WASHINGTON (MNI) – The following is the first of two parts of the
text of the Cleveland section of the Federal Reserve’s Beige Book report
on current financial conditions released Wednesday:
FOURTH DISTRICT CLEVELAND
On balance, economic activity in the Fourth District continued to
expand at a modest pace. Manufacturers reported some improvement in new
orders and production. Information received from retailers and auto
dealers on the post-holiday shopping season was generally positive.
Energy production and freight transport volume were stable. Residential
and nonresidential construction remained sluggish. And while demand for
business loans showed some signs of a pickup, consumer borrowing was
weak.
Rising payrolls were limited to the manufacturing and retailing
sectors. Staffing-firm representatives noted some growth in the number
of new job openings, with vacancies concentrated in health care,
manufacturing, and professional business services. Wage pressures
continue to be contained. Reports of increasing prices for commodities
and steel were widespread. As a result, manufacturers and retailers felt
mounting pressure to pass through some of their rising input costs to
their customers.
Manufacturing. Reports from District factories indicate continued
improvement in new orders and production during the past six weeks. Any
declines were attributed to seasonal factors. Compared with year-ago
levels, production was generally higher, with many of our contacts
experiencing low double-digit increases. Manufacturers are fairly
optimistic and expect at least modest growth during 2011. Steel
producers and service centers reported that shipping volume rose, with
shipments being driven by energy-related, auto, and heavy equipment
industries. Looking forward, expectations call for continued growth
through at least the first half of 2011. District auto production showed
a moderate increase during January on a month-over-month basis. Compared
with a year ago, domestic auto makers showed a substantial rise in
production, while foreign nameplates posted a slight decline.
A majority of our contacts indicated that capacity utilization
rates continue to trend higher. Inventories remain close to targeted
levels. The number of manufacturers who expect to increase capital
spending during 2011 has increased significantly since our last report.
Reasons for the increase include stronger cash flows and a willingness
to go ahead with projects that had been postponed during 2010. Prices
for metal and agricultural commodities and steel increased, while the
cost of most other raw materials has been relatively stable. Many of our
contacts reported passing rising input prices through to their
customers. Most manufacturers said that they have expanded their
payrolls slightly since our last survey, and they expect to continue
hiring at the same pace in the near term. Wage pressures are contained.
Companies continue to reverse wage/salary cuts and restore payments to
401K plans.
Real Estate. New home construction was generally flat at a low
level during the past six weeks, with purchases mainly in the move-up
buyer categories. A few builders noted that most of their revenues now
come from remodeling work. On a year-over-year basis, sales were mainly
lower. Contractors expect construction to remain sluggish through at
least the first half of 2011. List prices of new homes and discounting
have shown little change, while some upward pressure on the cost of
building materials was reported. Little movement was seen in land
positions or spec inventories. We heard many reports of subcontractors
struggling to stay in business due to very thin margins. General
contractors continue to work with lean crews, and no hiring is expected
in the near term.
Discussions with nonresidential builders drew mixed responses, with
a majority of our contacts reporting weaker activity than a year ago.
However, the number of inquiries has picked up modestly since our last
report. Backlogs remain reasonably healthy, though two builders noted
that their backlogs are being depleted at a rapid pace. Half of our
contacts do not expect any near term improvement in business conditions,
while others are much more positive. One builder noted that he is
beginning to notice a sense of urgency to expand on the part of some of
his industrial customers. We heard widespread reports of increased
prices for building materials, with most contractors expecting continued
upward pressure. These price increases are eroding already narrow
margins. Two general contractors noted that they reduced payrolls and
may lay off additional employees if business does not improve.
Subcontractors continue to cope with very difficult industry conditions.
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** Market News International Washington Bureau: 202-371-2121 **
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