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The Fourth District economy shows mixed growth patterns. While business activity remains very strong in several industries, including construction, export-sensitive areas, such as agriculture and basic materials manufacturing, report a significant drop-off in sales and prices. Temporary employment agencies report a continued strong demand for labor, and most remain unable to fill all vacancies. Skilled office and service industry workers are in especially high demand, resulting in added upward wage pressure.
Unions report that wages are increasing in the 3% to 4% range, up from the 2% to 3% range seen in 1997. Some unions have indicated heightened concern over job security due to fierce foreign competition. Still, organized labor sources in the District continue to report shortages of skilled labor, particularly in the construction trades. Construction activity in the District is unusually brisk for the season, although the majority of respondents believe that speculative building has been on the decline. Residential building-cost increases were reported for land and, marginally, for labor. One contact estimated the growth in land prices approximately 10% for the year, compared with an estimated 3% to 5% for materials and labor. The labor market continues to be relatively tight, but increased availability of commercial masonry contractors was noted. Residential builders continue to report difficulty securing subcontractors and report upward pressure on subcontracting costs.
Agriculture
The Kentucky tobacco harvest is expected to be good-only marginally below the high level of 1997, although there remains concern over the crop's color and weight.
The District's corn harvest is abundant and ahead of schedule, with yields expected to be about 10 bushels per acre higher than last year, or about 8% above their average yield of the past five years. Projections for the soybean harvest are strong in Ohio and Pennsylvania, but in Kentucky, where weather has been considerably drier, farmers anticipate their lowest yield since 1988. Some farmers are plowing under their poor soybean yields or harvesting them for silage.
Prices for most agricultural commodities are much lower compared to a year ago. In particular, corn and soybean prices have fallen 20% to 25% from 1997.
Industrial Activity
Manufacturing activity has varied since the mid-summer. Capital goods producers are seeing satisfactory orders and production, although few sources indicate any significant growth since July. One notable exception is the agricultural sector, where equipment sales have declined rather sharply. Heavy truck manufacturing continues at a near record level of orders and production, and industry sources are revising upward their 1999 sales expectations. Automotive parts suppliers are also seeing strong order growth. Conversely, steel and chemical producers, which saw sharp declines in orders this summer, continue to report weakness resulting from import competition. Semiconductor firms, which saw a sharp falloff in orders this summer, report a small rebound in October, although business has remained significantly below last year's levels.
Sources in the transportation and shipping industries, now entering the heavy holiday season, report a moderation in traffic since earlier in the year. Nevertheless, shipping activity remains high and domestic freight prices are holding steady. Container traffic from Asia, although still very strong, has leveled off somewhat from its seasonal peak of last a month. Export activity remains weak.
Consumer Spending
Retail sales, which softened in October, picked up a bit in early November. Furniture sales have been particularly strong since the last District report, and many stores report sales running above last year's strong season. Housewares are reported to be selling well, while unseasonably warm weather is blamed for recent weak apparel sales. Retailers are optimistic about the holiday shopping season. Most expect holiday sales to be at least as good as last year's strong performance. Most stores report that inventories are "on plan" and there are no plans to alter pricing. Retailers maintain that the labor market is tight, and many expressed difficulty in finding qualified workers for the holiday season. The result is that retailers are paying up to 25% over last year's wages for seasonal help. Despite continued strong showroom traffic, sales of new automobiles have slowed significantly from their robust summer pace, even after adjusting for the industry's seasonal pattern. As a result, dealers report full-to-heavy inventory levels for most models, with the notable exception of light trucks and sport utility vehicles, where stocks remain thin. These shortages are especially acute for GM dealers, where truck and sport utility vehicle inventories are still struggling to rebuild following this summer's strike.
Banking and Finance
District lending activity is mixed for both commercial and consumer loans. Consumer loan demand is somewhat soft, though mortgage refinancing is quite strong. Demand for commercial loans has strengthened at most, though not all, of the banks contacted. Loan delinquencies are holding steady at relatively low levels, but credit quality is mixed. Some banks report a modest tightening in credit standards, while others indicate that margins are still deteriorating and competition for borrowers is very tight. One source reported an easing of competitive pressures as foreign banks have reduced their presence in the syndicated loan market.
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Philadelphia