report increased recruiting costs. However, with the notable exception of rising salaries for workers with computer skills, no general increase in wages is seen. Organized labor reports little change from the current compensation growth trend of about 3% per year. In some cases, union contract terms have been extended to four and five years, from their more traditional two- and three-year lengths. Job security remains a focal point in labor negotiations as companies increase outsourcing, overtime, and the use of temporary workers. Manufacturing Manufacturers sustained their high output, and in some cases production strengthened a bit in September and early October. In fact, orders growth appears to have improved across a range of industries, and the orders backlog has increased slightly. Auto suppliers indicate a brisk production pace and heavy truck manufacturing is reported to be quite high. Finished goods inventories are thought to be moderate relative to sales and down slightly from midsummer. Manufacturers report generally flat commodity prices, with the exception of a slight decline in copper. Finished goods prices are also holding nearly steady. Shortages of certain workers�especially of unskilled labor�were noted, although none of the manufacturers contacted indicated upward wage pressure. Consumer Spending Retailers in the District report that sales in September were down from August and they blame unseasonably warm weather for weak apparel sales. However, retail sales are thought to have improved during the first two weeks in October, leading many retailers to anticipate a solid sales rebound this month. Recent sales growth has been led by appliances, telecommunications equipment, and toys. Inventories are considered to be "in good shape," helped partly by improved inventory management systems. Some District retailers see competitive pressures holding down price increases and do not note any large price increases from suppliers. District auto sales were off between September and early October, perhaps because of generous end-of-summer incentives designed to clear out the remainder of the 1997 model year. Most dealers expect sales to improve with the introduction of new models, for which a few specific shortages are already being seen. Agriculture The District's harvest of traditional crops is nearly complete. Drier weather in recent weeks has been ideal for harvesting, and farmers have already planted about half the winter wheat. Late plantings, combined with this summer's high temperatures, have resulted in an uneven corn crop. Kentucky and Pennsylvania's yields are almost certain to be less than 1996, whereas corn output in Ohio is expected to be as much as 50% above last year. Kentucky livestock farmers expressed concern that low corn yields may force them to buy additional feed this winter, further reducing their profit margins. Soybean production in the District is expected to be 19% higher than last year. In fact, Kentucky's crop should be the largest in 15 years. District-wide, 90% of the tobacco crop has been cut and the forecast for tobacco production is 11% higher than 1996 and its best showing in three years. Despite some adverse weather and localized diseases, 84% of this season's crop is rated as good to fair, and 10% as excellent. Corn prices received by farmers in September were mixed compared to the previous month (higher in Kentucky and Pennsylvania and lower in Ohio). District farmers saw soybean prices fall between September and August. Banking and Finance Lending activity in the District remains varied between commercial and consumer loans. Commercial loan extensions are holding steady at a good level, and a few banks even report a slightly stronger market. Consumer loan growth is still soft, however. Some banks also note a shift from consumer loans toward home-equity loans. Mortgage refinancing activity is reported to be constant at an average level for the season. Competition for borrowers is fierce, and the spread between borrowing and lending rates remains very narrow. Many medium and small banks report added competitive pressures from credit unions. The market for auto loans has been a particularly active area for credit unions. Credit standards are described as holding steady, although consumer credit delinquencies are still on the rise. Return to top Philadelphia Richmond