January 20, 1999 Federal Reserve Districts Fourth District - Cleveland

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The Fourth District economy continues to grow, though industrial activity has clearly moderated in a few industries. Most sectors and regions report strong production and steady income growth. Finding enough workers to meet demand is the number one problem among temporary employment agencies. Although several agencies report increasing wages over the past month, they remain unable to fill all requests for workers. Workers with good communications skills have been in great demand recently; most agencies listed customer service positions in highest demand, followed by secretaries and receptionists. Union wage patterns are mixed, but the majority indicate little, if any, change from the 3% average reported earlier. Other sources indicate a small upward movement in wage growth to about 3 �%. Job security is still a major concern, particularly among steelworkers, for whom layoffs have increased sharply in the past month. Most shipping firms expect moderate growth in 1999 after a robust 1998. Volumes last year were quite good, aided by burgeoning catalog spending. Area freight companies note that exports continue to wane, while imports have risen further. Shippers have seen some loss of business due to decreased steel production. Construction Residential and commercial construction remained unusually strong through the end of 1998, helped in part by mild weather. Wages seem to be holding steady in commercial construction, although labor shortages and upward wage pressure still exist in some residential construction trades. Residential builders note rising land prices, while materials costs have steadied recently. The consensus among District builders is that building activity will remain strong in 1999. Industrial Activity Manufacturing activity has varied widely by industry. Steel producers report that orders, which had fallen sharply since midsummer, appear to have leveled off. Demand remains quite strong, but foreign competition remains fierce and prices are under strong downward pressure. Like agricultural commodity prices, industrial commodity prices are still falling in a number of categories. Capital goods producers indicate continued growth in orders and production, although at a more moderate pace than earlier in the year. Still, business activity in this sector remains quite good. Large truck orders remained very strong, and the orders backlog has grown to a record level. Production levels in this industry are likely to reach a near-historical high, and order books are full at least through mid-year. Consumer Spending What began as a somewhat sluggish holiday shopping season, rebounded sharply by year's end. Overall, holiday retail sales were generally characterized as strong and that strength appears to have continued after the Christmas holiday, although stores report no more promotions than in previous years. Inventory levels are reported to be about average. Furniture stores report good sales, with inventories and pricing about average for the season. Credit promotions have become more commonplace, however, due to increased competitive pressures. Retailers maintain that the labor market is tight, and many continue to experience difficulty in finding qualified workers. District auto dealers saw good-to-excellent new vehicle sales in December, with significant increases in sales volume over a year ago. Inventories were in line with sales expectations. Even General Motors dealers indicated that vehicle stocks had returned to normal following the strike-related shortages of the summer. The trend in used-vehicle sales was average-to-good last month, and generally above last December's sales pace. Banking and Finance District lending activity remains unchanged at a high level in most credit categories. Banks report a slight increase in consumer loans due to year-end car purchases. Banks also indicate that loan delinquencies are holding steady at a low level. Some District banks report adverse effects from the Asian economic crisis as industrial customers experienced falling prices and a slowdown in business growth. Although some banks report tightening their credit standards, most indicate little change. Credit availability remains high. The spread between borrowing and lending rates has narrowed further and competition for borrowers remains intense. Still, respondents indicate that lending rates are appropriate for the degree of risk. Return to top Philadelphia Richmond