Beige Book Report: San Francisco
November 11, 1970
The general view expressed by Twelfth District businessmen and bankers is that economic conditions have not changed to any extent and that there will be no marked increase in the pace of economic activity during the next six months. At the same time, there is no expectation that general conditions will worsen. Certain weaknesses remain, particularly in those industries dependent upon housing and aerospace. Overall, there remains sufficient strength to produce a moderate growth in the economy, but not enough to result in any immediate decrease in unemployment.
The weakness in aerospace continues to be felt in the Seattle area and to a lesser extent in southern California. Boeing has carried through its announced workforce reductions. The President of Lockheed Aircraft predicted further employment reduction in southern California with no reversal of this trend until 1972. Firms in the forest industries are also cutting back, both in employment and planned capital expenditures. Additional mills have closed in the Pacific northwest and in northern California. At the moment, the General Motors strike has not had any pronounced impact in this District (except, of course, for retail car sales).
Other industries and other areas are having fewer problems, but the slowing of the economy has resulted in greater efforts to reduce costs and, in particular, to cut unnecessary staff. The tendency has been to rely upon attrition to work a gradual reduction in the numbers of employed and upon shortened workweeks to cut current labor costs. It appears that the usual hiring of temporary retail help for the coming holiday season will be under tighter rein. There is still a good demand for certain skills and so there is continued but selective hiring. Nonetheless, the overall trend of business policy is to emphasize cost reduction and the prospect is for continued. restraints on hiring in the immediate future.
The demand for housing and new construction remains weak. Increases in vacancies of industrial and commercial property are reported in Southern California and residential real estate sales continue to fall below 1969 levels. Industries supplying the housing industry are finding that their sales are much below expectations. A hardware manufacturing firm, for example, reports that the value of shipments is below that of last year despite higher prices, and there is some price cutting for large orders.
Retail spending remains a source of support. In some areas, such as Salt Lake City, sales records are being set, but this is the exception. The normal pattern has been steady demand or perhaps slightly below normal, This is true even in areas with heavy employment; in Seattle, sales so far this year are down only one percent from 1969. There are some signs of problems for consumers; some banks report that there has been some increase in collection problems for their consumer loans.
The picture of agriculture is favorable as prices have held up well, and good crops have been reported in grain growing areas. The principal exception is in certain non-citrus fruits. Fruit growers in Washington expect lower returns because of a combination of a smaller crop and heavy discounting on small sizes which made up a higher percentage of the crop than usual.
The banks report that they are in a somewhat better liquidity position and are, as a result, reducing the rates they are paying on large CD's. At the same time, they are not experiencing any significant change in the demand for loans, and they do not foresee any important increase in business loans during the next six months. The banks generally are maintaining policies of being selective in their lending policies. There are some exceptions where a bank is attempting to expand its loan business as part of a long-run expansion program.
In summary, business behavior is based upon expectations of a moderate slowdown in. the economy, at least through the end of the year. Local businessmen and bankers do not expect any marked improvements in the unemployment situation. In some cases they are pessimistic about prospects for controlling inflation, although there is now less comment upon inflationary trends in contrast to earlier in the summer when it was of much greater concern.