September 16, 1998 Federal Reserve Districts Fourth District - Cleveland

Skip to content Summary Districts Boston New York Philadelphia Cleveland Richmond Atlanta Chicago St. Louis Minneapolis Kansas City Dallas San Francisco Full report

Business activity in the District remains strong, and prices are generally flat or falling across a broad range of goods. Still, wage growth appears to have increased from earlier in the year. Temporary employment agencies report increased wages and an uptick in labor demand following a short leveling-off period. Office workers, customer service representatives, and general laborers are in high demand. Many firms, especially in the southern part of the District, report wage hikes by as much as 20% from a year ago, with much of the increase coming in the past few months. Even with the higher wages, agencies are having a difficult time filling positions. Some union sources indicated a pickup in wage growth to about 4%; others see wages growing at their longer-term trend rate of about 3%. Agriculture Although harvests are expected to be good or better for a variety of the District's crops, a falloff in crop exports and above-average yields elsewhere have put sharp downward pressure on many agricultural prices. A notable exception to this pattern is the District's dairy products, for which prices have firmed. District corn production is expected to be slightly better than last year's high levels, despite a drop in acreage planted. Corn conditions are also comparable to those of 1997, with a relatively high proportion of the crop rated good-to-excellent. Similar yields and conditions are reported for the District's soybean crop. Dry late-summer weather has favored Kentucky's tobacco crop, 56% of which is now rated in good-to-excellent condition, compared to 38% at this time last year. Farmers are also anticipating above average tobacco yields, although there is growing concern about finding adequate labor to cut and house this year's crop. Construction The overwhelming majority of respondents indicated that construction in the recent period has been brisk compared to this time even last year. There is a hint, however, that activity may be starting to slow. Moreover, several builders expressed concern that the recent drop in equities could undermine consumer and business confidence, thereby slowing the expansion of construction activity. The costs of construction projects show some upward pressure. In Central Ohio, land prices are reported to have risen somewhat, while other locations indicate a slight upward tilt to wage growth. Indeed, tight labor markets continue to be a concern in this industry. Some reports indicated that a growing number of contractors from neighboring states have been bidding on jobs in Ohio and bringing in out-of-state crews with increasing regularity. Industrial Activity Manufacturing activity in the District remains good overall, although the restraining effects of the Asian crisis are still being felt in some industries. Export markets have continued to dwindle. In the steel industry, a high level of imports, combined with newly added domestic production capacity, has softened prices. Chemical producers report that, although sales are up slightly from earlier in the year, they were still lower than expected, perhaps due to increased competition from foreign producers. Chemical prices remain flat but some firms have been having a little more difficulty in finding skilled workers. The transportation industry is still growing, although somewhat less strongly than earlier in the year. Prices have been stable and there has been no more than the usual difficulty in hiring additional workers. District railroads are reporting a good recovery after the GM strike. Consumer Spending Although sales tapered off slightly at the end of August, the retail sector continues to show strength. National retailers indicate that spending in the Fourth District has exceeded U.S. averages. Some of the District's discount stores have reported double-digit increases in sales year-over-year, while other retailers report mid-to-high single-digit sales growth. Among the various retail categories, women's apparel, jewelry, housewares, and furniture have shown substantially improved sales growth. Sales of women's accessories, fragrances, and men's apparel, however, have been sluggish. Retail contacts are generally optimistic about the important fourth-quarter shopping period, with projected increases ranging from 3% to 15% over last year. Retail inventories are said to be "on plan" with sales projections, and there is no clear indication of price alterations. Owing to sales strength and anticipation of the upcoming holiday season, retail outlets continue to add staff. Many are having trouble finding workers, however, and this may have begun to put upward pressure on wages in some cases. Auto dealers reported strong sales through August. An exception to this rule is the GM dealers; The UAW strike left them with a shortage of vehicles. In general, the strong August sales caught dealers a bit off-guard which resulted in thin inventories. Banking and Finance Demand for commercial loans continues to strengthen, with only a few banks reporting otherwise. Consumer borrowing has been flat, and a few banks report a slight softening in this credit category. While mortgage refinancing activity is still strong overall, several banks have reported a decrease over the past two months. Consumer loan delinquencies are generally steady, and a few banks have even noted improvements. Commercial loan delinquencies remain unchanged at low levels. Competition for borrowers is still fierce, and the spread between borrowing and lending remains narrow. One source indicated that deposit inflows have improved a bit as investors move funds out of equity markets. Return to top Philadelphia Richmond