April 24, 2002 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

While the Fourth District economy continued to improve through the second week of April, contacts voiced some concern that the rate of improvement had slowed considerably from the pace seen during the last half of January and the month of February. Most contacts reported that growth fell short of expectations during March and through the first two weeks of April. Reports within the manufacturing, banking, and retail sectors contrasted sharply, suggesting that recent growth in the District has been somewhat sporadic in these areas. While contacts continued to say they were "cautiously optimistic" about the probability of the latter half of 2002 showing growth over the latter half of 2001, their optimism appeared to have been somewhat dampened during March and the start of April, as most contacts reported lower expectations for the year. Labor markets began to show signs of improvement during March and the first two weeks of April. Demand for temporary labor increased, and recent work orders and inquiries for temp workers suggest the higher levels of demand will persist. Job security continues to be the principal concern of organized labor, but contacts in some industries, including steel, suggested they were less "uneasy" about job security than they had been in previous reports. Other industries, such as aerospace and telecommunications, however, reported no improvement. Health care benefits remain the primary point of contention in most negotiations and renegotiations. A few contacts reported a slight increase in hours of current workers, but most industries reported that hours worked were unchanged. While modest improvement is evident, very few contacts reported intentions to hire new workers or recall temporarily laid-off workers. The exception appears to be the trucking and shipping industry, however, where contacts reported that some companies have begun to reinstate workers that were temporarily laid-off and hire new workers. For the most part, contacts across all industries expected labor market conditions to continue to improve. Manufacturing Conditions continued to improve in the manufacturing sector during the month of March and the first two weeks of April, but contacts reported several contrasts. The northern part of the District, where growth was strong in the last report, noted slowing improvements (but still expansion), a drop in new orders, and the delay of capital expenditure plans. On the other hand, the southern part of the District, which had reported relatively stagnant conditions in the last report, saw marked improvement in conditions, an increase in new orders, and growing optimism for the year. Automakers in the District reported more overtime for the month of March and the first two weeks of April than during the first two months of the year, but one automobile plant also reported closing for one week during the same time due to slumping demand for its model. In the steel industry, contacts reported that spot prices continue to improve. Most contacts estimated that spot prices were up roughly 25 percent in March 2002 compared with December 2001. Spot prices, however, are down roughly 20 percent compared with March 2000. Retail Sales Most retailers reported year-over-year increases in sales ranging from two percent to nine percent during March, but cautioned that these increases were likely due to a relatively early Easter. Most contacts expect a year-over-year decline in sales for April. Home-related products continued to sell well, and apparel retailers, who had reported poor sales at the start of the year, reported that sales increased considerably during March and the first two weeks of April. Most retailers continued to run lean inventory positions, and contacts noted that they were running fewer promotions and marking down products less than usual for this time of year. Most retailers expect flat or small gains in sales for the coming months but expect higher demand during the latter part of 2002 than was seen in 2001. Automobile dealers in the District reported a wide range of growth for the first three months of 2002 (reports ranged from a year-over-year gain of 20 percent to a decline of 40 percent for the same period). The pace of sales has been steady over the first three months of the year, and dealers reported that if sales continue to be steady throughout the year, they will meet or exceed the record sales levels realized in 2001. Most dealers, however, do not expect to meet last year's levels, stating that the strong sales during fourth quarter 2001 combined with rising gas prices will likely depress automobile sales for the last half of the year. Construction Business conditions have remained relatively stable for commercial and residential builders since the start of the year. Homebuilders reported that sales and customer traffic during March and the first two weeks of April were about equal to that seen during the same time last year, but unlike last year, most builders have resorted to offering incentives to attract buyers. Commercial builders were slightly less upbeat in this report--many were more optimistic about the outlook for 2002 in the last report, as customer inquiries had increased steadily since the beginning of the year. Most builders had expected the bulk of these projects to already be underway; however, many remain in the planning stages. Still, commercial builders expect to be very busy in the coming months. Trucking and Shipping Contacts reported moderate increases in the volume of manufacturing-related goods shipped, but noted that improvements in volumes shipped for most other goods were, at best, very modest. Although industry conditions continued to improve, profit margins remained slim. Diesel costs have risen over the past several months, and contacts reported that their energy-associated surcharges are on the rise, moving from around zero percent to two percent or more. Rising insurance costs remain a major concern for companies, and excess capacity in the industry has left companies very little pricing power. Slim profit margins have required companies to continue to be frugal when it comes to their capital expenditure plans. Banking Contacts reported that lending activity across the District accelerated, but competition for borrowers across all lines of lending continued to be very aggressive. Mortgage activity in the District increased and appeared to be shifting back towards the purchase of homes rather than refinancing of existing loans. Overall demand for consumer loans increased, but demand for commercial loans varied across the District, with some contacts reporting an increase, some reporting no change, and some reporting a decrease in demand. Reports regarding the creditworthiness of applicants also varied, with a similar number of contacts reporting improvement, no change, or a decline in the credit quality of applicants. Among consumers already holding loans, most banks reported no change in the rate of loan delinquencies, but two noted a decrease in the delinquency rate. Agriculture Winter crops are faring well, and farmers reported that livestock prices remain fair. Wet weather has not allowed farmers to begin their spring planting, but this is not yet a concern. Farmers noted mixed price trends for their inputs: although prices for nitrogen and feed for livestock have declined significantly, diesel prices have been on the rise. On balance, however, agricultural lenders reported that farmers are remaining current on their loans. Return to top Philadelphia Richmond