Beige Book Report: San Francisco
August 12, 1970
Twelfth District businessmen are talking increasingly in terms of "running a tight ship" and "putting their house in order." With the Penn Central example in mind, corporate directors are much more careful than heretofore in reviewing the financial operations of the firms with which they are affiliated. In the words of one corporate director, "I have recently participated in discussions which were more searching, more extended, and more concerned than any before in my memory." Western firms generally are tightening their credit controls, holding down inventories, and making every effort to economize.
Retail sales remain spotty, especially in those areas which have been affected by aerospace and construction cutbacks. Consumers are neglecting higher-priced merchandise in favor of cheaper lines—or in favor of saving. In Southern California, for example, appliance sales continue weak (especially TV and stereo) and auto sales are very slow (except imports and cheaper used cars).
Pacific Northwest, Southern California and Arizona aerospace firms report continuing layoffs, and Oregon mobile home manufacturers report increased credit problems and sharp cutbacks in order backlogs. Food manufacturers report a narrowing of profit margins in almost every line, since the need to met competitors' prices makes it difficult for them to offset current wage increases. Lumber firms report a slight strengthening of lumber prices but not plywood prices. Petroleum firms say that the industry's logistics, here as elsewhere, have been distorted by the disruption of Middle East oil supplies.
Agricultural conditions were generally reported favorable, but with local spottiness. Commodities whose prices were indicated as strong (or good compared with last year) include potatoes, apples, wheat, and cattle, and harvests (or harvest prospects) are bright. On the other hand, the outlook is pessimistic for processing vegetables, strawberries, and some grains.
Most bankers are encountering a mixed picture in loans and deposits. Some banks in Southern California and Arizona report heavy loan requests for interim financing on industrial properties. A Pacific Northwest bank recently increased its credit lines to several large transportation and manufacturing firms, but refused requests from several finance firms for increased credit accommodation. No bank reported an unwelcome degree of loan decline.
For the economy as a whole, liquidity conditions generally remain tight—neither improving nor worsening to any significant degree—although District bankers report a number of problem cases. Several "go-go" land development firms in Southern California have encountered serious liquidity problems, which forced them to sell off subsidiaries to raise funds to meet their credit requirements. Liquidity problems have also been severe for some auto dealers, residential builders, and lumber brokers in the Northwest, as well as for small airlines and heavy equipment suppliers in Alaska which had expanded operations in anticipation of a quick start on the now-delayed Alaskan pipeline. Some firms in Southern California and elsewhere are "riding their suppliers," taking 60 days to pay accounts that were formerly on a 30-day basis.
In summary, Twelfth District businessmen report a continuation of the sluggish business conditions and difficult liquidity conditions of the recent past. Recent developments have led business firms to adopt a cautious attitude towards buying inventories or hiring new workers, and have led consumers to postpone purchases of high-quality or big-ticket items. Few respondents anticipate a major shift in business conditions (in either direction) over the next several months.