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Growth in economic activity in the Fourth District has slowed, even from the moderated rates of our last report. Many manufacturing industries are showing their vulnerability to the strong dollar abroad. Labor markets are much less tight, even among the highly skilled. Retail spending is soft.
Temporary employment agencies reported mixed demand for workers. Some firms need temporary help to finish contracted work by the end of the year. Others have reduced their demand. Firms are less likely now to change a temporary hire into a permanent employee. Retail store clerks, customer service representatives, and technical assistants are in high demand. Temporary agencies reported that it is easier to find workers since the last report.
Union contracts averaged wage increases of about 3� percent. Unions have been able to negotiate larger pension increases, particularly with companies whose pension programs are well funded. The construction trades reported that shortages of skilled labor have disappeared, as firms have begun to lay off workers, such as pipe fitters and electricians, who have been previously kept on the payrolls as home building flattened out.
Construction
Residential construction remains about the same as in the last District report, with many contacts reporting the same sales figures as at the end of 1999. Builders expect conditions to stay about the same through the first quarter of 2001, even though building permits have declined a bit recently. Commercial building activity continues at a fairly steady and high level. Materials prices have generally fallen, led by lumber and drywall price declines. Land prices, however, continue to rise throughout the District.
Industrial Activity
Steel companies reported having reduced output at least ten percent, and spot prices have fallen from their April high of $340 per ton of hot-rolled steel to $230. Even with the price drop, foreign steel remains cheaper than domestic because the value of the dollar is high. Demand for domestic steel has also declined because auto manufacturers have reduced production, as have agricultural and industrial equipment makers. Only some specialty steel prices have stayed steady. Several companies have laid off workers, and others have given their employees extended vacations. Most companies reported idling some furnaces. One large company has filed for bankruptcy, and some expect others may follow. The weakness in the steel industry has also spilled into reduced coal production.
Heavy truck manufacturers continue to expect large cuts in production. Fourth quarter truck orders stand at about forty percent of first quarter orders, even though this is a time of year when firms expect orders to be at their highest. The high value of the dollar is also hurting other industries in the District, including chemical and paper producers. Capital equipment manufacturers are suffering from a general decline in new orders.
Trucking and Shipping
Demand for trucking services during November declined for all firms that we contacted. This is due to the reduced shipments of domestic manufacturers, particularly steel. High petroleum prices have helped narrow profit margins. Although few firms reported layoffs, some have reduced the schedules of their hourly employees, and none of our contacts is hiring new drivers. Our contacts expect soft conditions to last well into the first quarter of 2001.
Consumer Spending
Retail contacts reported fairly disappointing sales over the last six weeks and soft sales over Thanksgiving weekend. Many retailers expect that their year-over-year sales will be lower than last year and that holiday sales will be poor. Most contacts believe the economy is slowing. There was some hope that sales might improve for jewelry, electronics, and computers during the holiday season; however, sales of nondurables such as apparel, are not expected to pick up by the end of the year.
Domestic auto manufacturers that reduced the price of new autos saw steady sales for the last six weeks, while those who did not have suffered declines of up to 15 percent. Despite this, overall auto sales are only slightly lower than last year's record levels. However, inventories are 25 percent higher than desired. Sales of used vehicles were steady during October and November. In spite of high gasoline prices, consumers are still buying light trucks and larger autos.
Banking and Finance
The value of commercial loans holds steady although concern about their risk has increased. All of our contacts agreed that demand for consumer loans is weaker, with the exception of credit card loans. In some areas, mortgages are considerably down. Our contacts continued to attribute the sharp decline in auto loans to increased use of car company financing. Banks reported that their commercial loan portfolios, being well diversified, are not especially risky, but that specific components, such as coal and steel, are now a concern.
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Philadelphia