June 16, 1999 Federal Reserve Districts Fourth District - Cleveland

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The Fourth District economy is still quite strong, and worker shortages remain a concern for many companies. District temporary employment agencies report an increase in demand for temporary workers this quarter compared to a year ago. A typically strong demand for seasonal help has been augmented by a large, sustained rise in the demand for long-term temporary help. A large number of companies are hiring temporary workers with the hope of making the workers permanent after a short trial period. Many agencies have recently increased wages for a variety of positions. The largest wage hikes are reported for administrative assistants. Many District firms report having difficulty attracting the usual numbers of seasonal workers. Virtually every amusement company is reported to be understaffed, and some are said to be paring down their operations because of this. Although the starting wage for unskilled seasonal workers has not increased significantly, many companies indicate having boosted benefits, and some have instituted end-of-summer bonuses to attract and keep workers. Construction Although reports vary widely by company, most contacts indicate that residential construction has improved this quarter relative to the strong first quarter numbers. Labor and materials shortages continue to plague homebuilders. Skilled trades workers, for example, appear to be in short supply throughout the District, with the possible exception of northern Ohio. Still, cost increases, estimated between 2 and 4%, are relatively subdued. Commercial construction activity for the District is also mixed. One contractor reported year-over-year growth this year of nearly 20%. Another contractor described conditions as slow compared to last year. Overall, commercial construction activity has picked up from the relatively modest levels seen in the first quarter. Commercial builders report spotty materials shortages and price increases. Many say they are also being more vigilant about recruiting and retaining employees. One respondent cited a shortage of skilled manpower as the single biggest threat to his firm's future prospects. Agriculture District farmers report very favorable growing conditions, and most crops are developing faster than usual for the season. In Ohio, the planting of the corn crop is nearly complete--a month earlier than usual. Soybean crops are also well ahead of schedule and favorable reports are also heard for a variety of other crops in the state. In Pennsylvania, where rainfall has been more variable, crops are about one week ahead of schedule. Similar conditions are indicated in Kentucky, with tobacco, corn, and soybeans developing well ahead of schedule. However, some eastern Kentucky farmers are experiencing problems with crop germination because of drier-than-usual conditions. Some tobacco farmers have had to replant portions of their crop. Early June rains have alleviated some of the problem. Industrial Activity Manufacturing activity is good overall. Heavy truck production and sales are running above last year's record pace. Most capital goods makers have seen continued, strong sales and production this quarter. Commercial construction equipment manufacturing is especially strong. Even industries which had shown weakness earlier in the year, such as energy-related and semi conductor equipment manufacturing, appear to have improved a bit from earlier in the year. Modest gains are reported in the steel industry, helped in large part by the continued strength in the automobile and residential construction industries. Steel prices have risen marginally since the beginning of the year. Some business analysts caution that the recent positive developments in the industry may reflect steel customers' hedging against a potential steel workers' strike later this year. Upward price pressures are reported for industrial commodities, including most energy and metals prices. However, finished goods prices are flat, or mildly lower. Consumer Spending District retailers report very strong sales numbers for May. Specialty apparel store receipts have been exceptionally high, with several stores reporting double-digit growth compared with this time last year. Similarly, chain-store apparel sales are roughly 7% above last year's numbers. Apparel sales are expected to be strong through the season. Retailers see labor market conditions as very tight--filling positions for all jobs is difficult, and worker demand has not been adequately satisfied by the inflow of seasonal help. Still, wage pressure is said to be modest. The pace of District new-car sales was brisk in April and May. April sales were generally characterized as better than average, and the May sales numbers were universally very strong. Dealers report having sufficient stocks to meet the demand. Used vehicle sales were reported to be holding steady relative to the first quarter. Banking and Finance Lending activity in the District was mixed for commercial loans. Some banks report "phenomenally good" demand while others have seen a slower lending pace recently. Demand for consumer loans is steady at a high level. No deterioration in credit quality or changes in credit standards have been reported. Indeed, consumer and commercial loan delinquencies may have actually improved a bit in recent months. The willingness among financial institutions to lend remains high, and the competition for borrowers is still fierce. The spread between borrowing and lending rates is still thin and may have narrowed further since the last District report. Return to top Philadelphia Richmond