July 21, 1971
Economic activity is expanding at a gradual rate according to the directors of this bank's head office and branches. There are elements of both strength and weakness present. Construction and consumer spending continue to expand but the manufacturing sectors present a mixed picture. Labor disputes are causing some problems. Banks in general report both higher loan demand and rising deposits, and their experience is consistent with a view of overall expansion.
Consumers are continuing to increase their spending at a gradual rate. Increases over last year in the 10 per cent range are typical. This spending activity is not uniform, however. Automobile sales, for example, are described both as spotty and as improving, depending upon location.
Unemployment remains high. Further layoffs are expected in aerospace; Boeing expects to lay off an additional 8,000 to 9,000 workers in the Seattle area this year. Manufacturing does not seem to be expanding fast enough to bring about marked reduction in unemployment. Domestic demand is not that strong and in some cases foreign competition is strong. For example, steel fabricators on the West Coast are experiencing strong competition from imported steel. Labor disputes are also a factor in reducing output and demand. To obtain some supplemental information about trends in employment, our directors were asked to comment about recent and prospective changes in employment in their companies. Of the nonbank directors who commented, two planned increased hiring two were still cutting back on their work force; and five reported no change from current levels. Of the bank directors who responded, only two said that they planned some increases in their staff; two planned further reductions; and seven reported stable levels with little or no change expected.
Labor disputes are causing difficulties for some industries and areas. Strikes in the copper industry are adversely affecting Arizona and Utah. There have been stoppages of various lengths in some lumber mills and in the building trades. The strike which could cause the most disruption, if it continues, is that by longshoremen at West Coast ports. Industries exporting goods are being adversely affected and some unemployment already is reported as a consequence. This strike is not expected to be settled quickly, and therefore its effect should continue to grow.
Construction remains a source of strength throughout the District, despite recent increases in the cost of mortgage funds. Labor disputes have caused some stoppages, but these have not been prolonged in most cases. Building permits and housing starts are continuing to rise. The pace of activity is causing concern in some areas, such as Southern California, about the possibility of overbuilding of multiple units. One consequence of this rising construction volume has been a recovery of lumber and plywood prices, and greater production by the timber industry.
Conditions in District agriculture remain promising. Good prospects are reported for wheat and some fruit crops in Oregon, Washington, Utah, and Idaho. Eastern Washington did have a lighter apple crop than expected, but cold storage facilities are still being expanded.
Banks in most District states report higher levels of loan demand.
Real estate loan demand in particular continues to be strong.
Business loan demand appears to be more mixed, but overall it is
steady. In one case,
a bank reported that it is being more selective
in making loans to national companies in order to meet local demand.
Deposits are higher for most banks but interest rates also are
higher. Not only have rates on negotiable certificates of deposit
risen, but many banks have announced the restoration of the rate on
passbook savings accounts to 4 1/2 per cent, effective
August 1.